Here's a common scenario: A debtor corporation informs its creditors that it plans to go out of business (possibly by turning in the keys to its bank) - without ever filing for bankruptcy protection. Now comes the kicker: The bank is a secured creditor and, as far as the debtor knows, there won't be enough money from the liquidation of the business to pay even the bank in full. If you're an unsecured creditor, you can abandon all hope of seeing even a penny of the money owed your company.

... OR YOU CAN FIGHT BACK

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

Inform the debtor you may take part in an involuntary bankruptcy filing on them. That's the suggestion of consultant Michael J. Dennis, formerly credit manager for ANDCO Distribution Co., who has found that such a filing "may pressure the debtor to settle with you and/or all the unsecured creditors," for these reasons:

1. The debtor may not have the time to be part of a protracted bankruptcy proceeding;

2. The debtor may have something to hide, such as having made preferential transfers to insiders; or

3. The owner(s) of the debtor company may be personally liable to the debtor corporation's secured creditor, and the secured creditor may have already informed the owners that if the bankruptcy filing complicates its attempt to seize the corporation's assets, it will proceed against the owners individually.

• To see if the debtor company was and is lawfully incorporated. If not, it may be possible to "breach the corporate veil" and go after the personal assets of the company's owners.

• To determine whether preferential transfers took place. In particular, unsecured trade creditors would want to determine if any preference payments were made to insiders within the last 12 months.

• To find out whether the "secured" creditor actually has a perfected security interest in the assets of the debtor corporation as it claims. If unsecured creditors allow the debtor to simply close its doors and go out of business, trade creditors may never know whether the party claiming to be a secured creditor held a valid and enforceable security interest.

• To get a full accounting from the owners and officers of the corporation, under oath, as to the status and disposition of the assets of the company.

• To examine legal issues relating to fraudulent conveyance and equitable subordination.

• To be certain that assets of the company are sold at fair market value, and are not disposed of as part of a "sweetheart" deal.

• To use a "marshalling" argument (when a secured creditor has more than one form of security) to try and obtain a larger recovery for the unsecured creditor group.