September 27, 2008
Law School in Kentucky Files Bankruptcy Petition
American Justice Law School filed a chapter 7 petition in the Western District of Kentucky last week. I'm not sure why. The schedules, attached here, disclose that the "unencumbered" assets were sold early this year to a new group now operating "the Barkley Law School." There doesn't seem to be any equity in the assets remaining and corporations do not receive a discharge in chapter ever - ever - ever. The trustee will look to see if there is anything to sell and if not, simply close the case and the corporation will be back to where it was. The trustee might sue the Board of Directors for breach of fiduciary duties or other sins but that doesn't often happen unless there is cash around which can be used to pay the trustee's attorneys.
There a couple of reasons why the corporation might have filed the chapter 7. One is that the new entity might want to buy some of the remaining assets and have the sale approved by the Bankruptcy Court. Secondly, the new school may want to disclose the previous transfer of the assets to it and if no one objects, they will have a great argument later that no games were played in the transfer. Next, the schedules were signed by a Lisa Owen, entitled "Sole Director." Apparently everyone quit and told her to turn out the lights. She may need someone to give the keys to. There are payroll taxes so maybe she thinks there are assets which can be sold and the IRS would be first in line if there is anything left after the trustee pays herself and her attorneys. Lastly, the bankruptcy may have been filed hoping that creditors do not know that the bankruptcy doesn't affect their rights (it only delays enforcement of their rights), and when they see the bankruptcy notice, they write off the debt and go away.
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