Missouri Finally Has a New Statute Governing Receivers and Receiverships

A. Thomas DeWoskin

By A. Thomas DeWoskin



As most commercial attorneys in Missouri know, the previous Missouri statute governing receiverships, which was enacted in 1939 and consisted primarily of one sentence, provided very little guidance to attorneys, judges, or the parties involved.  Missouri’s new receivership statute solves that problem.  Effective August 28, 2016, and consisting of some 34 sections, the statute now provides guidance regarding the appointment of a receiver, the powers of a receiver, the rights and duties of the parties, and claim and distribution procedures.

A petition to appoint a receiver is now an independent cause of action.  It does not need to be merely an “add on” request to some other claim the creditor has against the debtor.  Receiverships can be instituted in order to dissolve an entity, enforce a lien, enforce a judgment, and other specific purposes, as well as any other situations in which the court may find a receivership appropriate.

Commencing a receivership is also a useful new way to resolve an ownership dispute or allow a majority shareholder to challenge a misbehaving management without destroying the business.

One of the most important improvements in Missouri’s receivership process is the requirement of notice to debtors.  Continue reading »

Your Restaurant is Failing – Now What?

A. Thomas DeWoskin

By A. Thomas DeWoskin



Restaurants fail for a variety of reasons, from failure to watch costs to failure to develop the right menu to a nearby construction project eliminating most of your on-street parking.  If you followed the tips in my previous article, you should have some money to rely on going forward.

If your financial problems are operational or managerial, one of the things you can do at this late stage is to hire a consultant to help you tweak your menu, streamline your operations, or take any of a number of additional steps to bring you back to profitability.  This is the time to be humble, rather than arrogant – ask for help!  You should also consult with a bankruptcy lawyer at this point.  That does not mean you are necessarily going to file bankruptcy, but an attorney knowledgeable in this area can tell you what to expect if different scenarios unfold. Unanswered ‘end-game’ questions will add to your stress and divert you from your primary mission of saving your restaurant. You can learn a lot of useful information for not a lot of money, and gain some peace of mind as well.

A bankruptcy attorney also can help with your current problems. For instance, the attorney can negotiate with the landlord, either to reduce the rent or give back some space.  He can negotiate with your lender and your suppliers to negotiate better terms, or a temporary break in your monthly payments. Continue reading »

Opening a Restaurant: Plan for Success – and Failure, Too

A. Thomas DeWoskin

By A. Thomas DeWoskin



Failure is a topic most restaurateurs would prefer to avoid when setting up a new venture, when their heads are full with visions of success. However, the restaurant business is tough, and problems can arise due to circumstances both within and outside of your control.

A great time to protect yourself from potentially devastating problems is now, while you are setting up your business and you can plan calmly.

In this post, I will discuss several of the initial legal steps you can take to prepare for a potential failure.  In my next post, I will turn to the ramifications of failure and what actions you can take at that time.

First, consult an attorney to prepare your initial legal documents.  There are many issues of which you may be unaware, or that you may not know how to resolve. You need to choose an appropriate legal structure and learn about human resource issues. Especially if you have a partner, you will want to deal with buyout issues, succession issues and how to handle deadlocks if multiple owners are unable to reach decisions on major issues.  As they say, an ounce of prevention is worth a pound of cure. Continue reading »

Inherited IRAs – Once Protected – Now Possibly Fair Game for Creditors

A. Thomas DeWoskin

By A. Thomas DeWoskin



You should read this article if  –

  1. You expect to transfer funds to your descendants through an individual retirement account (IRA); or
  2. You have inherited an IRA from a relative.

The U.S. Supreme Court has ruled in Clark v. Rameker that the money in an inherited IRA does not qualify for the protection from creditors as provided in the Federal Bankruptcy Code.[1]

The Court concluded that funds in an IRA which was inherited from someone else are not really retirement funds.  It gave three reasons for this conclusion.  The holder of an inherited IRA:

  1. Can never invest additional money into the account.
  2. Is required to withdraw money from the account, no matter how far away retirement may be.
  3. May withdraw the entire balance of the account at any time – and use it for any purpose – without penalty. Continue reading »

False Economy: Why Saving a Few Dollars on Legal Fees Now Can Cost You Big Later

A. Thomas DeWoskin

By A. Thomas DeWoskin



 

 

  • You’re about to sign a lease for your company’s new premises. Should you have a lawyer review it, or save the money?
  • You’re about to sign an employment agreement with your new employer. Should you have a lawyer review it, or save the money?
  • You and your best friend are going to start a new business. Should you have a lawyer advise you, or get the forms off the internet and save the money?

Both in jest and with some seriousness, business people, especially entrepreneurs, tend to view lawyers skeptically. Their perception is that lawyers run up fees, make simple transactions complicated, and sometimes cause deals to fall apart completely with all of their questions.

This is a short-sighted view of how attorneys can help you and your business. Experienced business minds understand that lawyers, when properly used at the beginning of a transaction rather than later after problems have developed, can be problem avoiders. And a problem avoided can be big money saved.

In the lease situation above, for example, your lawyer would be sure that you signed the lease in such a way that only your company, not you personally, would be liable. She might negotiate a provision that you don’t pay any rent while the space is being readied for your occupancy or for reduced rent if the landlord doesn’t provide promised services. An experienced attorney has seen a lot of leases, and knows the traps they often contain.

Lawyers aren’t deal breakers. Their job is to point out the potential risks in a transaction so you, the client, can decide whether those risks are worth the potential benefits of proceeding. If the risk/reward ratio isn’t to your liking, then YOU break the deal. If the risk is acceptable, then you proceed. In either event, you have made the decision in an informed and practical manner. You are in control; your lawyer, like all of your professional service providers, works for you. Your attorney’s role is to provide advice, share wisdom and insight, and help you make the business decisions. Continue reading »

Protecting Against Preference Demands in a Bankruptcy Case

A. Thomas DeWoskin

By A. Thomas DeWoskin



I just came across an article on guarding against preferential transfers. If you own a business and one of your customers files bankruptcy, not only are you likely to lose the money the customer currently owes to you, but you might also have to give back some money you’ve recently collected! The bankruptcy laws may deem those payments to be “preferential payments” or “preferences,” which have to be returned to the bankrupt company or to its Trustee. The bankruptcy laws on preference recovery are some of the most unfair laws around because there is no “preferring” requirement to a preference. It’s all just a matter of timing.

If you receive a demand to return a preferential transfer, see a qualified business bankruptcy lawyer immediately. This is not a matter for a consumer bankruptcy lawyers who file cheap bankruptcies for people that have too many credit cards.

There are several defenses to a preference demand. The most common involve “new value” and the “ordinary course of business.”

The “new value” defense is pretty simple – if the debtor paid you an old $10,000 account receivable before it filed bankruptcy, the payment might be recoverable from you as a preference. If, after you receive the money, you extend $10,000 in additional credit, the “new value,” to the debtor, they cancel each other out. Obviously, that defense is a matter of luck, since you don’t know when or if the customer is going to file bankruptcy.

The “ordinary course” defense, however, is something you might be able to prepare for. The bankruptcy laws provide that payments in the ordinary course of business are not recoverable preferences. If you regularly bill your customers on thirty-day terms and it regularly pays according to terms, those payments are being made in the ordinary course of business, the payments you received before the bankruptcy filing generally are safe.

But suppose your customer starts to pay more slowly, or only makes partial payments. You, being a good business person, react to protect yourself. You put the customer on fifteen-day terms, or demand that it provide collateral for future shipments, or take some other action to insure collection. You’ve done the right thing, but future payments are no longer being made in the ordinary course of business! By taking responsible action, you’ve made yourself liable to a preference demand if your customer files bankruptcy.

So – what to do? You try to turn the “out of the ordinary” into the “ordinary”:

  • First, make your best efforts to keep the customer as close to ordinary terms as possible for as long as possible.
  • If these efforts are not successful, at least try to keep the customer within industry standards.
  • If neither attempt works, institute the new terms at the first sign of trouble. If enough time passes before the bankruptcy filing, the new terms will have become the ordinary terms.

As an additional option, you could enter into a new contract with the customer. The new contract could set out the new terms, and provide that you are not obligated to sell to the customer at all. If you choose to sell, however, these are the new ordinary terms of the arrangement.

Being forced to return substantial preferential payments can send your business into bankruptcy itself. Be sure that your accounts receivable staff is sensitive to customer behavior, to the industry’s rumor mill, and anything else that may suggest coming trouble. Review the situation with a bankruptcy attorney to discuss what strategies your company could take, and stay off the receiving end of preference demand letters.

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