Small Business Liquidation in South Carolina
If you are closing down a business, we’ll protect your legal interests
Unfortunately, for far too many small business owners, the dream of a long-lasting, successful company doesn’t always become a reality. Perhaps you have been forced out of business by changing market conditions, lack of financing, or other factors beyond your control. Or perhaps you don’t want to be a business owner anymore and are taking your career in a new direction.
Whatever the circumstances, you need to go through the process of closing down your small business, and a critical part of that process is liquidation: selling off your remaining business assets and paying your creditors. Liquidation is an intricate process, and you need to proceed with caution to protect your finances and avoid legal liability. The experienced South Carolina small business liquidation lawyers at Benjamin R. Matthews and Associates can help.
What is business liquidation?
Liquidation is simply the process of converting assets into cash. Business liquidation is the process of selling off the assets of a business and paying off creditors with the proceeds from those sales. Liquidation is one part of the larger process of closing a business, which also includes dissolution – shutting down and deregistering the business itself.
There are several ways liquidation can be administered. As a business owner, you can manage liquidation yourself, or you can have a law firm manage the process. If you file for Chapter 7 bankruptcy (more on that in a moment), the bankruptcy trustee will manage liquidation. Either way, during liquidation, the business ceases normal operations (with a few exceptions, such as collecting rent) and focuses entirely on selling off the remaining assets.
What types of assets are sold in liquidation?
Any tangible property the business owns should be sold in liquidation. Such assets include but are not limited to:
- Equipment: computers, tools, machinery, appliances, credit card readers, etc.
- Furniture: desks, office chairs, tables, etc.
- Vehicles owned by the business.
- Inventory: materials, unfinished goods, unsold merchandise, and so on.
- Real estate.
- Intangible property, such as contracts with suppliers or customers, your customer list, and intellectual property.
Leased property is also included in liquidation. Depending on the terms and length of the lease, it’s often in your interest to buy out the lease so that you can sell the property for full market value.
How are assets sold in liquidation?
There are numerous ways to sell off assets in the liquidation process, depending on the type of asset. Some methods include:
- Negotiated sales to known entities such as your suppliers, competitors, customers, or landlord.
- Consignment sales via a local dealer who sells them and pays you back after the sale.
- Sealed bid sales to protect confidentiality.
- Internet sales to offer your assets to a broader national market.
- Retail sales, if your business produces consumer products.
- Public auctions, which can produce very quick sales.
- Donations to charity for a tax deduction if the assets are difficult to sell.
Each type of sale has advantages and disadvantages, and which options are available to you will depend on the situation. One of the reasons it’s important to work with an experienced small business liquidation attorney is that we can advise you on the legal implications of each type of sale.
Who gets the proceeds from a liquidation sale?
Usually, businesses that are liquidated also have significant debt. Often, they are insolvent – they do not have enough funds to pay off their financial obligations. As such, the main recipients of funds from liquidation sales are creditors, with leftover funds going to other stakeholders.
- Secured creditors: creditors who hold debt with collateral, such as a mortgage or auto loan, are entitled to sell the collateral separately from the rest of the liquidation. They are then entitled to proceeds from liquidated assets to pay off the rest of the loan.
- Unsecured creditors: in addition to banks and credit card companies, unsecured creditors might include the government (if you owe unpaid taxes) and employees (if you owe unpaid wages).
- Shareholders: most small businesses don’t have shareholders, of course, but if your business is an exception, the shareholders are entitled to the leftover liquidated assets. Assets typically go to investors in preferred stock first, followed by investors in common stock.
- Business owner: if there is anything left over after paying all creditors, it goes to the business owner.
Chapter 7 bankruptcy and business liquidation
Like individuals, businesses can file for Chapter 7 liquidation bankruptcy and liquidate their assets through the bankruptcy process. In Chapter 7 proceedings, a bankruptcy trustee is appointed to liquidate the business assets and distribute the proceeds to creditors. Again, during this time, regular business activity stops; the trustee’s job is to sell off assets and, if applicable, recover any outstanding debts the business is owed.
The interaction between Chapter 7 bankruptcy and business liquidation depends on the type of business:
- Sole proprietorship: if you do business as a sole proprietor, there is no separate business entity; you and your business are treated as one. That means you can file Chapter 7 bankruptcy in your own name, have your personal and business debts discharged, and take advantage of bankruptcy exemptions for both personal and business assets.
- Partnership: a partnership is a separate entity from the partners and can file for Chapter 7 bankruptcy in its own name. When a business entity files for Chapter 7, the trustee still oversees liquidation, but there is no discharge of debts, and there are no exemptions to protect property. This can leave the partners individually liable for business debts. As such, in a partnership, it’s often advantageous for the partners to file Chapter 7 individually rather than filing in the business name.
- Corporation or LLC: as with a partnership, when a corporation or LLC files Chapter 7 bankruptcy, there Is no discharge of debts and no protection for assets. Bankruptcy may also make it possible for creditors to “pierce the corporate veil” and go after shareholders for corporate debt. As such, Chapter 7 is often not advantageous for corporations.
Another key factor is whether you signed a “personal guarantee” – a document making you personally responsible for business debts if the business cannot pay them – or co-signed a business debt in your personal capacity. In those circumstances, you can be held personally responsible for business debts, so it’s often in your interest to file Chapter 7 in your own name.
Why you need an attorney for small business liquidation
There are many steps that go into liquidating the assets of a small business. You need to make a full accounting of your assets and prepare them for sale. You need to contact your creditors and begin the process of paying off your debts. You need to decide whether to file for bankruptcy or not – and you also need to manage communications with customers, suppliers, and others affected by the closing of your business.
Talking to an experienced business liquidation attorney can help you in myriad ways. Our law firm can:
- Investigate your assets and make sure you have an accurate accounting of what needs to be sold and when.
- Investigate your level of personal liability for business debts.
- Advise of the legal implications of various types of sales and review any sales contracts on your behalf.
- Review contracts with suppliers, customers, and landlords to determine whether they can be transferred or sold.
- Communicate with your creditors on your behalf.
Advise whether filing for Chapter 7 bankruptcy is in your interest and, if so, handle the bankruptcy process on your behalf.
There is a lot riding on properly handling your small business liquidation. The last thing you need is to go into this complex process without sound legal advice. If you are in the process of closing down your small business, give us a call or contact us online to discuss your options with an experienced attorney at Benjamin R. Matthews and Associates, LLC.