Selling a Company, Winding Up Business Affairs and Bankruptcy

Business planning is required to effectively wind up a business.

Achieve the maximum value for the sale or liquidation of a business through planning that includes proper valuations and assessing all available options.

An entrepreneur can exit a business enterprise by either selling it, closing it and liquidating its assets. State and federal courts are also available to assist a firm in winding down or reorganizing a business enterprise.

Closing Business Plan and Business Valuation

Write a closing business plan that includes an itemization of all business assets and liabilities. In planning the closing, seek advice from all the business owners, board of directors, legal counsel and other professional advisors.

A business closing plan should include the value of the business. Keep in mind that business going concern value is a firm's intangible value. This is different from the value of a firm's tangible assets. It is hard to value without professional valuation knowledge and standards. Hire a professional valuation company. This provides the most accurate valuation assessment. Contact your local Better Business Bureau or an organization such as the National Association of Certified Valuation Analysts (NACVA) to find a licensed professional.

Settling Business Debts and Business Liquidation Auctions

A business liquidation auction is a private procedure for selling business assets. It will eliminate any going concern value that could have been recovered in a sell or merger, but will recover some cash from tangible business assets.

Negotiate with creditors regarding existing business debts. It is not easy haggling with creditors to reduce debt during a company closing. It is worth asking for a reduction in debt depending on the levels of liability. Some creditors are willing to make concessions in this area depending on the conditions and prior business relationship.

In winding down a business, draft a closing letter to business clients and associates. Also, comply with the business record retention requirements that may be applicable by law.

Chapter 7 and Chapter 11: Business Bankruptcy in Federal Bankruptcy Court

If the assets of the business are less than its financial liabilities and creditors are not being paid the business is insolvent. A federal bankruptcy case may assist in either reorganizing under a Chapter 11 or liquidating the business under a Chapter 7. Claims from creditors, investors, shareholders, customers, employees and taxing authorities will all be considered in either a liquidation or reorganization. The automatic stay from creditor collection procedures is one relief these court procedures offer business debtors.

A Chapter 7 business debtor petitions the court to assist in liquidating the business enterprise in an orderly fashion. One of the goals of a Chapter 7 business debtor is to liquidate the business assets and provide relief to the firm and business owners from creditor liability after the liquidation. A bankruptcy trustee is appointed to the court proceeding to insure that all conditions of the bankruptcy proceeding is adhered to by the business debtor. This ensures that all creditor claims are considered and properly settled.

After filing Chapter 11 petition, a viable plan of recovery must be timely filed for approval by the court. It greatly helps when the major creditors approve the Chapter 11 plan submitted by the debtor. Creditors can also file competing plans. A Chapter 11 reorganization designed specifically for small businesses is available. Also, as long as certain conditions are met, a business debtor may serve as a debtor-in-possession during the course of the court-assisted business reorganization. This allows the business to operate without full trustee oversight over daily business affairs.

State Court Procedure of Assignment for the Benefit of Creditors (ABC)

Consider an Assignment for the Benefit of Creditors (ABC) as as another tool to manage the closing of a business enterprise. While a bankruptcy is governed by federal law, an ABC is governed by state law and occurs in state court. Depending on the business, an ABC may offer a better alternative to a federal bankruptcy proceeding. It is sometimes said to be faster and less expensive. Consult with a local lawyer before making this decision.

General Disclaimer: This article is for informational purposes only and should not be used as a substitute for legal or tax advice.