Duluth, GA asked in Bankruptcy and Contracts for Georgia

Q: Is it ethical (or legal) to sell shares of your small business knowing that you are currently filing bankruptcy?

In GA, what is the avg timespan from hiring an attny to the actual filing of Chapter 11 paperwork? We purchased shares of a local business directly from the owner on February 2 and they filed for bankruptcy March 1. During our meetings, they advised they were going to be using the funds to expand operations, pay back covid loans, and buy additional equipment. It would appear from the timeline, they were likely already working with an attorney and in the process of filing for bankruptcy (and not disclosing that info) while we were discussing investing. Is it ethical (or legal) to sell shares of your small business knowing that you are currently filing bankruptcy and that the low priority investors you are taking money from will most definitely see no return and that their funds would never be recoverable?

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1 Lawyer Answer
Timothy Denison
Timothy Denison
  • Bankruptcy Lawyer
  • Louisville, KY

A: It could be construed as fraudulent conduct. I would tread very carefully in this matter to avoid any allegations of fraud or misconduct.

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