4/6/18 What is a Dump-Buyback?

It is a plan by which the owners of a failing business form a new legal entity which then purchases some or all of the assets of the first business for their liquidation value. This can be done informally with the consent of the failing business’s creditors, who will use the proceeds to recoup a portion of the money owed to them, or it can be accomplished via a public auction or an assignment for benefit of creditors proceeding.

Occasionally “dump-buyback” is also used to describe a business bankruptcy where the owners of the bankrupt business form a new business entity and submit a formal bid to purchase their former assets, usually for a fraction of what was originally owed.

Useful language:

    • owner = proprietor
    • business = company
    • legal entity = association, corporation, partnership, proprietorship, trust, or individual (nut not in this case)
    • to purchase = to buy, to acquire
    • assets (as opposed to liabilities)
    • consent = approval, authorization
    • creditors = those to whom money is owed
    • proceeds = money obtained from the liquidation in this case
    • recoup = regain
    • accomplished = done
    • public auction = a public sale in which goods or property are sold to the highest bidder.
    • bankruptcy = the state of not being able to pay debts as they become due.
    • bid = offer