Corporate Law Going out of business

[ohdearme]

We are closing our Parts Business. We had thouht that a vouluntary termination of dealership would require the vendor to take back the unsold inventory(parts) which we purchased from them at 91%. We have been told by various vendors that they would charge a 'restocking fee' or 25 to 30%. Some have even offered us 10 cents on the dollar. We are located in New York State. I am not sure what the difference is between 'voluntary termination' and 'buy back' ( the term favored by the vendors).
Also does it make a difference if we owe the vendor money? This unsold inventory represents a lot of money. We would like to recoup as much of its value as possible. Any suggestions there would be appreciated also. At this point we just cannot afford a lawyer. Your help will be very much appreciated.

 

[Michael Wechsler]

I can think of a number of reasons why a "buyback" is preferable to a voluntary termination. With a termination the unfulfilled obligations are simply avoided. For beginners, in a buyback the seller can put in for revenue on the sale and then write off the revenue in a separate column. For large companies this is a boon because a CEO knows that investors key in on the revenue numbers and don't pay as much attention to the bad/uncollectible debts column. A voluntary termination may not trigger the recognition of revenue since the agreement is voluntarily terminated.

Your remedies for buyback or voluntary termination would be found in your contract. I'm not sure whether you are asking or telling me that there is a 91% clause for voluntary termination or whether the restocking fee is in the contract or proposed. I find that most of the time in business people tell other parties, who have their back against the wall, what their options are when, in fact, they know perfectly well that they are not telling you the truth. You MUST look at your contract and see what the terms of the deal are. If you bought the goods free and clear and there is a payment plan, then you are stuck with negotiating a way out. However, you may have options that allow you to tell a vendor "you must take back my inventory on .91 on the dollar" and that is part of the deal.

I'm assuming that your company is not going out of business, just the "Parts" division. I'm also not sure I understand what you mean whether it is OK if you owe the vendor money. Whatever deal you make you make. If you owe the money then you owe the money.

My opinion? If the inventory reflects a large amount of money then you are doing yourself a major disservice by saying you don't have enough money for an attorney. It's like making a large expensive wedding in a nice hall but deciding that you will skimp on the maitre de who is running the show or on the band that will play a large role as there will be a lot of dancing -- why would you jeopardize a large operation by deleting a key player who success or failure of the event hinges upon?

Your reading of the contract may provide you with the same answers a lawyer can give you but, then again, it may not. It seems that all rises and falls on your success in negotiating your way out of the problem. You have to think of the net gain -- if the business is still viable and bringing in a new person will offset the total loss more than it that endeavor worthwhile. You absolutely need to go back to the contract to determine your rights and think about what your intentions are with regard to the continuation of the business.

 

[ohdearme]

First thank you, Michael, for your answer. I guess I did not explain myself very clearly. First we are a very small company going totally out of business. We are trying to avoid bankruptcy. Our assets do not nearly cover our liabilities. This is why we are trying to get as much as possible from our unsold parts. We have been in business so long that the contracts we originally had with our vendors, and I am not sure we ever had a written contract, are long gone. The reason I asked about still owing a vendor, is that I thought they would be more likely to take back parts, rather than get very little in a bankruptcy claim. I know a lawyer would help, but we are trying to keep our expenses down. Then there will be more to pay to our debtors. We are willing to mortgage our home and take on more personal debt in order to avoid bankruptcy. Thanks again. Still open for suggestions.

 

[Michael Wechsler]

I think you have your answer. As you said, you told them that you really are going out of business and they can either get the max return now or roll the dice with almost definite undesired results and a long waiting period to get a few cents on the dollar. It seems that you have very little to lose if you are running a corporation. The most important question of all -- is your business incorporated?