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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
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Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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i had to file bankruptcy on a gym and the sba was my creditor

Customer Question

i had to file bankruptcy on a gym and the sba was my creditor and they made me
guarantee the debt with my cpa firm. i had to guarantee the debt with my cpa firm. i had to
bankrupt the cpa and open up under a new name and corporation. the trustee for the cpa is
trying to find value in my cpa business. my equipment is worth about 4000 and they couldn,t make me sign a noncompete and i wouldn't agree to stay on for a couple of years to transcend the clients to the new owners. my employees and myself who have the
relationships with the clients and are the reason the clients come back because we have gained their trust would not stay. my client's come to me because they trust me and the
relationship we have. isn't the client list my property and wouldn't the value diminish because i wouldn't sign a noncompete and i would be free to solicit my clients at my new
location ? in essence i am the goodwill of the business. the location is not good either all
of the businesses in my shopping center have failed but me so doesn't this also diminish the value of my client list ? the trustee also said the bankruptcy was a sham because i didn't move to a new location. what can i do about that ?
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 2 years ago.
isn't the client list my property?

A: The client list is the property of the employer, because all efforts of an employee within the scope of employment is the property of the employer.

Wouldn't the value diminish because i wouldn't sign a noncompete and i would be free to solicit my clients at my new location?

A: The fact that there is no noncompete does not mean that you can take the client list from the former business. In other words, you can compete, but a successor owner could attempt to sue you for the conversion/civil theft of the customer list. Obviously, this is a difficult case for the successor business to prove, and it is one of the reasons why employers require noncompete clauses in employment contracts.

in essence i am the goodwill of the business. the location is not good either all
of the businesses in my shopping center have failed but me so doesn't this also diminish the value of my client list?

A: This is not a legal question. It's a business valuation question. You're probably a better judge of this than would be any attorney.

the trustee also said the bankruptcy was a sham because i didn't move to a new location. what can i do about that ?

A: If the trustee is asking the court to dismiss the bankruptcy, then you will have to show that you have not plundered the business' assets to start a new business. The client list could be proof supporting the trustee's claim. It's your burden to show that your business is entirely new, and that you are not trading on the goodwill of the former business. If you do not, then the bankruptcy will be dismissed.

Hope this helps.

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Customer: replied 2 years ago.
i am the goodwill of the business my clients come to me becuse they trust me and i have built a relationship with them. if i do not sign
a noncompete and do not agree to stay on for a couple of years to
transition the clients the clients would not come back and no one would
want to buy the business so the value of the client list is zero. my clients are not obligated under any engagement letter or contract they
are free to go wherever they please they just choose me because the level of trust they have with me and the relationship we've built. i just hope they come bach each year and sometimes they don't. the only
value to my business without my cooperation is the equipment which is
worth about 4000.
Expert:  socrateaser replied 2 years ago.
You appear to be trying to arguing your position. That's not the purpose of this forum. I "justanswer" questions "about" the law.

The bankruptcy trustee can claim that by your using the former business' customer list, you have engaged in an unlawful transfer of business assets/goodwill. Your argument may prevail. In my view, you must show that you have not used the former business' customer list, but rather that to the extent that you have contacted any previous clients, you have done so from memory.

Hope this helps.

NOTICE: My goal here is to educate the public about the law. Please help me in this effort by clicking Accept (or, click on one of the happy smiley faces/stars/etc., if applicable) for my Answer to your Question. If you have a subscription account, clicking Accept does not create any additional charge. It merely gets me credit for my Answer.

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Customer: replied 2 years ago.
my point is that the trustee cannot force me to sign a noncompete
agreement and to stay on to transistion the clients to a new ownwer. no buyer would be willing to buy under those circumstances so the client list is worthless the only value is the equipment.
Expert:  socrateaser replied 2 years ago.
As previously mentioned, I'm not here to argue with you. I "justanswer" questions "about" the law and while you are not asking any questions, reading between the lines, you appear to be seeking legal support for your argument.

So, here is some case law to help you support your argument. In Trask v. Susskind, 376 F.2d 17 (5th Cir. 04/05/1967), the 5th Circuit Court of Appeals wrote:

  • The right of an individual who declares bankruptcy to again engage in the same business activity is not a matter of dispute. Heyl v. Emery & Kaufman Ltd., 204 F.2d 137 (5th Cir. 1953). In Heyl the bankrupt had operated an insurance agency for some years prior to his bankruptcy. During the bankruptcy proceedings the insurance "expirations" were sold to a creditor. The question presented to the court was whether the purchase of the "expirations" barred subsequent solicitations by the bankrupt. This court held that the bankrupt was not precluded from soliciting his former customers. There is no reason why the employees of a corporation should not have the same right to engage in the same business activity when the corporation declares bankruptcy.

 

Hope this helps.

 

NOTICE: My goal here is to educate the public about the law. Please help me in this effort by clicking Accept (or, click on one of the happy smiley faces/stars/etc., if applicable) for my Answer to your Question. If you have a subscription account, clicking Accept does not create any additional charge. It merely gets me credit for my Answer.

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Customer: replied 2 years ago.
my whole point is that there would be nothing to sell without me signing
a noncompete agreement and they can't force me do do that. they can't take my client files but even if they did they can't take my phone number or website and thats where i get a lot of my clients. i couldn't sell my clients without a noncompete agreement in place and me agreeing
to stay on for a couple of tax seasons to transition the clients to the
new owner. also my staff would have to agree to stay which they wouldn't
i know as a cpa without all of this in place and my cooperation there
would not be another cpa who would buy my client list because he would
have no clients. there is no value to my client list unless i
cooperate.
Customer: replied 2 years ago.
Relist: Answer quality.
my cpa firm guaranteed an sba loan for a gym that i
defaulted on and i had to file bankruptcy on the gym
and the cpa firm i lost the gym but i opened a new corporation for the cpa firm. the cpa trustee is
trying to assign a value to the client list that i had but i have no engagement letters or no contracts with the clients they are free to go
as they please and the client files are personal info and are my property. the only way a cpa's client list has value is if he signs a noncompete
agreement and keeps his staff in place and agrees to stay on for a couple of tax seasons to transition the clients and the trustee cannot make me do that so the client list is worth nothing without my cooperation no cpa would buy the list without all of this in place, i would also have to
agree to sell my phone number which they can't make me do or take my website from me that is the
way i get a lot of client's. so the way i see it they can only go after my equipment which is worth only 4000. am i correct i just know a cpa would not buy my client list without all of the forementioned in place so all i am on the hook for is my equipment correct ?

Expert:  socrateaser replied 2 years ago.
the way i see it they can only go after my equipment which is worth only 4000. am i correct i just know a cpa would not buy my client list without all of the forementioned in place so all i am on the hook for is my equipment correct ?

A: I think you have a winning argument.

Best wishes.

NOTICE: My goal here is to educate the public about the law. Please help me in this effort by clicking Accept (or, click on one of the happy smiley faces/stars/etc., if applicable) for my Answer to your Question. If you have a subscription account, clicking Accept does not create any additional charge. It merely gets me credit for my Answer.

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socrateaser
socrateaser
Bankruptcy Lawyer
34458 Satisfied Customers
Attorney and Real Estate Broker -- Retired (mostly)