Thursday, June 25, 2009

Closing Down a Business

In these trying economic times, many clients have contacted us about closing down their business. One of the questions we’re often asked is, “Is it better to file a business Chapter 7 bankruptcy or just close down the business (also known as "going dark")?”

In general, if a company has assets that can be sold, or is concerned about an orderly liquidation of assets, or if they want or need an independent third party (i.e. a bankruptcy trustee) to close a business to protect their reputation in their industry, then they should consider a chapter 7 bankruptcy filing. However, for many businesses, going dark may be more beneficial and less costly. If a company wants to wind down its business in an orderly manner, the following actions should be taken by the company’s management:

1. The Board of Directors should adopt a resolution closing the business;

2. All members (in an LLC) or directors should resign from the Board of Directors;

3. The company should terminate and pay all of its employees;

4. Secured creditors (such as equipment vendors) should be notified and asked to remove their property from the company’s premises;

5. A shutdown letter should be sent to all unsecured creditors, employees and shareholders notifying them that the business is closing;

6. If shareholders or principals have guaranteed a lease, or if a good guy guaranty is in effect, the company should negotiate a settlement with their landlord; and

7. The company’s accountant should finalize and file all tax returns, which should be indicated as final returns, and all taxes should be paid.

The decision as to whether a company should file for bankruptcy or close down is a complicated one that requires assessing many variables and should be made in consultation with an experienced bankruptcy attorney. Anyone having questions regarding corporate bankruptcy or the closing down of businesses should contact Jim Shenwick.

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