If You're Bankrupt, Then We're Through. Right?
Here's a not-so-unusual hypothetical: let's say you provide services to a company, and that company goes bankrupt. Can you say "bye bye" to the bankrupt company by terminating your service agreement?
No, not likely. Bankruptcy law would likely compel you to continue providing your services to the bankrupt company, even though the bankrupt company might not be paying you to do so.
Seems unfair? Maybe it is, but the logic behind the law is that we have determined (as a society—not individually) that it's better to give a bankrupt company a fresh financial start than assume the bankrupt company is dead in the water.
And if that means that you have to continue providing services to the bankrupt company, then so be it. (Question: Who says so? Answer: The law, and the bankruptcy court judge.)
But what about that clause in your contract which says that if the company went bankrupt, you have the right to terminate your agreement. Surely that clause saves the day, right?
Uh, no.
Why not?
I could go into a lengthy explanation, but I found a very good article that sums up the issue nicely. Go HERE to learn more about why your so-called "termination for bankruptcy" clause may be totally unenforceable.
Bottom line: don't think that a simple "termination for bankruptcy" provision in your agreement can protect you from a customer that goes bankrupt. There maybe ways to minimize the risk, but don't go it alone. Call an attorney for help.
No, not likely. Bankruptcy law would likely compel you to continue providing your services to the bankrupt company, even though the bankrupt company might not be paying you to do so.
Seems unfair? Maybe it is, but the logic behind the law is that we have determined (as a society—not individually) that it's better to give a bankrupt company a fresh financial start than assume the bankrupt company is dead in the water.
And if that means that you have to continue providing services to the bankrupt company, then so be it. (Question: Who says so? Answer: The law, and the bankruptcy court judge.)
But what about that clause in your contract which says that if the company went bankrupt, you have the right to terminate your agreement. Surely that clause saves the day, right?
Uh, no.
Why not?
I could go into a lengthy explanation, but I found a very good article that sums up the issue nicely. Go HERE to learn more about why your so-called "termination for bankruptcy" clause may be totally unenforceable.
Bottom line: don't think that a simple "termination for bankruptcy" provision in your agreement can protect you from a customer that goes bankrupt. There maybe ways to minimize the risk, but don't go it alone. Call an attorney for help.
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