Once a business owner decides to liquidate his or her business for financial or other reasons, there are choices to be made as to the method of liquidation, including supervised liquidations: bankruptcy (Chapter 7), an assignment for the benefit of creditors (ABC) or a receivership, and self-managed liquidations: ranging from asset or business sales to mere abandonment. Supervised liquidations transfer the responsibility for the liquidation to a third party leaving the owner without control, while a self-managed liquidation allows the owner to control the liquidation as much as possible but retaining responsibility. Each has its own risks and benefits, including:
- Timing. As a supervised liquidation must meet statutory and common law notice and timing requirements they often take longer, while with a self-managed liquidation the owner or the market drives timing.
- Costs. Professional and other fees can be substantial in a supervised liquidation, but they can be more manageable and controlled in a self-managed liquidation.
- Notoriety. A bankruptcy is a public proceeding and an ABC requires notices and publications, but a self-managed liquidation can be more discrete.
- Disruption. It is easier to maintain your business’ operation during a self-managed liquidation.
- Control. While a prepackaged bankruptcy or ABC is possible, there is no guarantee of the same level of control that a self-managed liquidation can provide.
- Coercion. A bankruptcy trustee, ABC assignee or receiver can stay or delay creditor actions, but a self-managed liquidation requires creditors to voluntarily agree to stay proceedings.
- Liability. Since the owner is not in control of the liquidation, the result is generally final and limits claims of illegal preferences or fraudulent transfers. Not so with self-managed liquidation.
- Responsibility. The owner or designated party must commit the time and expertise to a self-managed liquidation and bares the responsibility.
A business owner has many issues to consider in deciding on how to liquidate a business and the value of experienced and timely legal and other professional advice cannot be understated. As the attorneys of Brooks, Tarulis & Tibble, LLC have substantial experience in business sales and liquidations, please call us with any issues or questions.