Atlantic City: A Prime Example of Corporate Insolvency Atlantic City was the place to be in its prime. It was a money-making enterprise with glitz and glamour, much like Las Vegas is today. Atlantic City eventually succumbed due to time and other factors. In the early 1990s, Donald Trump desired to reclaim Atlantic City by constructing casinos and opulent hotels along the famous beachfront.
Trump's first attempt to revitalize Atlantic City was a failure. According to Forbes.com, his 'Trump Taj Mahal' was financed in large part by subprime bonds, and the property's inability to generate revenue prompted him to sell his Trump Shuttle Airline and Trump Princess Yacht. This was an excellent lesson for Trump, as the unsuccessful investment cost him approximately $900 million in personal debt, not corporate debt.
Declaring corporate insolvency for the first time allowed him to secure his personal wealth and eliminate Trump Taj Mahal's debt. Trump subsequently filed for Chapter 11 bankruptcy a further three times after his initial filing. How did he get away with it, and is it a sound business strategy for all entrepreneurs?
Corporate Insolvency As An Enterprise Strategy Trump was recently quoted as saying, """"I've used the regulations of the country to my advantage and to the advantage of others."""" The meaning of his statement is that Chapter 11 can shield a company from utter devastation. Under the protection of corporate bankruptcy, a struggling company (like all four of Trump's Atlantic City ventures) can restructure without the burden of liquidating assets and upsetting creditors.
It is a strategy that Trump has popularized due to his large persona and brand, but it is not one that he relishes and owns exclusively. Numerous corporations have filed for bankruptcy for the same reason: it is preferable to losing money on a drowning ship. Allowing a company to restructure under Chapter 11 will generate more revenue than liquidating its assets, and this is what the majority of creditors desire.
But can this strategy work for significantly lesser businesses? Does declaring bankruptcy benefit a mom-and-pop business? Here is where things become complicated.
Applying Trump's Business Strategy to Your Own First, you must register your business as a corporation that is distinct from your personal name and life (this should be the very first step in starting any business, well before you contemplate Chapter 11). Then, if your business is not doing well and you wish to restructure, you may be a suitable candidate for filing for corporate bankruptcy. Since a Chapter 11 filing is entirely distinct from personal bankruptcy, your personal assets will typically not be affected.
However, there are a variety of factors to consider when deciding on Chapter 11. What repeatedly worked for Trump may not work for your company without the proper guidance. In some instances, Chapter 11 may not result in the elimination of a company owner's liability. In some situations, there are superior alternatives to maintaining a business afloat. On the other hand, Chapter 11 could be included in an early business plan; however, there are numerous aspects of this strategy that must be discussed with an attorney prior to filing.
Declaring Insolvency Measures What about individual cases? Individual bankruptcy can be regarded as a financial strategy. In many ways, bankruptcy is financial planning when the details are stripped away; however, you will need a competent bankruptcy attorney to close up all the loose ends.
Trump's larger-than-life personality is difficult to ignore, as are his numerous corporate bankruptcies. When making major financial decisions, every new business owner should have a bankruptcy attorney on speed contact so that he or she can fully comprehend the financial implications for the business and their families.
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