Legal Question in Bankruptcy in California

Hello,

I have posted this question under Civil Litigation however I have already received a response indicating I need to contact a firm in my area specializing in bankruptcy law; thus, I am re-posting under Bankruptcy Law hoping to receive responses from bankruptcy lawyers practicing in the area.

Our company, a California located LLC start up, is considering filing for bankruptcy. The founder has patents under his name for the products the company sells; it is in our legal agreements that those products will only be sold by this company as it was required by the investors. The sales have been rising steadily however there are too many payables for the company to deal with. Devices are marketable though and we consider filing for bankruptcy with this company and starting a new company that would sell the same products.

1. What would be the legal implications of such a decision for the company and the founder himself given that:

- the founder holds the majority interest in the company - almost 50%

- the second largest investor (20%) would at present support such a decision

- additional 10% of interest in the company is held by 'friendly' investors who would not litigate.

2. Is there a way for you to give us a ballpark figure for filing for bankruptcy, including legal fees, under the circumstances?

We can't continue the way it is and at the same time we just can't lose 10 years of work put into developing the products - most of the work has been done by the founder years before the company started operations.

We consider having our second largest investor, located abroad, forming such a new company, in which case we would become the sole distributor of the products. We could incorporate abroad if we found that helpful.

We would appreciate your insight.

Thank you for your assistance.


Asked on 6/29/11, 3:40 pm

1 Answer from Attorneys
Todd Mannis Law Offices of Joseph A. Mannis

If you'll pardon answering your question with my own, it all depends...

Are the shares publicly traded? Doesn't sound like it, but wanted to be sure.

Does the corporation have any assets?. If it does, and it files a Chapter 7, which is what one would gather from your post since you mention shutting it down, keep in mind that any assets the corp has become property of the bankrupty estate and thus may be taken by the Trustee and liquidated. Unlike a personal bankruptcy, there are no exemptions with which to protect assets.

Is the corporation shut down? As mentioned above, it must not be operating in order to file a Chapter 7.

Has there been a resolution on the part of the Board of Directors to file the BK? Not necessray that that has already been done, but will have to be at some point.

Finally, there is no discharge in a corporate bankruptcy. What exactly are we trying to accomplish?

If that sounds vague, its because it is. A bit too complex to answer in a paragraph without talking more about it. Feel free to call if you want to discuss this further.

Todd Mannis, Esq.

Tel: (818) 591-9890

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Answered on 6/29/11, 3:55 pm


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