If your company is overwhelmed with debt, it might have crossed your mind closing your business and to open a new one which conducts the same course of business. However, this method may not shield your new company from creditors and could potentially violate the law. Instead, consider alternative strategies that allow you to continue operating your business legally and efficiently.
If you are a business owner and find yourself struggling to repay business debts, consulting a business law attorney can provide valuable guidance and help you explore your options.
I. Florida Fraudulent Transfers Act
A fraudulent transfer is made if a debtor has the intent to defraud a creditor. Therefore, intentionally closing a company and starting a new one to evade repaying creditors can lead to serious legal consequences. In determining whether you have made a fraudulent transfer, a court would consider whether your business conducts the same course of business, utilizes the same assets, employs the same personnel, or occupies the same location as the previous business. Affirmative answers to any of these questions could indicate a fraudulent transfer, enabling creditors to claim the transferred assets and potentially any new assets acquired by the business.
II. An Alternative: Clean the Slate
A. Bankruptcy Proceedings
Filing for bankruptcy is a challenging decision, but it may be the most effective way to break free from an ongoing debt cycle and get a fresh start. There are several types of bankruptcy proceedings to consider:
- Chapter 7 involves liquidating assets to repay creditors and is ideal if you decide to close your business permanently.
- Chapter 11 focuses on restructuring debts to keep the business operational. It allows for reorganization and the creation of a manageable repayment plan, making it the best option for those aiming to continue operating their business.
- Chapter 13 involves gradually repaying debts over time, typically suited for individuals rather than businesses.
Choosing the appropriate bankruptcy option depends on your specific circumstances and long-term goals for your business. Consult a business law attorney if you are considering bankruptcy proceedings.
B. Negotiating with your Creditors
Informing your creditors that you plan to close your business may prompt them to consider legal action to recover the debt owed. However, it may be worthwhile to negotiate with your creditors by offering to repay a portion of the amount owed or an amount you can afford. Creditors may accept such an offer to avoid the lengthy and costly process of litigation.
This approach can help you bypass the complexities of bankruptcy and resolve matters more efficiently, provided your creditors agree. Engaging an experienced business law attorney to negotiate on your behalf can be highly advantageous, as it removes the emotional burden of business closure and ensures professional handling of the negotiations.
III. Conclusion
Bankruptcy can be an emotional and daunting process – choosing the right attorney to represent you can bring security back to your professional life. If you are contemplating closing down your business or bankruptcy proceedings, do not hesitate to contact one of our experienced business attorneys at EPGD Business Law, with offices in Miami, FL, Washington, D.C., New York, NY and West Palm Beach, FL. Call us at (786) 837-6787 or email us to schedule a consultation.
