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Why didn't I file bankruptcy? This happened in Australia and declaring bankruptcy was not the right thing to do - for many reasons, not the least of which it ma

Why didn't I file bankruptcy? This happened in Australia and declaring bankruptcy was not the right thing to do - for many reasons, not the least of which it makes it much harder to operate as a director of a previously bankrupt company, but in the worst case my bank would have just gone after me as I'd given a personal guarantee.

garmaine 7y ago
There is no concept of limited liability in Australia?
- jkaplowitz 7y ago
  Even in the United States, most small business loans require personal guarantees which narrowly override the corporate limited liability to make that guarantor liable for that debt if the company doesn't pay. There are some rare exceptions, and possibly more for startups funded by big-name VCs, but I don't know.
  - Scoundreller 7y ago
    But this isn't a small business loan: it's a debt to Amazon.
    - namdnay 7y ago
      Except the loan money will go straight to Amazon, and you are now unable to repay the loan to the bank
      - Scoundreller 7y ago
        Depends where Amazon ranks in seniority in bankruptcy (protection). You don't have to run out of money to file for it. Purdue Pharma sure didn't.
      - vetinari 7y ago
        Where exactly does the bank enter the picture? Scenario 1: Amazon will ask for the payment (if using cc); the bank will respond there are no funds in the account; Amazon deals directly with the company further directly, not with the bank, eventually getting payment order from the court. If the company went bankrupt meanwhile, Amazon might not get their money. Scenario 2: Amazon will send the invoice; invoice will not get paid. After due date, Amazon will contact the company directly; bank doesn't even enter the picture, until collection order comes from the court. If the company went bankrupt meanwhile, Amazon might not get their money. There's no scenario where some hypothetical loan would go straight to Amazon, unless Amazon has some instrument, that instruct the bank to pay them. Something like bank guarantee or promisory note, and uses them before declaring bankrupcy.
        Talanes 7y ago
        I think they were referring to a scenario where Amazon is draining the funds that have already been loaned. Thus Amazon already has their money, and the bank is the one coming after you during bankruptcy.
        vetinari 7y ago
        Not sure how it works in OP's country, but where I live, when you get a loan, you will get a new account. As you draw the loan, you are getting into negative balance; how far you can go is the limit of your loan. As you pay back the principal, you are getting back to zero balance. So for Amazon draining loaned money, they would have to transfer them to a normal account and pay with debit card paired to that account, with no limit set. It is not wise to transfer them to a normal account; you pay interest for the balance on the loan account; if you move them to your normal account, you are paying interest for money that is sitting on your normal account.
        namdnay 7y ago
        Wouldn't Amazon be draining a credit card directly? Tied to the account you received the loan on?
        7y ago
    - dragonwriter 7y ago
      I read that as the business owner had a preexisting business loan with a personal guarantee.
  - garmaine 7y ago
    I’ve worked in many early startups and I’ve never seen anyone use such a loan.
    - jkaplowitz 7y ago
      Were they in the US and funded by VCs? That kind of startup probably doesn't need to do this. Unsure about VC-funded businesses elsewhere. Many or even most small businesses without VC funding do take that kind of loan.
    - IG_Semmelweiss 7y ago
      You work at the 1% The real world is filled with barbershops, daycares, bars, clinics, PVC manufacturers etc None of them get VC money. When they need money, they go to a bank and usually have to place a PG in order to get funds. Tech startups have it easy. Its all equity. You are not pledging your lifetime earnings on a business idea. Once tech startups lose their upside potential (prob not anytime soon if ever), you will be sitting with the regular folk, those that pledge their skin and life to their business.
- hnick 7y ago
  If a director becomes personally bankrupt (such as trying to be the good guy and using personal guarantees to take on company debts in an effort to scrape through) then they're banned from running a company until it clears. If they're the director of a company that goes bankrupt, I believe they get 2 chances (companies) before there's a chance of being banned from running more for a time. Either way it might be nice to keep your options open, depending on your plans.

garmaine 7y ago

There is no concept of limited liability in Australia?

jkaplowitz 7y ago
Even in the United States, most small business loans require personal guarantees which narrowly override the corporate limited liability to make that guarantor liable for that debt if the company doesn't pay. There are some rare exceptions, and possibly more for startups funded by big-name VCs, but I don't know.
- Scoundreller 7y ago
  But this isn't a small business loan: it's a debt to Amazon.
  - namdnay 7y ago
    Except the loan money will go straight to Amazon, and you are now unable to repay the loan to the bank
    - Scoundreller 7y ago
      Depends where Amazon ranks in seniority in bankruptcy (protection). You don't have to run out of money to file for it. Purdue Pharma sure didn't.
    - vetinari 7y ago
      Where exactly does the bank enter the picture? Scenario 1: Amazon will ask for the payment (if using cc); the bank will respond there are no funds in the account; Amazon deals directly with the company further directly, not with the bank, eventually getting payment order from the court. If the company went bankrupt meanwhile, Amazon might not get their money. Scenario 2: Amazon will send the invoice; invoice will not get paid. After due date, Amazon will contact the company directly; bank doesn't even enter the picture, until collection order comes from the court. If the company went bankrupt meanwhile, Amazon might not get their money. There's no scenario where some hypothetical loan would go straight to Amazon, unless Amazon has some instrument, that instruct the bank to pay them. Something like bank guarantee or promisory note, and uses them before declaring bankrupcy.
      - Talanes 7y ago
        I think they were referring to a scenario where Amazon is draining the funds that have already been loaned. Thus Amazon already has their money, and the bank is the one coming after you during bankruptcy.
        vetinari 7y ago
        Not sure how it works in OP's country, but where I live, when you get a loan, you will get a new account. As you draw the loan, you are getting into negative balance; how far you can go is the limit of your loan. As you pay back the principal, you are getting back to zero balance. So for Amazon draining loaned money, they would have to transfer them to a normal account and pay with debit card paired to that account, with no limit set. It is not wise to transfer them to a normal account; you pay interest for the balance on the loan account; if you move them to your normal account, you are paying interest for money that is sitting on your normal account.
      - namdnay 7y ago
        Wouldn't Amazon be draining a credit card directly? Tied to the account you received the loan on?
        7y ago
  - dragonwriter 7y ago
    I read that as the business owner had a preexisting business loan with a personal guarantee.
- garmaine 7y ago
  I’ve worked in many early startups and I’ve never seen anyone use such a loan.
  - jkaplowitz 7y ago
    Were they in the US and funded by VCs? That kind of startup probably doesn't need to do this. Unsure about VC-funded businesses elsewhere. Many or even most small businesses without VC funding do take that kind of loan.
  - IG_Semmelweiss 7y ago
    You work at the 1% The real world is filled with barbershops, daycares, bars, clinics, PVC manufacturers etc None of them get VC money. When they need money, they go to a bank and usually have to place a PG in order to get funds. Tech startups have it easy. Its all equity. You are not pledging your lifetime earnings on a business idea. Once tech startups lose their upside potential (prob not anytime soon if ever), you will be sitting with the regular folk, those that pledge their skin and life to their business.
hnick 7y ago
If a director becomes personally bankrupt (such as trying to be the good guy and using personal guarantees to take on company debts in an effort to scrape through) then they're banned from running a company until it clears. If they're the director of a company that goes bankrupt, I believe they get 2 chances (companies) before there's a chance of being banned from running more for a time. Either way it might be nice to keep your options open, depending on your plans.