Louisville business owners very often become entrepreneurs not only because they have an interest in the type of business they are running, but also because they wish to have the independence that comes from being their own bosses. This means they have a lot freedom in how to run their businesses, but also much responsibility when it comes to fulfilling the businesses' obligations. Sometimes, whether through bad luck, a mistake, or other circumstances, a business finds itself in a situation in which it cannot realistically meet its obligations. It is in these situations that owners may contemplate filing a business bankruptcy case.
The old line "Nothing is certain but death and taxes," is often attributed to Benjamin Franklin. Whoever said it, it probably rings true to many Kentucky business owners. Unfortunately, for many of them, they didn't expect that the two might be related when it comes to their businesses. Especially for small business ventures, the complexity of the tax code can lead to issues when the business files taxes, creating a situation in which the business ends up with a large amount of tax liability.
Kentucky is almost as well known for its coal as for its horses. The coal industry has a long history in the state, with miners and mining towns having grown up in the mountains that make up a good portion of Kentucky's beautiful topography. Unfortunately, like in other areas of the country, cheaper natural gas is making it more difficult for companies that mine the carbon-based rock to compete in the energy marketplace.
Entrepreneurs in Kentucky are likely all too familiar with the risks involved in starting a business. Depending upon the industry, failure rates can be anywhere from half of all start-ups to 80 percent or more. In many cases, there may be nothing the business owners can do about it; factors beyond their control may be involved, such as a crash in demand, or closing of a preferred supplier causing a mountain of business debt. However, in certain cases, owners may see a way out of financial distress, if only the business were given the time to recover and strengthen some of its weak areas.
Kentucky residents are likely well aware that the current president previously ran a string of gambling establishments in various locations across the country. One such casino, marketed as the "Eighth Wonder of the World," has been in bankruptcy for some time now, and has finally been sold, with many of its contents sold off to the highest bidder.
Takata Corp. manufactures automotive airbags, and its products can be found in thousands of cars in Kentucky. Unfortunately, Takata's products suffer from a serious design defect, and the liability claims and fraudulent cover up have now forced the Japanese company to seek the protection of the bankruptcy court. This case provides a case study of how a business bankruptcy can eliminate or sharply reduce the amount of money available to pay liability claims.
The increasing popularity of on-line selling by firms such as Amazon and others is having a severe adverse effect on traditional retailers in Kentucky and elsewhere. This effect has been recently demonstrated by the number of retailers filing for Chapter 11 protection from their creditors.
The United States Bankruptcy Code contains many terms that are unique and not always easy to understand. One of the key terms in any business bankruptcy is "debtor in possession." When a Kentucky business makes the decision to file a petition in bankruptcy, it must choose from several different types of proceedings, including complete liquidation, reorganization of debts and continued operations and submitting to the oversight of a court-appointed trustee. A business that decides to keep operating while reorganizing its finances often becomes a "debtor in possession."
Many of the Kentucky businesses that file bankruptcy petitions under Chapter 11 of the Bankruptcy Code are colloquially known as "small businesses." Some of these small businesses are so small that they are governed by a separate provision of the Bankruptcy Code known as the "small business bankruptcy."
Most Kentucky businesses contemplating filing a petition for a Chapter 11 bankruptcy understand that control of the business will be subjected to the control of the court. But few understand exactly how this happens. This blog has previously commented on the role of the bankruptcy trustee in a Chapter 11 proceeding. This post will examine the role of the creditors' committee.