Law Offices of Nicholas Gebelt

As A Business, Should We Contact Any Partners We May Owe And Give Them A Heads-Up That We May Be Filing For A Bankruptcy?


The word “partner” is a little bit tricky here because, on the one hand, it can refer to one of the business owners if the business is a partnership. In that case, all the partners have to be on board: You can’t have a secret bankruptcy where the partners don’t know what’s going on. The partners all have to be participants. There will be a vote to determine whether or not they’re going to file, and the bylaws will determine precisely what sort of vote is necessary to authorize the filing of the bankruptcy papers.

On the other hand, suppose the word “partner” is being used to refer to another business that you have an ongoing relationship. In that case, consider the answer to the previous question of whether to begin paying business partners. You can tell them that you want to maintain your business relationship with that entity, but that you cannot pay them without the judge’s permission.

If you owe them money, you have to list that partner in the bankruptcy papers as a creditor. But the question was about letting them know before filing. You can tell them, partly as common courtesy, but also to let them know, that you’re going to try to take care of them in the reorganization plan, and that you would like to keep a good working relationship with them.

Can We Request Any Specific Order In A Bankruptcy Payment Plan That Would Provide Certain Creditors Preference In Getting Paid?

The word “plan” is used very specifically. Let me take a step back and say once you file the papers, you can file one of the first-day motions to get permission to pay critical vendors so that they don’t sever the relationship with your business. This is because a crucial vendor is producing or providing something that the business will fail without. When it comes to the plan, that will be a different story. When we propose a reorganization plan, we categorize the creditors into certain classes, and those classes are set up according to the kind of debt. For example, if you have general unsecured debt, you’re supposed to put all creditors into one class unless you have a good reason. Still, if you have a valid reason for separating one particular general unsecured creditor from the others, you could put that creditor into a different class.

Section 507(a) of the Bankruptcy Code lists priorities of claims because Congress felt that some creditors should be given better treatment than others. When we put these creditors into classes, one of the things we keep in mind is the priorities. It may help to picture a fountain with a series of stacked bowls, and a water source at the top bowl, to understand the significance of these classes or the priorities. The top bowl must be filled before any water trickles down to the second bowl. Similarly, the third bowl gets no water until the second bowl is full and the water spills out, and so forth.

In similar fashion, the top priority has to be paid in full before the second priority gets any money. These priority classes are sacrosanct unless a creditor accepts less favorable treatment than it’s due based on the priorities. You can’t treat a lower priority creditor better than a higher priority creditor. Thus, while you can undoubtedly get the judge’s permission to pay critical vendors on an ongoing basis — which we do by motion — but in the plan, the creditors’ prepetition claims must be paid according to the priority classes.

If a particular priority class is being paid in full, the next priority can be paid. However, you cannot violate the priority structure.

For more information on SBRA & Business Bankruptcy In California, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.

Attorney Nicholas Gebelt

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