Keep me logged in until I sign out. The board of directors of an insolvent company owes its duty of loyalty to the creditors, not the owners. Creditors' claims get paid before the claims of equity holders Management can legally pay some creditors and not others. Bankruptcy or not There is no clear or universal answer to whether a failed business should file a Chapter 7, which is a liquidation proceeding.
Creditors have a right to recover their claims from the assets of the corporation.
If there are no assets, the corporation cannot be further harmed by lawsuits that try to collect from the corporation. The danger to management in this approach is the tendency of some creditors to assume that the business's failure to pay means that there is some sort of skullduggery afoot, and sue the officers as well as the corporation to collect the debt. While the claim against the individuals may be invalid, the individual has to appear and defend in the lawsuit, or a judgment will be entered against him. Personally managing the wind up has advantages, if you are willing to devote the time and energy to the process. On the other hand, filing bankruptcy may protect assets from creditor action, preserving value for the payment of taxes and employees.