Silicon Valley Business School
Management Maneuvers—Chapter 7 Shutdown
The Process of Closing Down the Company Under U.S. Federal Law

Let’s define an Orderly Shutdown as a managed dissolution of the company that involves discharging all the outstanding debts. The shareholders may lose their stakes as the shares become worthless, however, all the creditors are paid off before the company is dissolved.

Following an orderly shutdown, you should be free to attempt some form of restart or safely sail away to your next startup and your next adventure.

For an orderly Shutdown you need 3 things: a shut down plan, cash and time. If you leave it so late that you don’t have all 3 of these ingredients you may find yourself facing a Bankruptcy.

As the management team of Enron will attest, bankruptcies can be messy—very messy. As a member of the board of directors or the management team, bankruptcy could mean trouble.
Steps in the Shutdown Process:
  • Trigger Orderly Company Shutdown
  • Shutdown Process: Liquidate Assets
  • Shutdown Process: Pay Off Creditors
  • File Chapter 7
  • Appoint Chapter 7 Trustee
  • Hold Chapter 7 Creditor Meeting
  • Chapter 7 Shutdown: Liquidate Assets
  • Chapter 7 Shutdown
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    Trouble comes in various forms spanning nuisance calls from disgruntled employees and creditors through to losing your credit rating, your house and all your personal assets. Very few people actually go to jail as the result of a messy bankruptcy, but I highlight the possibility here to drill home the message that people get hurt when the company struggles on instead of shutting down while it still has sufficient cash in the bank to discharge its debts. The creditors are not the only people to get hurt — a whole bunch of individuals, including the board of directors, management, employees and shareholders, can be hurt in more ways than one.

    As well as minimizing the pain and suffering inflicted on creditors and other people associated with the company, an orderly shutdown leaves the reputations of the management team and the board of directors intact.



    SVBS Learning Materials Related to this Maneuver ~ From SVBS Online Courses::