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Surely even the below average business owners will know at least a week in advance that they're going bankrupt?

jdsully 7y ago
Once bankruptcy is inevitable it's a mad rush from creditors to secure assets. The net effect is your "bankrupt" as soon as it appears inevitable regardless of whatever timeline you would have planned. Further continuing to trade after your insolvent is a form of creditor preference. In most cases your customers become just another creditor upon bankruptcy. This is of course illegal.
- michaelt 7y ago
  Insolvency law already allows for some creditors to be higher priority than others. Some would say the people who are in a foreign country and owed a flight home should be the highest priority creditors. And if operating a flight is the most efficient way to pay that debt....
  - jdsully 7y ago
    Giving customers higher preference would indeed be possible if agreed ahead of time. But it would increase borrowing costs as bond holders would now be subordinate. Don’t expect it to happen unless a law mandates it - consumers don’t have enough bargaining power. In the case of this bankruptcy preferring customers would be changing the rules after the game had started. Even if you did it a bankruptcy judge would be in his rights to claw back the cost from the consumer.
    - shkkmo 7y ago
      It makes zero sense that lenders, who agreed to take on some risk, are allowed to steal money from customers who paid a product they never received and never decided to take on risk.
      - jdsully 7y ago
        You take on the risk when you pre-pay for services you haven't yet recieved. By law you are also a creditor just like a bond holder. Similarly when you eat at a restaurant and pay at the end the restaurant is providing you credit. Most people don't think of it this way because the transactions go smoothly and the distinction is irrelevant. But it does affect what rights you have if something were to go wrong.
        deleted 7y ago
        [deleted]
        markdown 7y ago
        > Similarly when you eat at a restaurant and pay at the end the restaurant is providing you credit. https://www.youtube.com/watch?v=XebF2cgmFmU https://www.youtube.com/watch?v=XebF2cgmFmU
        shkkmo 7y ago
        > You take on the risk when you pre-pay for services you haven't yet recieved. There are perhaps cases where this is true, when purchases are informed the the sketchy financial state of the company in advance and have the information necessary to assume the risk. It is ridiculous to assert that regular customers, who are purchasing an Airline ticket in the standard way that almost every, has done due diligence and should be treated the same as creditors who are given detail financial information. > Similarly when you eat at a restaurant and pay at the end the restaurant is providing you credit. Most people don't think of it this way because the transactions go smoothly and the distinction is irrelevant. But it does affect what rights you have if something were to go wrong. I think most places consider "dine and dash" a crime. You go to jail for theft because it is not a loan. Do you know of any jurisdictions that actually treat this as a loan?
        jdsully 7y ago
        The fact the consumer didn’t do any due diligence doesn’t change the situation. Perhaps the situation should change - but somebody has to lose when promises can’t be fulfilled. As for dine and dash there is a difference when there is no intent to pay. If somehow between when you ordered and when it came time to pay you declared bankruptcy then the resteraunt is SOL. The short timeframe just means its very unlikely you had intent to pay. For bankrupt companies you will see attempts to limit future expenses (i.e. cancelling employee trips etc) but the fact that there is a continual stream of transactions makes it much messier. It is fraud if the company racks up large numbers of unusual expenses just before bankruptcy is declared.
chrisseaton 7y ago
If you announced that you were going to go bankrupt in the future, your creditors and investors would bail, making you immediately bankrupt. There’s no way to ‘wind down’.
- perl4ever 7y ago
  What do you think happens in the US? It sounds like you're saying that Chapter 11 is not a conceivable way to do bankruptcy.
  - chrisseaton 7y ago
    But we don't have Chapter-11-style provisions in the UK. If we did, you could effectively wind down or restructure a company. But we don't. So you can't. In the UK if you know that are you insolvent (and knowing that you are about to be insolvent is effectively the same thing as knowing that you are insolvent) then it's illegal to trade. Using your last bit of money to do something like fly people home is illegal - it would be defrauding other creditors who have higher priority to be paid off.
    - perl4ever 7y ago
      Sure, the tone of what I was responding to was that it was impossible to do things differently. Kind of like an American explaining why universal healthcare is impossible. Having bankruptcy at all is an attempt at making a situation full of inherent conflict more orderly and less disruptive, so it isn't obvious why one must execute its provisions in a disruptive manner.

Once bankruptcy is inevitable it's a mad rush from creditors to secure assets. The net effect is your "bankrupt" as soon as it appears inevitable regardless of whatever timeline you would have planned. Further continuing to trade after your insolvent is a form of creditor preference. In most cases your customers become just another creditor upon bankruptcy. This is of course illegal.

michaelt 7y ago
Insolvency law already allows for some creditors to be higher priority than others. Some would say the people who are in a foreign country and owed a flight home should be the highest priority creditors. And if operating a flight is the most efficient way to pay that debt....
- jdsully 7y ago
  Giving customers higher preference would indeed be possible if agreed ahead of time. But it would increase borrowing costs as bond holders would now be subordinate. Don’t expect it to happen unless a law mandates it - consumers don’t have enough bargaining power. In the case of this bankruptcy preferring customers would be changing the rules after the game had started. Even if you did it a bankruptcy judge would be in his rights to claw back the cost from the consumer.
  - shkkmo 7y ago
    It makes zero sense that lenders, who agreed to take on some risk, are allowed to steal money from customers who paid a product they never received and never decided to take on risk.
    - jdsully 7y ago
      You take on the risk when you pre-pay for services you haven't yet recieved. By law you are also a creditor just like a bond holder. Similarly when you eat at a restaurant and pay at the end the restaurant is providing you credit. Most people don't think of it this way because the transactions go smoothly and the distinction is irrelevant. But it does affect what rights you have if something were to go wrong.
      - deleted 7y ago
        [deleted]
      - markdown 7y ago
        > Similarly when you eat at a restaurant and pay at the end the restaurant is providing you credit. https://www.youtube.com/watch?v=XebF2cgmFmU https://www.youtube.com/watch?v=XebF2cgmFmU
      - shkkmo 7y ago
        > You take on the risk when you pre-pay for services you haven't yet recieved. There are perhaps cases where this is true, when purchases are informed the the sketchy financial state of the company in advance and have the information necessary to assume the risk. It is ridiculous to assert that regular customers, who are purchasing an Airline ticket in the standard way that almost every, has done due diligence and should be treated the same as creditors who are given detail financial information. > Similarly when you eat at a restaurant and pay at the end the restaurant is providing you credit. Most people don't think of it this way because the transactions go smoothly and the distinction is irrelevant. But it does affect what rights you have if something were to go wrong. I think most places consider "dine and dash" a crime. You go to jail for theft because it is not a loan. Do you know of any jurisdictions that actually treat this as a loan?
        jdsully 7y ago
        The fact the consumer didn’t do any due diligence doesn’t change the situation. Perhaps the situation should change - but somebody has to lose when promises can’t be fulfilled. As for dine and dash there is a difference when there is no intent to pay. If somehow between when you ordered and when it came time to pay you declared bankruptcy then the resteraunt is SOL. The short timeframe just means its very unlikely you had intent to pay. For bankrupt companies you will see attempts to limit future expenses (i.e. cancelling employee trips etc) but the fact that there is a continual stream of transactions makes it much messier. It is fraud if the company racks up large numbers of unusual expenses just before bankruptcy is declared.

chrisseaton 7y ago

If you announced that you were going to go bankrupt in the future, your creditors and investors would bail, making you immediately bankrupt. There’s no way to ‘wind down’.

perl4ever 7y ago
What do you think happens in the US? It sounds like you're saying that Chapter 11 is not a conceivable way to do bankruptcy.
- chrisseaton 7y ago
  But we don't have Chapter-11-style provisions in the UK. If we did, you could effectively wind down or restructure a company. But we don't. So you can't. In the UK if you know that are you insolvent (and knowing that you are about to be insolvent is effectively the same thing as knowing that you are insolvent) then it's illegal to trade. Using your last bit of money to do something like fly people home is illegal - it would be defrauding other creditors who have higher priority to be paid off.
  - perl4ever 7y ago
    Sure, the tone of what I was responding to was that it was impossible to do things differently. Kind of like an American explaining why universal healthcare is impossible. Having bankruptcy at all is an attempt at making a situation full of inherent conflict more orderly and less disruptive, so it isn't obvious why one must execute its provisions in a disruptive manner.