Krell Moves to new location

@jwei 

You asked "For the experienced legal minds among us, I ask Which parties benefit"?

My answer: Lawyers and liquidators.

Srace1 can probably chime in here, but if memory serves, the order of payoff when a company is dissolved is:

1. Back pay for former employees. This is a matter of state, not Federal, law, and state attorneys pursue this matter on behalf of the employees. Some states (like California) are quite aggressive on behalf of former employees, others aren’t.

2. Federal, then state, then local taxes, in that order. Pursued by the IRS and state attorneys.

3. Banks, then other stakeholders, including customers with equipment in for repair. Owners of equipment in for repair might pursue a class action lawsuit; this is easy in some states, and quite difficult in others. Depends on state law. And yes, the reason class action lawsuits are rare is that lawsuits are often (much) more expensive than any potential gain. It’s the duty of an ethical lawyer to warn their clients of the potential costs of a lawsuit.

4. Bond and stock holders are paid last. The value is usually zero at this point.

Lynn_olsen is largely correct but bankruptcy is a bit more complex depending upon the state and the type of bankruptcy. Most bankruptcies start out as a Chapter 11 meaning they will get some money from an outside source in exchange for basically full ownership of the company. Then Krell in this case would settle the claims of it’s the debt holders with some of the cash infused for ownership of the company with the remaining cash going into future operations of the company. Most states want to get back pay to employees but that is limited in amount, duration of pay owed and the size (cash) of the estate. As for taxes, I suspect Krell has produced losses for multiple years and has a sizable NOL (net operating loss) which is a shield against future taxes  (largely at the federal and state level) and an asset of the estate. The other bankruptcy is called a chapter 7 proceeding which is basically a dissolution of the company under bankruptcy court procedures with the proceeds going to people the company owes money to which includes employees, vendors, secured debt holders ( generally a bank) and then to unsecured debtors. If there is sufficient cash after the bankruptcy action to pay off all the above, then the shareholders get the remaining cash. This whole process is somewhat more complex than that, but this is a quick overview of the rank order of payouts. I’m sure you’ve heard the phrase “Pennies on the dollar”. That is a reference to the fact that in most bankruptcies, most entities owed money get less than what they are owed and hence Pennies on the dollar.

A large percentage of companies that attempt a Chapter 11 actually wind up as Chapter 7’s in less than a year or so. As for those of us with equipment at Krell, it should not be considered part of the estate. We never transferred title to our assets and Krell is simply “holding” our amps, preamps, etc. However, getting them sent back to us will be a chore since cash will be at a premium and there likely is nobody there to send our equipment back to us other than a court appointed trustee who wants to get this off his or her plate as quickly as possible. Sending back 60 pound amps to Oregon or Mississippi will not be high on their to-do list.

This rather negative overview assumes Krell is going into bankruptcy - an event for which we have no actual knowledge. This was merely a response to Lynn_olsen response about payment priorities under a liquidation scenario. The other caveat here is that I am not an attorney but do have experience working with clients through the bankruptcy process. 

This stuff gives me a headache...

You bring up the good point of who is ultimately responsible for returning everyone’s equipment and where is the money to do it going to come from?