Business Law Assignment – Lori Case Study
Student’s Name
Institutional Affiliation
Imagine you work for a small finance company. Lori has approached you to see how she can rearrange her affairs. What might you suggest?
I would advise Lori to desist from trying the new line of hair products as the idea is not feasible at the moment. With the current state of affairs, the business is not fit for diversification because of the looming crisis. The following are some of the potential risks likely to affect her business.
Firstly, the business is under no incorporation, and this implies that Lori is liable for the obligations of the company. If she is unable to clear her debt, she incurs all the costs solely. Lori may lose personal and business property. The law allows her creditors to keep her products or resale them to recover their money. Lori is entitled to the surplus from the sales. Although Lori may earn something from the resale, the cost and the risk outweigh the benefit. Acquiring the machine will increase her debt burden and eventually lead to insolvency. Lori may receive a poor credit rating, and the record will last for about six years; thus, her survival in business will suffer.
Secondly, Lori finds it hard to determine what interests her clients. It is not sure whether the new line of products will sell or increase her inventory, which is already full. The dead stock will not generate returns; hence Lori will be unable to pay back the machine. With an already over overdrawn credit limit, increasing her debt will ruin her reputation, and suppliers may cease to give her consignments. Through legal means, the creditors may also repay themselves by acquiring her property.
Lori should find means to bring her business to order. The means may be informal or legal. The non-formal ways entail initiation of negotiations between her and the creditors to strategize on repaying the debt. Lori may also avoid bankruptcy through legal avenues. Programs like Orderly Payment of Debts will help her evade bankruptcy if she clears her debt within three years. She can also source for guarantors who will commit through a contract to stand for Lori in debt repayment even when she fails to honor the debt.
Lori’s debt is worrying and may invite lawsuits from creditors who wish to reclaim their money. Attempting the new line of products is a risky affair that will increase her debt. Lori should focus on putting her business in order by sorting out her obligations. Lori can negotiate with her creditors to revise the payment terms. Lori may also look for guarantors or use the Orderly Payment of Debts program to prevent her business from insolvency. Lori’s focus should be on salvaging her business, after which she can consider acquiring the machine.
Reference
Agoro Papaioannou (2020). “Business Law: Securing Debt.”