When a Brewery Closes

Credit Ben Husmann. Creative Common License.

Credit Ben Husmann. Creative Common License.

Have you every watched a runner take a hard fall during a marathon? That’s how I feel about Mile Marker Brewing Co.’s closing its taproom last week. I am sure it was a hard decision for the Mile Marker team, and I wish them the best.

I do not have any special insight into the situation at Mile Marker, but it got me thinking about some of the legal issues the may come up when a Florida brewery, winery, or distillery closes its doors.

Creditors Must be Paid

A business’s operations might stop, but it’s obligation to pay creditors does not. Landlords, suppliers, equipment financing companies, and credit card companies, among others, are still entitled to payment.

Ceasing business operations can often result in a default under a lease or credit agreement, even it the business can continue making payments for a time. When there’s a default, a lease agreement might require that all of the rent, for the entire term of lease, is immediately due, sometimes with penalties and interest tacked on. Credit agreements will also require immediate payment with interest in the event of a default.

Unfortunately, business operators are often prevented from selling equipment, fixtures, and other property to pay the bills. A Florida landlord has a statutory lien on all the equipment and personal property usually kept one the leased premises. Lenders and equipment finance companies usually require a contractual lien on equipment and personal property. These liens mean that equipment and personal property cannot be sold to generate cash to pay the business’s bills unless the lienholders are paid in full.

If a business cannot pay its debts, it usually becomes the personal obligation of the founders. In starting the business, the foundersare required to sign personal guarantees to further secure payment of rent and credit payments. As a result, the founders often find themselves paying for business debts long after the business closed.

In many cases, a landlord or other creditors might be willing to work out an agreement to make payments over a period of time, return equipment or property, or reduce the total amount that must be paid. Having a plan to negotiate with the landlord and other creditor can end up saving business founders quite a lot of money.

Investors May be Confused and Angry

When a business has a setback or fails, the founders must be prepared to talk to outside investors. Having put faith in the founders and dollars in the business, investors often feel like they’ve lost both.

Under Florida law, investors have a right to know what’s going on with the business. Even without being asked, the founders must provide information about the company’s activities and financial condition. While the founders might not be able to make outside investors happy about the situation, they should at least try show that the founders did everything possible and that the founders are no better off than the outside investors.

Making peace with outside investors is especially important because the investors might have a right to demand repayment of their investments. If the founders failed to comply with Florida’s securities laws at the time the investment was made, the investors might have a right to rescind their investments. Complying with securities laws requires that a great deal of care is taken prior to accepting any outside investment, and new business founders are often unaware about how to do it.

The Government Wants to Know About It

When a brewery, winery, or distillery ceases operations, the TTB and the Florida ABT must be informed about it.

To notify the TTB, a brewery must file an amended Brewer’s Notice marked “Discontinuance of Business.” A Brewery Report of Operations, marked “Final Report,” must be filed showing all beer on hand as paid or transferred to a new owner, and an Excise Tax Return, marked “Final Return” must be filed for the period including the last day of operations.

Wineries and distilleries must notify the TTB about the cessation of operations by letter on company letterhead including the following information certified by an officer: (i) date of discontinuance, (ii) name of successor (if any), (iii) confirmation that all wine or spirits has been lawfully removed or transferred. The wineries or distilleries permit must be surrendered to the TTB. Wineries and distilleries must also file a final excise tax return.

Florida law requires every brewery, winery, or distillery to maintain an open office, to allow for auditing, so the ABT must be notified as soon as the premises are closed. The ABT does not have a specific form for this notice, so providing a letter on company letterhead, in the manner the TTB requires for wineries and distilleries, is the best course of action. The brewery, winery, or distillery should also surrender it’s license to the ABT.

A brewery, winery, or distillery should also notify the bonding company that provided its federal or state excise tax bond. The bonding company might have a specific form it wants completed, or it might accept a copy of the notifications provided to the TTB and the ABT.

Failure Isn’t Final

As hard as it is to see a runner take a hard fall, it is satisfying to see him or her get up again and continue running. We hope that the team at Mile Marker Brewing Co. will keep running, whether making beer or doing something else.

But They Did Not Give Up is a great website with a huge list of individuals and businesses that did not succeed the first time (or the second, third, or fourth times in many cases). A few of my favorites from the list:

  • R.H. Macy’s New York store failed seven times before it caught on
  • Henry Ford went broke 5 times
  • Charles Schultz couldn’t get hired by Walt Disney (who had gone bankrupt several times)