Hopefully this is just a hypothetical question for you and you're right; wind-down is a part of the entrepreneurial experience. I agree with Jarie that it is a very unpleasant experience, even more so then laying people off because you get to do that and deal with angry creditors too!
I agree with all of Jarie's comments. I'd just like to add to point #3.
I recently had to put a company into Chapter 7 (liquidation) bankruptcy which can be messy, lingering, and to be avoided if possible. The way to do this is to close down BEFORE you are unable to meet your creditor debts. That way you might be able to do an orderly windup and mothball the assets without necessarily having to liquidate.
To do this, the strategy I would advise is the following:
- Make sure you can pay off all payroll taxes and wages due before shutting down. You should know that tax obligations are not discharged in a bankruptcy, so make sure you can pay these. This may also apply to wages due depending on the state you are in. (Note: I am not an attorney. Consult a good bankruptcy attorney if you need legal advice.)
- Self off as many assets you can to generate cash.
- With any remaining cash, try to settle with creditors. They may be willing to accept less than the total due if they know you are closing down. While they can take you to court this is expensive, time-consuming, and there is no guarantee that they will be able to collect. If you do cut a deal, make sure you get a release from them.
- Don't forget to settle with any ongoing customers as well, especially if you have any unfulfilled contracts.
- Optional: If you wish to formally close your legal entity, remember that there will be legal and filing costs associated.
Hope this is advice you won't ever need.
Answer to your comment (add comment feature isn't working for me):
This is a tough one as it becomes a business judgement issue. Again, I'm not a lawyer, but the company's board directors face potential liability if they continue to operate when it is "clear" that the company may no longer be a "going concern". What constitutes "clear" is subject to interpretation. It may be viewed as bad faith or even fraud if the company continues to wrack up debts that it has no ability to pay.
This is definitely a decision that your board needs to make. At very least, you might need to have a sit down with your largest creditors to see if they are willing to play ball with respect to a potential investment or acquisition or not. Note that if two or more creditors get together, they can actually force you into involuntary bankruptcy.
In any event, make sure all your tax obligations are cleared up first!