Summer 2008 E-Newsletter

In light of the current economic climate, in this edition of our newsletter we bring you an article by associate, Kristopher S. Young, regarding his perspective on how current economic conditions are affecting small businesses, their owners and shareholders. Also featured in this newsletter is an article regarding the Firm's sponsorship of the San Diego Historical Society's “History Makers” gala. Welcome to Christine De Santis on joining the Firm as an associate.

Beginning with this issue, we have asked the Firm's Public and Government Affairs consultant, Jack Monger, to provide some observations about local politics or public policy issues that may be of interest to our clients doing business in San Diego. Please see his article entitled “San Diego Political Briefs”.

In 2009, the Firm will celebrate 70 years of service in San Diego! Take a look at our special logo honoring this milestone.

As always, if you have any questions or concerns regarding the firm or our services to you, please do not hesitate to contact me directly at (619) 595-4284 or morrell@higgslaw.com.

Sincerely,

John L. Morrell,
Chairman of Higgs Fletcher & Mack

A HIGGS FLETCHER & MACK ASSOCIATE PERSPECTIVE ON BANKRUPTCY

By Kristopher S. Young

It is no secret that the current economic conditions are making it difficult for small businesses to meet their credit obligations. Once a small business is unable to meet its obligations, or becomes “insolvent,” the inevitable question is: “Do I have personal economic liability?”

Small businesses are often organized as corporations or limited liability companies (LLC) in order to shield business owners from personal liability. Corporate shareholders and LLC members enjoy this asset protection unless they negotiated that right away in a contract.

Negotiating away this asset protection in a contract usually comes in the form of issuing a “Personal Guaranty.” A Personal Guaranty is a promise by a shareholder or LLC member to pay the debts of the corporation or LLC in the event that such corporation or LLC is unable to meet its debt obligations. These Personal Guarantees are generally required by creditors because the business assets do not have enough equity to protect the lending creditor. These creditors are generally banks, commercial real estate lessors or businesses extending credit for goods and services.

When a small business can no longer meet its obligations, and the business owner has signed personal guarantees agreeing to become personally liable for the debts of their business, they can expect the creditor to take legal action. Generally, the creditor will institute an action in state court to prove that the individual is contractually obligated to pay the debts of their insolvent corporation or LLC. Once the creditor has obtained a judgment on the personal guaranty they can begin to collect against the small business owners' personal assets.

Under these circumstances simply filing for bankruptcy on behalf of the corporation will not protect the small business owner because the personal guaranty judgment extends to their personal assets. The answer often becomes personal bankruptcy and a fresh start for the individual business owner. A personal bankruptcy may also wipe out an individuals' general unsecured credit, such as lines of credit, credit cards and car loans.

Unfortunately, small business owners often see bankruptcy as a failure and allow the insolvency to deepen instead of addressing the issues and becoming educated on their options. Seeking a commercial and insolvency attorney's advice at the first sign of credit problems is the best option. A commercial and insolvency attorney may be able to provide alternatives to bankruptcy and general insolvency advice and act as a guide through difficult economic times.

ANNOUNCEMENTS

IN THE COMMUNITY

Higgs Fletcher & Mack is proud to sponsor the San Diego Historical Society “History Makers 2008” gala on June 27th at Liberty Station. This great event will honor those who contributed to the successful transformation of the former Naval Training Center into Liberty Station over the past ten years.

If you are interested in attending this event, more information can be found on the Historical Society website at: www.SanDiegoHistory.org.

70 YEAR CELEBRATION

Higgs Fletcher & Mack will be celebrating its 70th year in 2009. As part of this celebration, the Firm will be using a special logo to honor this milestone. We honor our history and look forward to another 70 years.

NEW ASSOCIATE

Welcome new associate Christine De Santis
Christine De Santis joined Higgs Fletcher & Mack. Prior to joining Higgs, Christine worked at the Law Offices of Stuart M. Manroel in San Diego for over six years where she practiced family law. Her practice includes handling all aspects of a family law matter with particular emphasis on dissolution of marriage and paternity cases, child custody and visitation, child support and spousal support, and division of assets and debts. Ms. De Santis will be practicing with the Firms Family Law practice group.

SAN DIEGO POLITICAL BRIEFS

By Jack Monger, The Monger Company

Two observations from San Diego's recent elections.

Future candidates for Mayor take note: San Diego voters have opposed every Mayoral candidate who has attempted to use his personal fortune to support his candidacy. Steve Francis has tried it twice, spending in excess of $4 million on his recent attempt. Former banker and Port Commissioner Peter Q. Davis tried it twice, spending $1 million of his own money each time. And college professor turned perennial-candidate Peter Navarro, spent his money – and a sizeable chunk of his mother's money – on five unsuccessful bids for Council, Mayor, County Supervisor, and Congress. San Diego voters deserve some credit. Who knows if it was their message or their money that affected voters more. Either way, there is probably a lesson here.

The second observation is that we could be in for a sea of change at City Hall after November as odds favor a new City Council split 4-4 along party lines. This would deprive labor of their current 5-4 Council majority. The Mayor might find this situation preferable, particularly at budget time. However, absent strong leadership from a new Council President (to be elected by Council members in December), the vote split could result in public policy log jams.