Client Story: Creative Restructuring Saves Business

by | Oct 31, 2017

Our client, Mr. Thomas Stone, imported and distributed auto parts in the US. He owned and operated this businesse for over 15 years and was ready to expand. Mr. Stone entered into partnership with a Chinese supplier, took out a business loan and expanded operations.

Unfortunately, Stone’s suppliers cheated him, resulting in significant business debts. He defaulted on his loan and as expected, the lender came after the assets of the business.

Mr. Stone came to me in desperation. His life’s work was on the line.

We engaged in a structure known as a conversion through a parallel operation. This is accomplished by forming a new business entity and sending all new customer orders to the new entity. The old business stopped accumulating customer orders and both inventory and accounts receivable were quickly depleted.

This type of a restructuring is not easily accomplished. A savvy creditor can claim that the new business is a successor in interest to the old business, and inherits all debts. To avoid successor liability, we need to clearly establish a business purpose for the new entity and introduce distinctions between the two businesses – a different address, website, phone number, employees and most importantly, ownership.

In this case, the lender was not able to pierce the corporate veil of the old business or to establish successor liability. Eventually, the old corporation filed for bankruptcy and obtained debt discharge.

To learn more about how Maximum Asset Protection can help you if your business assets are at risk, contact us today at 818-465-2123.

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