1. © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

2. 17
Chapter
Ending The Venture

3. Bankruptcy Bankruptcy Act (1978 & 1984) Chapter 7 – Liquidation (70%)
Fair Distribution To Creditors
Protect Debtors- Unfair Depletion & Demands
Chapter 7 – Liquidation (70%)
Chapter 13 – Installment Payments (29%)
Chapter 11 – Reorganization (1%)
Prepackaged Bankruptcy

4. Bankruptcy’s Lessons Overextension To Markets
Protects From Creditors Not Competitors
Entrepreneur = Business
Recognize Failure Too Late
Emotionally Painful

5. Chapter 11- Reorganization
Least Severe Alternative- “Breathing Room”
Cash Flow Problems Can Be Overcome
Plan Prepared & Approved By Court
Extension- Postpone Claims
Substitution- Exchange Something For Debt
Composition- Prorated Settlement

6. Bankruptcy Survival Bargaining Chip- Restructure And Reorganize
File Before Failure Of Cash Or Revenue
Chapter 11- Only If Chance Of Recovery
Examination Of Transactions For Fraud
Maintain Good Records
Understand Completely
Transfer Litigation To Bankruptcy Court
Realistic Reorganization Plan

7. Chapter 13- Extended Payment
Budgets Future Income To Outstanding Debt
Payment Of All Priority Claims

8. Chapter 13- Priorities Secured Creditors Administrative Expense
Claims From Operations
Wage Claims
Contributions To Benefit Plans
Claims Of Consumer Creditors
Taxes
General Creditors

9. Chapter 7- Liquidation Voluntary vs. Involuntary
Involuntary Requirements
Debts Not Being Paid When Due (1 – 3 Creditors)
Custodian Appointed
Fair Value Of Assets < Debts (Balance Sheet Test)

10. Bankruptcy Trustee Elected By Creditors- Interim Appointed By Court
Becomes Owner Of All Nonexempt Property
Can Set Aside Petitions
Transfers Property To Creditor

11. Strategy During Reorganization
Prepare Plan
Sell Plan
Communicate
No Checks That Can’t Be Covered

12. Reducing Risk Of Failure
Avoid Excess Optimism
Prepare Good Marketing Plan
Make Good Cash Projections
Keep Abreast Of Market
Identify Business Stress Points

13. Bankruptcy Warning Signs
Financial Management Lax
Inability To Document/Explain Transactions
Large Discounts To Speed Up Cash Flow
Contracts Below Standard Amounts
Bank Wants Subordination
Key Personnel Leave
Lack Of Materials
Unpaid Taxes
Demand For Cash Payment
Customer Complaints Increase

14. Failure Reality Consult with Family/Friends Seek Outside Assistance
Drop Venture That Is Draining Resources

15. Succession Planning Issues
Senior Management Committed To Plan
Well-Defined Job Descriptions
Open Process

16. Succession Planning Transfer To Family Member Transfer To Non-Family
Role Of Owner- Full-Time/Part-Time/Retire
Members Able To Work Together?
Income
Transition Business Environment
Loyal Employees
Tax Consequences
Transfer To Non-Family
Train Key Employee- Retain Some Equity
Retain Control- Hire Manager
Sell

17. Harvesting Direct Sale Employee Stock Option
2-3 Year Plan to Sell To Employees
Create Trust Fund
Management Buy-Out- Based On Value Of Goodwill & Asset Appraisal

18. Direct Sale Requires Time & Planning Buyer Payment Method
Business Broker
Business Plan
Employment Contract
Covenant Not To Compete