What are possible pitfalls for management?
- The company’s owners and officers need to know when business isn’t going well. When management is evaluating survival strategies and contingencies for closing, consider the following:
- How much of the business debt is secured? The division of debt between secured and unsecured guides what reorganization can do for the business.
- Is this debt secured? Hidden traps in proceeds from collateral Misuse of the the proceeds of a secured creditor’s collateral can create a non dischargeable debt for the individuals involved.
- Trust fund taxes are not dischargeable: When an employer deducts taxes and social security contributions from employee wages, the employer becomes a fiduciary for that money which belongs to the employee. “Loaning” the business the money due Uncle Sam from employees’ paychecks makes the responsible corporate officers personally liable for the trust fund taxes not paid to the taxing authority. Sales taxes are trust fund taxes in some jurisdictions, as well.
- Payments to insiders on old debts may be recoverable as preferential payments once the bankruptcy is filed. Repayments to relatives and business decision makers on their claims against the debtor can be recovered by the bankruptcy trustee under certain circumstances.
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