Friday, June 02, 2017

Texas Judge Says You Can Do It Right or Just Wing It

Texas Bankruptcy Judge Tony Davis had some sound advice for persons setting off on a business venture.   In fact, his words should be mandatory reading in business schools and forums where would be entrepreneurs frequent.    He wrote:
When two individuals decide to join forces and form a business venture, they can take one of two paths. The first is to seek and pay for sound legal advice to define and structure their relationship and fairly allocate business risks, and to pay for sound financial advice to properly project future financial performance and accurately record the past. Or they can eschew the advice, save a little money, and just wing it. And that can work out fine in those few cases where the venture succeeds and prospers. But failure occurs far more often. And where, as here, business failure goes along with a lack of proper documentation, the parties can end up in litigation, and the attorney fees paid to litigation counsel are many times the fees that would have been paid for proper legal and financial advice up front.
Higgs v. Colliau (In re Colliau), Adv. No. 15-1118 (Bankr. W.D. Tex. 5/24/17).

Unfortunately, bankruptcy lawyers know this story all too well.   By the time that clients get to us, the time to properly document the deal is long gone and the once friendly parties are antagonistic.

However, there is still some wisdom for bankruptcy lawyers here.  A plan of reorganization is a contract.    Careful plan drafting can avoid litigation down the road.  As the late bankruptcy Judge Larry Kelly once said, "You guys drafted this plan and you voted for it and now you're asking me to tell you what you meant?"    Careful drafting up front and bringing in transactional lawyers when needed can save a lot of expense down the road.

Disclosure:  I initially represented the plaintiff in this case.   However, I did not try the case.