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Chapter 11 Bankruptcy: Dealing with Intangible Assets

chapter 11.jpgIn many ways, Silicon Valley has changed the way the world thinks about business. For example, the innovative transportation company, Uber, is now valued at more than $60 billion, yet it essentially owns no vehicles. Uber's assets are mostly intangible. Increasingly, businesses in Northern California share that characteristic. Intangible assets might be the key to your company. However, if bankruptcy becomes necessary, your business will also face some unique challenges when dealing with these assets.

Three Issues You Must Consider

Dealing with intangible assets and the business bankruptcy process requires carefully considering the following issues:

  • Identification: All complex businesses need to identify, and comprehensively inventory, the full extent of their intangible assets. A company may actually own valuable intangible assets that are not recognized on paper. For example, when a company owns a piece of intellectual property, such as a patent, there is no question that the asset is easy to identify. While it may prove difficult to value, everyone knows that the patent is there. However, companies also often hold much subtler intangible assets like operational knowledge and business acumen. It is critical that the bankruptcy trustee does not solely focus on identifying registered intellectual property. They must take a deep look at the company's inherent knowledge and all other intangible assets. The full value of your company cannot be recognized if each individual asset has not been properly identified.
  • Valuation: The valuation of intangible assets will often prove to be complicated. In some situations, it may be possible to use some standard accounting methods. For example, the value of certain intangible assets can be ascertained using the discounted cash flow model. However, many times those simple methods will prove to be inadequate when dealing with complex intangible assets. Further, companies that are looking to part with some intangible assets may face a negative bias from buyers. Sometimes buyers will incorrectly assume that simply because a company is going through Chapter 11, the intangible asset must not be worth very much. It is critical to get a correct valuation of all of your intangible assets so they can be properly packaged in the event that the company needs to sell them.
  • Protection: Finally, it is important to remember that the Chapter 11 bankruptcy process is fundamentally about reorganizing the company so that it can thrive in the future. Handling your intangible assets should be done with the same prudence and care that you would with tangible property. After all, without certain intangible assets, you might not have a business at all. Beyond recognizing the existence of certain assets, and their fair market value, you must recognize which assets your company will need to protect to successfully move forward with the restructuring process.

Need Legal Help?

At Diemer, Whitman & Cardosi, LLP, our passionate San Jose business bankruptcy attorneys have extensive experience helping financially distressed California companies. If you have any questions about bankruptcy and intangible business assets, please contact our San Jose office today at 408-971-6270. Our firm proudly serves clients throughout Silicon Valley and the wider Bay Area.

Sources:

http://www.bloomberg.com/news/articles/2015-12-03/uber-raises-funding-at-62-5-valuation

https://www.law.cornell.edu/uscode/text/11/chapter-11

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