After exploring potential restructuring or going concern sale of a business or portions of a business, the business or its key sources of liquidity (such as lenders or equity sponsors) may conclude the business is not viable or they are not willing to fund ongoing and/or projected losses.  For those scenarios, below are some key considerations that can be evaluated:

Personal liability

For certain kinds of liabilities, there may be statutory liability (such as payroll or sales/use trust fund taxes or certain liabilities to employees (such as current payroll or accrued vacation or paid time off) in certain jurisdictions to officers, directors and/or controlling ownership.  There may also be contractual guarantees – for instance, on some loan facilities or equipment or other financings.

In some jurisdictions, there can also be potential liabilities for directors and sometime officers based on legal doctrines such as (i) any fiduciary duties to creditors while insolvent or in the zone of insolvency, (ii) trading while insolvent, (iii) prior illegal dividends or distributions, (iv) aiding and abetting a fraudulent transfer and/or (v) similar legal theories.

Maximizing returns versus cost of winddown/liquidation 

The likely recoveries in an orderly liquidation versus a quick/fire sale liquidation should be estimated and weighed against the time and expense of a longer liquidation period, including cash burn and holding costs.  Some additional funding may be required from a source such as a lender, a liquidator or an equity sponsor to complete the liquidation process.

Impediments to an orderly liquidation

Liens such as judgment or tax liens or collection suits which are approaching getting to judgment may impact the ability to complete a longer term orderly liquidation, unless they can be foreclosed out by an existing senior lender with a blanket lien on assets.

Statutory severance or shutdown requirements

Many jurisdictions have statutory requirements to pay severance to employees being terminated or at least certain notice periods and procedures.

Possessory Lliens or similar remedies

Certain creditors, such as landlords or parties who are possession of certain assets such as a warehouse or a repair facility may have certain possessory or similar lien rights on those assets still in their possession.

Unions

In certain jurisdictions or under certain collective bargaining agreements, consultation with any labor union about the shutdown or the impact of the shutdown are required or at least encouraged.