14. What can you do when your Business fails?

WHAT TO DO WHEN BUSINESS FAILS

Non-payment of debt is a civil matter. The plaintiff must obtain judgment and collect the debt through civil action. Collection agencies thrive on making unpleasant phone calls to collect the debts. You can be intimidated if you did not know how to deal with them.

As a practical measure you should get a call display service so you know who is calling. All family members should know how to deal with the collection agency calls. You should tell the collection agency to write the demand letter and let them know that your lawyer will deal with the matter. If he calls again you should tell him that if he persists in calling you will let Bell Telephone Company know. If the calls are threatening you can let the Police know that you are getting threatening phone calls.

If you were a corporation and the debts were incurred by the company you should ask the collection agency to collect the money from the company and not you personally. You would be liable only if you signed personally and guaranteed the debt obligation. Your lawyer can write a letter to the collection agency advising that there are no funds in the company. This usually puts a stop to the calls. If the amount is large the collection agency will refer the matter to their lawyers.

Creditor’s lawyer can bring a petition for bankruptcy. If they bring the proceedings they will pay the cost of the bankruptcy. If your business was incorporated you would not need to make an assignment in bankruptcy unless the amount is fairly large and there are many creditors. There is a cost of the lawyer and trustee for bankruptcy if you need to do that. If you are a director of the company you have to answer the questions and deal with the procedures properly. Not doing it can result in sanctions against you personally. This does not mean that you become personally liable. Understanding the procedures is therefore very important and the support of your lawyer to help you understand it can give you the morale boost you need at a time when your financial world has collapsed.

The most difficult part of dealing with the harassing calls is the psychological trauma of failure in your life. People identify themselves through their business or profession and when it fails you feel like a looser and the psychological trauma can paralyse you from taking action defensively to solve the financial problems. Holding yourself together and dealing with the matter properly can prepare you better for the next venture better. A threatening phone call can leave you very unhappy for the rest of the day.

It is important to seek support from an experienced lawyer who is not just technically knowledgeable but also willing to understand you. You need a lawyer who is sympathetic with the down turn in your life that you are going through and looking down on you because of your failure. Most people budget for legal fees when they start the business. They rarely budget for legal fees when things have gone sour. You can often budget expense for the lawyer from the cash flow that might still exist in your business.

Your wife needs to be supportive when you are going through these phone calls. It is helpful for the wife to understand that entrepreneurship is a difficult challenge. There are only about 15% of the population who are self-employed in the economy. They take the risk and create the jobs and wealth and develop the economy. Banks often ask for personal guarantees for the funds loaned by them to the business. No one guarantees the success of your business. Entrepreneurs do not usually get the support and sympathy they deserve when things go wrong.

In a business failure your credit rating will be affected and therefore you need to do damage control by only permitting the bankruptcy or proposal to be done for the business entity that cannot be salvaged. If you have had a corporation and not given personal guarantee you personal name should be preserved.

Reconstructing your business and personal life is far more important than dwelling on the failure. Many well known entrepreneurs have failed in their business before becoming successful.

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