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That by the way isn't what I was talking about. You can make your payroll obligation, then declare bankruptcy in the face of creditors. That's usually what hap

That by the way isn't what I was talking about. You can make your payroll obligation, then declare bankruptcy in the face of creditors. That's usually what happens--people take on short term debt to keep afloat, and use it to pay off their employees as they wait for the "big contract" to clear. The contract doesn't clear in time, and everything collapses. At this point, they're bankrupt and though some creditors might get paid from the sale of office furniture and computers----not all of them will see all of their money. The Op suggested that even these companies should never be given a second chance.

rdl 15y ago
It's more important that the founders (or executives) conduct an orderly shutdown (vs. just locking the doors and not responding to email), than that every possible creditor be paid in full. There should be an explicit seniority in debt or other liabilities. Even when there isn't, I think there is some clear standard of fairness (individuals get paid first, including refunding prepaid customer funds, and convertible notes get paid last. Vendors who have already provided service should probably get paid before continuing to pay on things like the balance of long-term leases; there are legal standards and best practice for all of this, although it probably varies by jurisdiction). The only really bad thing is burning unknowing employees, especially after misleading them about finances.