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Inadvertent Industrial Espionage in a Business Bankruptcy Case in Arizona

By Joseph McDaniel, Esq.

Inadvertent industrial espionage is probably not really industrial espionage; but I like the silly television show "Chuck", so I like the word "espionage". It makes me feel a little less boring than the phrase "Arizona Bankruptcy Attorney".

I guess it's also not espionage when you ask, and you get told what you want to know; so, once again, I guess I'm not an International Man of Mystery.

But I got the critical piece of bankruptcy information that I wanted!

Here's how it happened: I have a client with a 1/3 interest in a truly miserable, puny, piece of poop (not plastic poop) business.

So the bankruptcy trustee had her lawyer notice out a 2004 Examination ("fishing expedition", but without all those pointy hooks and smelly fish), and then there was a scheduling snafu, and the lawyer for the bankruptcy trustee had to leave her own 2004 exam in five minutes, running for the door. She apologized for the inconvenience, and talked very quickly for the two and a half minutes before she had to run.

It was a scheduling issue; these things happen. She was very gracious and polite, and she is a very nice lady. She had her receptionist brew some more coffee for me and my client, and we talked about the meeting.

Because there was so little time, the very smart, efficient lawyer told me what she actually wanted, rather than dancing (not the Tango, like the movie "True Lies"); she told me that her client, the trustee, was going to sell the 1/3 interest in this particular business.

She also pointed out that she knew that there was exactly zero asset value, because all the assets were over-encumbered.

She also told me that she knew there was a ton of tax debt.

And then she told me the important thing: she has a bunch of bottom-feeding, high-risk-taking investors who would be happy to bid $5,000, sight unseen, for a 1/3 interest in a professional practice just so they (the bottom feeding investor) could become a pain-in-the-backside to the majority owner, and thus get bought out for more than the investment.

WOOO-HOOOO!

Now, what's great about that is....nothing.


But if there were, it would be that there was a clear communication of why the trustee was going to move to sell a crummy, negative-equity asset at a monthly auction, and what was going to happen after the sale.


She was also gracious enough (and she is a gracious, intelligent professional) to give me a guess about the amount that would freeze out the bottom-feeders, and to suggest that if my client or the majority owner wanted to make a bid, they probably ought to show up to protect their bid.

WHAT A NICE LADY!

It is remarkably useful to get clear communication in a bankruptcy case, without any pussyfooting around.

Now, the benefit in this case is up in the air, since my client has neither a pot, nor a window through which to throw the pot.

But every nuance and finesse in a bankruptcy case is good to know.

And that's why I'm telling you about this today.

HERE'S WHAT YOU CAN TAKE AWAY FROM THIS DISCUSSION:

In some cases in which you have a business, the business will be totally worthless, and then some. I'm not talking underwater, I'm talking crushed and lying at the bottom of the ocean. I'm talking depths where your Invicta Wristwatch has died!

Nonetheless, if you file a Chapter 7 Bankruptcy and you have an interest in an operating business, and you want to keep your interest in that operating business, you're gonna have to pay something to keep it.

Count on it.

Does that make a lot of sense? Or is it fair?

I have a better question for you: who cares?

In bankruptcy cases in Arizona, it is the way it is.

And if you were a creditor, you'd say, "Goodie! The debtor has to pay something!"

But everything depends on whose ox is getting gored. In this case, it's yours. But the goring may not be very deep.

I'll keep you posted about this one; my guess is that the trustee will sell this piece of poop at auction to a stranger, and the desperately sick business will die, and the folks running the business will set up a new one, or get jobs flipping burgers.

But I loved her for her honesty, and I was delighted that I was able to give a pretty group of decision trees to my client in this poor little goofed-up kinda business bankruptcy case. 

Full post as published by Arizona Bankruptcy Attorney Blog on October 08, 2010 (boomark / email).