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Options > Closing up Shop - Pg. 78

Financing a Game Development Venture Closing up Shop 78 You will be remembered as much for how you close a company down as for how you ran it. If you wait until the last minute and tell your employees on a Friday not to come back on Monday, you are hurling a karmic boomerang that will eventually come back right between your eyes. Of course, developer employees tend to be a very bright bunch and can sense when the company is in trouble, but they will appreciate the respect of some kind of warning and/or severance. Closing down can be done without filing for Chapter 7 bankruptcy, and even has some benefits. However, it requires a dedicated and disciplined management team to acknowledge that the com- pany needs to close down and then stick around to perform the clean-up. How do you know it's time to close? This varies from situation to situation. One suggested bench- mark would be when you get down to liabilities plus three weeks' severance for your employees. Chapter 7 Versus DIY The choice between filing Chapter 7 and liquidating your company yourself (without the bankruptcy court--but you should still have an attorney's help) will depend on the assets to liquidate (for ex- ample, if they need an expert to sell them correctly--as is likely if most of your salable assets are intellectual property); how motivated your creditors are to work with you; and whether management can handle sticking around to deal with the wreckage. Chapter 7 bankruptcy is a liquidation proceeding. It does not discharge the company's debts, but limited liability generally bars the creditor from coming after any owners or executives for satisfaction of the debt. Like Chapter 11, Chapter 7 bankruptcy can be voluntary or involuntary. Either the com- pany or one of its creditors may file a bankruptcy petition under Chapter 7, usually when there are competing claims to limited assets and it is clear that the company cannot satisfy or work out all of its debts and continue operation. Once the petition is filed with the bankruptcy court by or against the company, there is an automatic stay, which is like an injunction that, with certain exceptions, stops creditors from taking the company's stuff back or suing it outside the bankruptcy court. Then the court appoints a bankruptcy trustee to liquidate assets, return equipment, and deal with creditors. Operations of the company cease except to the extent necessary to preserve the value of the com- pany's assets. Note NOTE According to special rules regardingthe treatment of intellectual propertylicenses where the licensor is in bankruptcy, a licensee may choose to continue to use the IP even after bankruptcy is filed. Consult with a bankruptcy attorney to analyze this issue. Note CAUTION Outside of bankruptcy, you may find an angry creditor suing the officers as well as the corporation to collect his debt.This is usually littlemore than a nuisance thanks to limited liability, but any individualsnamed will have to appear and defend in the lawsuit, or a judg- ment willbe entered against them. Also there may be directors and/or officersliability if the creditors claim breach of fiduciary duties (that is, management did not handle the assets prudently, or engaged in othershenanigans). You may be indemnified by the company, but withoutD&O (directors and officers) insurance, an indemnity isn't worth much. If you choose to do it yourself ("DIY"), you become, in effect, the bankruptcy trustee and take on all of those tasks. You will be responsible for liquidating the company's assets and halting operations. Creditors will have a right to recover their claims from the assets of the corporation (not from the owners or managers personally if they are in a limited liability entity, see Chapter 2, "First Steps"), but once the corporation has no assets, any creditor lawsuits are probably moot. Advantages of Chapter 7