Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Argue both sides to this case Bill runs a dry cleaning store called Bills Dry Cleaning. He is in deep financial trouble. His bank will

Argue both sides to this case
Bill runs a dry cleaning store called Bills Dry Cleaning. He is in deep financial trouble. His bank will no longer give him any credit and is threatening to demand immediate repayment of all money it has loaned to his business. Bill also owes money to other creditors and vendors.
Bill is desperate, so he approaches Christine, a very rich lady, and asks her to refinance his business. Christine reviews the business and its operations and says to Bill, Listen, youre a great dry cleaner but a lousy businessman. Ill bail you out, but we have to divide up responsibilities a bit. If were going to make this business work, we have to be stricter about it. First, no more credit to professors. Theyre lousy at paying their bills on time. Second, I want to determine who gets paid when. One of the arts of staying in business is stretching out your accounts payable. So, before you pay anyone, you check with me. Also, I want some upside potential. So long as you owe me money, I want 12% interest on whatever you owe me or 12% of the profits, whichever is higher. You pay me the 12% monthly, and quarterly Ill decide whether to keep the past three months interest or take my share of the past three months profits.
Bill accepts Christines terms, with one condition: We have to pay the employees on time. If we have the money, we pay them. Christine accepts Bills condition, pays off the loan from the bank, and provides additional working capital to the business.
The business continues to operate under the same name, and no one except Bill knows about Christines involvement. Bill stops extending credit to professors. Each month Christine reviews Bills accounts payable and sets the priorities for payment as follows: (1) pay Christine the money owed her; (2) pay overdue bills from people Bill intends to buy from again; (3) pay overdue bills from other people who are threatening to sue; and (4) pay others. Christine never does take a percentage of the profit because the 12% interest figure is always higher.
Bill makes all decisions about which vendors to use. He also makes all personnel decisions (hiring, firing, salaries, etc.). Despite Christines help, the business fails in less than a year. Bill owes Christine $350,000; he owes creditors a total of $150,000 and $25,000 in unpaid wages to three employees. Bill has no money left.
Question: Are Bill and Christine partners, and if so, what kind of partners are they, and how (if at all) can the creditors and the employees collect from Christine? Explain.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Lead Auditor ISO 22000 2018 Food Safety Management Systems FSMS Course

Authors: Marius Hauta

1st Edition

B0BTSCBJ82, 979-8376159750

More Books

Students also viewed these Accounting questions