Most in Cleveland likely view bankruptcy as a choice made by those looking to avoid further action being taken against them by their creditors. Yet in some cases, it may be the other way around. A person or company’s creditors may find it to be in their best interest to force a debtor into bankruptcy in order to recover a portion of their claims. While many view such a move as being drastic, some parties may view it as the only way to avoid losses associated with a liability claim.

Such action was recently initiated by the creditors of a seafood company after certain aspects of the company’s proposed sales began to raise eyebrows. The assignee in the case had initiated preference litigation against certain creditors, which caused the others to then step up and halt the sale of the company by pressing it into an involuntary Chapter 7 bankruptcy.

The assignee had arranged for the continued operation of the company as well as the sale of its assets. Yet the purchase price was only $45,000. The agreement entered into allowed a company owned by a co-owner of the debtor to retain its profits without any liability. Ultimately, the sale was to be made to a company owned by the same people, who did not seek any professional opinions when valuing its assets. In its ruling, the court blasted the company’s creditors for not more thoroughly investigating whether its owners where paying fair market price in their proposed transaction. Even though the assignee asked the federal court to not hear the bankruptcy case, the court ruled that it remain in its jurisdiction under the management of the Chapter 7 trustee.

Those dealing with the legal challenges inherent with bankruptcy may wish to enlist the help of an attorney in dealing with them.

Source: Bloomberg BNA “Fishy Sale Attempt Leads to Involuntary Bankruptcy” May 18, 2017