Going Bankrupt? This Is My Story And Some Tips.

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Around 4-5 years ago one of my working companies went bankrupt and around the same time my (ex-)wife decided to divorce me. I think that was the hardest period in my life so far and obviously the bankruptcy had less of an impact on my life than being separated from my daughter. Yep, it was a tough period in which I felt like a total and utter failure but not so much because of my company going bankrupt.

Obviously I’m not gonna write about my divorce but I do know that a bankruptcy by itself can have a big impact on someones life and can be really hard by itself. It was actually today that I realised I never shared anything about my experiences with going bankrupt. While in the US it’s mostly considered part of becoming a mature entrepreneur, in Holland people rather don’t talk about it out of shame. Well, let me tell you that if you’re an entrepreneur chances are you will go bankrupt once and there’s no shame in that, at all. You’ve tried and failed, NEXT!

This is all easy said in retrospect, but if you’re in the middle of a bankruptcy things can get really nasty and if you’re doing the wrong things it can have a severe impact on the rest of you’re life. So I would like to share my experience and hope you will never need them but if you go bankrupt I hope this will help a bit.

So the reason my company went bankrupt was a classic mistake. I’ve scored a huge account, the first Zopa of Holland (and later Italy) and the capacity needed to manage this account was larger than I had. At first I solved that by hiring techies from outsourcing companies but at one point it seems to become structural so I cut down on the cost by hiring people directly. What I forgot is that this account, in which I also served as CTO for a while, was still in startup mode. What I didn’t take into account that if it would come to a point at which the financer would pull the plug then automatically that would mean the plug was pulled out of my company as well. Well, you can guess already, that’s exactly what happened. Damn! F**k!

4 years of hard work ended in a split second. I felt really super bad, you can’t imagine how bad. I felt I’ve let down my family, my clients and myself. And to be honest, up till then I don’t think I really experienced failure in my life. Up till then I succeeded in everything I wanted, I passed every exam I took, got pretty much every opportunity I wanted, life was sweet… till that moment. And even though  it had crossed my mind that failure in something at one point is inevitable, it came as a blow and totally dazed and numbed me for a while.

So here are some tips and shares for when going bankrupt. If you’re in a similar situation feel free to drop a question in the comments. I guess it’s easy for me to help and it can save others a lot of trouble.

Prepare for loneliness

This might differ per country/culture but my time of bankruptcy was the loneliest period of my life. It felt like everyone abandoned me besides very few but very true friends. It’s part of life, winning=friends, losing=loneliness. It’s probably not because people dislike you all of a sudden, it’s just the nature of people to avoid people in trouble. People in trouble means negativity, who knows it might even be contagious!

But I don’t blame anyone. I realize that some things in life you just gotta go through and deal with yourself. Even the friends that didn’t abandon me couldn’t do much more than give moral support for which I’m still grateful. During this period I had some unusual and disturbing dark thoughts and moral support is just what I needed to drag me through it. Anyway, my point is that at this point you need to set your mind on that you have to handle this by yourself. It will be shitty but the lessons you will learn are priceless and will make you so much stronger in starting you’re next company. Equally important, you will find out who your true friends are and I was glad to see no surprises there, the people I considered to be good friends proved to be just that and up till today still are.

It’s business, don’t make it personal

When the investor pulled the plug I was in a rage, I felt totally screwed and had extreme feelings of revanche. I honestly wanted to destroy him. I probably could have done some serious damage but shit can and tends to boomerang. But even more important, in retrospect I think I was whining and blaming someone else while I had to blame myself. I was in full control of my company, I was responsible for all decisions made and I fucked up by taking a risk resulting in a classic mistake.

One thing you always need to keep in mind, investors can and will pull the plug when he thinks it’s better for his wallet. You think he’s your friend? Can be but don’t confuse that with business.

Luckily I realised this on time and didn’t make things worse. How hard it may seem, going bankrupt is business, you lost and no one else to blame but yourself.

Don’t touch the money

…and take one step back and try to think clearly about what to do next. Don’t pay anyone, INCLUDING YOURSELF!!! Hopefully you still have some money in the bank, keep it there. Don’t pay bills of suppliers you don’t want to disappoint, this is business and every dime in your account will make the process easier. Every payment made in a period in which anyone can see bankruptcy is the only way out has the potential to screw up your life.

Taxes first

Before my company entered protection from creditors phase my corporate lawyer advised me to pay all outstanding taxes. You can have a fight with any supplier, investor or for all I care the Queen herself but DON’T THINK YOU’LL BEAT TAX! In Holland and I guess anywhere else in the world the Tax is like gestapo, they seem to be above the law, mostly there’s no way of reasoning with them and they don’t care about the person, their problems or their personal life. It’s just a law in life, taxes you gotta pay. People not paying taxes are dumb fucks unless at later point they still have more than enough money to pay what they should have paid once the tax finds out. Besides, I believe paying taxes is just the right thing to do. In Holland you can be sure the tax at one moment will find out.

Only two things certain in life: death and taxes

The bank

Next I did was inform the bank and in writing canceled any credit my company had. I was lucky to have a positive balance at that time so in the end the company didn’t owe the bank anything. Bank are the closest thing to taxes, upset them and you will be sure every bank will close they’re doors for you instantly and probably ever lasting. Banks…. when you don’t need them they want you, when you need them they’re not interested.

Don’t screw your suppliers

Once you’ve reached the point of no return and you’re sure you’re heading for bankruptcy, tell you’re suppliers and definitely don’t try to leverage on the credit your company still might have. The last will be a sign of not acting in good faith and can potentially make you personal liable for the whole bankruptcy. Second, probably you will start a new company again and it’s a small world. I did a round of calling all suppliers and was many times positive surprised with their reactions. Obviously no one likes to hear they’re not getting paid but they’re entrepreneurs too and many of them showed empathy and appreciated my honesty.

Get a lawyer

I don’t care where you get the money from but get a lawyer! It took me 4 months to realize that and once I got a lawyer the sky cleared up almost instantly. Where I had no clue what to do or how to go about this, my lawyer took the right steps almost instantly. I hope I use the right terminology (being Dutch and all) but he filed for “creditor protection” straight away. Next a curator comes into play and you’re one step closer to the end of this bad dream.

Facilitate the curator

I’m not aware of all the procedures around the world but I guess in most cases they’re quite similar. Once you filed for “creditor protection” the government will appoint a lawyer to become curator. The first thing the curator will look into is to see whether the company can still be saved which in most cases is a short formality after which he will file for bankruptcy. Then his main to is to monetize the companies assets and divide them amongst all creditors (including himself). Also he will look into the behaviour of the management to see if any irregularities have taken place in the period leading up to bankruptcy. If so, the director(s) can be held personal liable which can lead to a personal bankruptcy as well.

In practice the first thing a curator will do is see how his bill can be paid. He’s interested in a swift and smooth execution to boost his hourly payment.

As a director and owner I was aware of what’s ethical and non-ethical behaviour and what acting in good faith means. My advice to you is to not even lend a paperclip during the period leading up to bankruptcy. Running a company with limited liability is exactly what it says, but when you enrich yourself, relatives or friends during the period leading up to bankruptcy it can and will result in full liability.

Anyway, the first thing I did was prepare everything in an orderly way for my curator and I told him the whole uncut and uncensored story. To be honest, I was quite scared having heard and seen stories of people being held personal liable and I started seeing ghosts. But my curator heard the story and agreed that I acted in good faith and that considering the situation I couldn’t have done more to save the company. Being insecure at that time I was glad to hear that.

Then I helped him monetize all assets, for me it was easier to find a buyer for all assets, it’s another sign of good faith and it helps paying the bills. Basically that was it, soon after the court declared my company bankrupts the files became final and the case was closed.

Don’t let them mess with your brain!

Car lease companies…. scum of the earth! Well, at least the car lease company I used. For nearly 8 years I leased cars from them, for me and my staff. Not ever did I miss a payment and I made sure everyone treated their car in a correct way. I considered myself a valued and appreciated customer. But then the phone rang, after I informed also them of the fact that my company was heading for bankruptcy.

The funny thing was that my company or myself ever signed any contract, the investor facilitated this and all cost were charged internally. However, the leasing company told me I signed the contracts through my holding company and that my holding had to pay the bill. They even went as far as saying I could be held personal liable for all the bills. So I went looking for contracts which I couldn’t find because they didn’t exist. But gullible as I was I started doubting myself and asked the leasing company for a copy which they denied with the message that they would produce the contracts once the case has gone to court.

To be honest, at that time I was intimidated and felt insecure. If they were right I could have been in serious trouble since my the company going bankrupt was not the only asset of my holding so if they were right I was about to lose everything.

When I told the story to the curator he instantly started laughing and told me not to worry. I think he used the word “maffia” in relation to lease companies and confirming that they’re not shy of using any means to get their money, including lying and intimidation. I think they called me one more time in which they tried to intimidate me bordering to threats, I simply referred them to the curator and I haven’t heard of them since. If you’re car lease company in Holland advertises with the payoff “Clear and transparent” then know who you’re dealing with. But I guess that goes for others as well.

So what about you’re clients?

Once I realize my company was heading for bankruptcy I really felt bad towards my clients. They have put their faith in me and my company and now I’ve let them down, well, that’s how it felt. But they know that business is business and if you’re going bankrupt business stops. Now some will offer you jobs which they’re willing to pay you for under the table. As tempting as it may be when you’re financial position is in the worst shape ever, don’t do it. You are in fact personally enriching yourself during bankruptcy which is not really a sign of good faith and can result in “limited liability” turning into “full liability”.

But I also felt I couldn’t just do nothing at all so contacted come of my colleagues to see if they were able to takeover some of my clients. This obviously in consensus with the curator. I shared all codes and gave explanation where needed. Basically I tried to migrate my clients to other companies with the least amount of damage, which was all and the best I could do.

But please realize that this is business and that you don’t owe your clients anything unless you let them pay for something you haven’t delivered yet. So cut the rope and realize bankruptcy means it’s all over, including the responsibility the company carried because the company just died and it’s time to leave it with that.

In conclusion

I guess I’ve been lucky in two ways with this bankruptcy. First, I already had another opportunity lined up so I didn’t have to worry too much about personal cash flow problems. Second, I always operated very careful and always aimed at limiting my entrepreneurial risks. Looking back I’m really glad I did limit my risks and I think a lot of companies going bankrupt are in worse shape so they will experience sides that I didn’t have to experience. Two things on that, limiting my risk in theory can contribute to bankruptcy, especially when it’s more a cashflow issue than a structural one. If you’re company is structurally heathy and just suffering from cash flow issues by all means go all in. But don’t close your eyes for the truth and make things worse.

Always remember, in business it’s all about acting in good faith, as long as you obey that rule you should come out of any bankruptcy alive and more strong than ever. Though I wouldn’t enjoy going through the process again and I don’t have any plans to do so, this experience is a valuable one.

Question? Drop them in the comments and I WILL reply.

  • Dickyj

    Thanjs for sharing the story, i have been thru personal and professional aspects of what you had been thru as well. Best friends are a big help. I also determined to stay healthy at any costs, a healthy body enforces a healthy mind and keeps negative thoughts from invading the brain.
    Being in the IT industry where the mind is the assets, all these emotional upheavals can be taxing indeed. Slowly you learn not to take too many things in heart and just move on and look forward.
    Hope you achieve great success in tokobagus.

    An IT entrepreneur

    • http://sangatpedas.com Sangat Pedas

      Thanks for sharing Dicky and you’re definitely right about staying healthy, I guess in my case exhaustion definitely created an even more negative mind set. Good luck to you with your ventures.

  • jonyk

    I’m a new entrepreneur, your story is inspirational. Thank you.

  • BK

    The company I work for filed for Chapter 7 bankruptcy the other day. I have been so devastated and lost all week. I decided right away that the most important thing for me to do would be to personally reach out to all of my clients and give them the news, and that was very difficult for me.

    Some of them were upset, especially those who had pending orders that they will not be receiving. Most of them were very kind and actually worried about me. I’m grateful that I had a very good reputation in the industry, so I’ve had several job offers already, but I’m going to take about a week to process all of this before making any decisions.

    Your post was helpful and gave me insight into pieces of the bankruptcy that I hadn’t thought of before. Thank you for sharing.

    • http://sangatpedas.com Sangat Pedas

      Hi BK, thanks a lot for sharing your story. For me the whole point of sharing this was to let others in this situation know they’re not alone and there’s light at the end of the tunnel. You sharing your story helps a lot with that so thanks and best of luck in your future career and life.