Can I escape bills by opening up a new company doing the same as the old company?

[miogpsrocks]

Starting a new business by purchasing the assets of an insolvent business comes with some risk.

It can be important to remember that the insolvent business is failing to meet its obligations to its creditors for a reason. You should learn what that reason is and consider whether your like-business can succeed where the other business hasn't.

You should not consider the purchase until you have consulted at length with an experienced attorney in your area. A purchase agreement must be drafted with care.

Following is a link to a Utah case that gives a look at some of the potential problems. There is probably a better case to review but the Analysis starting at paragraph 8 is informative.

Thank you. This information is very informative and I think prove what I have been saying from the outcome of the case and why they were unable to make the link between companies.

 

[miogpsrocks]

No she is not an attorney. Not at all. She has NO legal knowledge quite frankly as her responses here show. The attorneys are Latigo, Taxing Matters and I. Re the bolded -- ****** Shkreli did that... and you know where he is going? 7 years in prison. Trump claims to use the laws to make money and he has declared bankruptcy four times and cheated various people and been found to be discriminatory in his business practices by the feds. I can continue.

Please continue.

She is right on the money and absolutely right. I have been studying this one issue and reading court cases dealing with the subject which all backs up what she is saying. Lawyer or no Lawyer, she has hit the nail on the head.If you have information to the contrary, please let me know. Case law after case law has all proved this in a vast majority of states with the exception of a very few. In a nutshell, No common ownership + paying fair market value = no liability for new company.

I'm not sure how Trump got dragged into this but I will say that Trump is a business genius who has the results to prove it. People may not understand in the moment what he is doing but when the smoke clears, he usually comes out ahead. Just look at mar-a-lago, he paid like $7 million and now its worth between $200 to $300 million. Declaring bankruptcy is not illegal and allows a company to get back on its feet and keep the creditors at bay. These creditors are not some babe in the woods but very aggressive and sophisticated institutions bankers.


I think you may be getting confused by the term " Fraudulent" in Fraudulent transfer act". Fraudulent infers crime/jail/prison. However in Utah, it was renamed the " voidable" transfer act because they are saying the transaction is voidable as more accurately describes it, not really fraud. I'm guessing that is how you tied Shkreli into this because he was convicted of Fraud or are you saying Shkreli started a new company, purchased assets but not liabilities from other companies and went to jail or just because the use of the word fraud ?

I defy you to show me case in which someone without a common owner and paying fair market value was held responsible for buying the assets and not the liability of a company using the traditional 4 exceptions as show as figure 8 on the analysis.
https://law.justia.com/cases/utah/court-of-appeals-published/2004/decius122304.html

Please prove me wrong.

Thank you.

 

[miogpsrocks]

The employees are assets whose contracts can be purchased. In fact, the seller may insist on selling all contracts (including supplier, etc).

There are two parties to any agreement. miogpsrocks may have to take on some of the liabilities if he wants to purchase the assets.

By the way, LdiJ, I reported your other post for its content. You said some pretty foul things about the attorneys in this thread. Not smart.

Ohiogal was referring to LdiJ in her post, by the way. LdiJ has no legal education. Ohiogal also did not list all of the attorneys who post to this forum or who have been vetted by FreeAdvice. She has named those who are most vocal about their law degrees, though.

A new company buying assets does not carry the liabilities except for 4 exceptions. The short version is that no common owner+paying fair market value for assets= no liability from the previous company to the new company.
The " fraudulent" transfer is more aptly named " voidable transfer" Its not the type of fraud that you go to jail for, its the type of fraud(which is really the wrong word) for not paying fair market value and having the transaction voidable.

Sometimes the Nurse is correct and the Doctor is wrong.

In this situation, LdiJ was right whereas some of the so called lawyers on here were wrong. The facts speak for themselves. The case law does not lie here and they all backup what she was saying 100%. Just like you can't hold the son responsible for the crimes of the father, you can't hold company B responsible for the liability of Company A. Companies have the same rights are people under the law.

If you want to report someone, you should report the so called " lawyer" who said

" It doesn't speak well of your business acumen. In fact if you a modicum of business experienced you might well know of such laws that permit the voiding of transfers of a debtor's assets made in fraud of creditors. All fifty states have them." When he turned out to be wrong, an I (and others on here) have turned out to be right. Notice how he has not followed up to disprove the fact that no common ownership+paying fair market value=not liability for the new company? I would accept an apology if he is offering one.


Let me ask you, can you prove otherwise? I see the proof in every case study and in real life example done by very smart CEO's and I have been reading up on this issue for a while now.

Thanks.

 

[miogpsrocks]

LdiJ and STEPHAN are not entirely off base with their posts, as a note. Business assets can be, and often are, bought and sold.

What miogpsrocks wants to do can be doable but from his postings he seems ill-equipped to do it without outside legal help.

And, if he has no knowledge of the business he is looking at purchasing/starting, I predict he soon will be looking for a buyer for these assets he purchased, when his new business starts to rapidly circle down the drain.

Why would you expect that to happen? Why would my business rapidly circle down the drain?

As you have come to admit, what I am suggesting is possible and a very smart move. Any business has risks and purchasing one that is failing to begin with is even more risk however what give it a fighting chance is removing those liabilities. There is a certain type of company that this will work with. The company would have to be viable on its own with decent revenue stream however failing due to massive debt.

Why are you wishing me to fail because I prove a vocal lawyer on here wrong about being able to buy assets without liabilities?

That seem to be in bad form. I have asked everyone who doubted this to prove me wrong with a case example but no one has been able to. No common ownership+pay fair market value= no carry though liabilities in the majority of the states that use the traditional method test.


Thanks.

 

[LdiJ]

The employees are assets whose contracts can be purchased. In fact, the seller may insist on selling all contracts (including supplier, etc).

There are two parties to any agreement. miogpsrocks may have to take on some of the liabilities if he wants to purchase the assets.

By the way, LdiJ, I reported your other post for its content. You said some pretty foul things about the attorneys in this thread. Not smart.

Ohiogal was referring to LdiJ in her post, by the way. LdiJ has no legal education. Ohiogal also did not list all of the attorneys who post to this forum or who have been vetted by FreeAdvice. She has named those who are most vocal about their law degrees, though.

I am frustrated with this thread because the attorneys who are posting on it are dead wrong...and so is almost everyone else. What I saw quoted on this thread was entirely wrong. Latigo, as we all know is OFTEN dead wrong, and was dead wrong on this thread.

It really IS a common business practice to purchase only the assets of a small business. It would take only a small amount of research for all of you to see that, but it appears that everyone prefers to disagree with me whether it causes them to give bad information to a poster or not. That is really unfair to the posters.

When a failed business is liquidated they get pennies on the dollar to be able to put towards the debts. Selling the assets at fair market value to someone who wants to use them to do a similar business or a business using similar assets is a way to generate a lot more cash for the creditors than a liquidation.

 

[HRZ]

OP ...I can suggest from having participated in perhaps 40 acquisitions of small firms in a dozen or so states...the details matter a whole lot ...and you best invest in some serious legal talent licensed and seasoned in UT BEFORE you jump into this one .

And I assure you that the best of the B schools does NOT prepare you for the legal details involved

OP...you may have a decent business model in mind but you need some solid technical legal skills aboard to get there .

 

[quincy]

I am frustrated with this thread because the attorneys who are posting on it are dead wrong...and so is almost everyone else. What I saw quoted on this thread was entirely wrong. Latigo, as we all know is OFTEN dead wrong, and was dead wrong on this thread.

It really IS a common business practice to purchase only the assets of a small business. It would take only a small amount of research for all of you to see that, but it appears that everyone prefers to disagree with me whether it causes them to give bad information to a poster or not. That is really unfair to the posters.

When a failed business is liquidated they get pennies on the dollar to be able to put towards the debts. Selling the assets at fair market value to someone who wants to use them to do a similar business or a business using similar assets is a way to generate a lot more cash for the creditors than a liquidation.

My post was actually agreeing with what you and STEPHAN wrote, LdiJ. Did you read what I posted?

Did you read the case I linked to in my first post in this thread?

Starting a new business with the assets of the old can be done but there are exceptions when it comes to the liabilities of the old business and who can be held responsible.

The new company can be responsible for the liabilities of the failing business if the purchaser agrees to assume the debts, of course. But the new company also can be held responsible for the debts if there is a merger or consolidation of the new company and the old. The new company can be held responsible for the debts if the new company is merely a continuation of the old company (perhaps under a new name). And the new company can be held responsible for the liabilities of the failing company if the sale/purchase is a fraudulent attempt by the old company to escape paying debts.

miogpsrocks, my concern for you is not in buying up the assets of a failing business. Buying up assets is the easy part. My concern for you is in starting a new business that is the same as the old one that failed, especially when you admit to knowing nothing about that particular business. Hiring the same employees, for example, can be risky because these employees could be part of the reason for the failure of the old business. You need to learn WHY the business is failing before you can hope to make your own business successful.

I could buy up all of the assets of Toys R Us and hire the same employees and unless my business model is vastly different, I will probably find myself in the same situation Toys R Us is in - unable to compete with the Targets and Walmarts.

So, once again, what you want to do is DOABLE. It can be done. But you would benefit from professional legal assistance in your area. You are not going to find what you need on a forum.

Good luck.