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[Music] welcome to the retzel health law hot spot health law hot spot is a podcast for physicians and health professionals that covers the legal issues and trends that affect the health care industry everyone welcome to the health law hot spot i'm erica adler from wrestling andrus shareholder and leader of our healthcare practice group today i'm joined by lee levin who's also a member of our healthcare practice group and i've worked with lee for over 25 years and today we're going to talk about one of the topics the many topics that come up again and again which we thought would be a great topic to cover for all of you today which is what do practices need to think about when closing down a practice and that might include selling that might include retiring and any other reason that a practice might be closing what are some of the legal issues to think about so thanks for joining us lee i appreciate you coming on and we'll jump right into it so why don't we start with sale of a business what does a practice need to think about when they're selling in terms of the fact that they're shutting their existing business down okay well we'll take care of the easy question uh first because if you sell your business by selling your stock or your membership interest the entity itself is going to continue in existence you just won't be the owner so the big issue comes up when you sell all of your assets and you basically have an empty shell of an entity that's left behind that's what you're really looking to close down and if that's the case there are a couple issues you want to identify before you make that leap to close it down the first is is there any part of your deal to sell your business that has an earn out or other continuing obligation tied to it because you may want to keep your practice open for a little while longer while the earn now payments are being collected or while the business has continuing obligations such as indemnification obligations you may have a hold back a part of the purchase price in your deal and that hold back goes to your business it doesn't go to you personally unless that's been assigned and recognized by the buyer okay and i know that when you and i do transactions if you're going to be selling your business assets there are also some forms that need to be filed and it varies from state to state but at least here in illinois there are some reporting requirements as well correct correct and those are tied mainly to the payment of taxes uh one is the form you file with the illinois department of revenue because they would claim a lien on your business's assets in the hands of the buyer unless you've gotten a waiver from the state and when you file the form which is called a cbs-1 you're telling the state what your deal is and they send you either a waiver back saying okay you've told us go ahead and do your deal or they'll send you a notice back that says hold back nine thousand dollars from your sale and if you do that the state will not chase after the buyer of your assets if it turns out that you do owe the department of revenue some money a similar type form is filed with the department of employment security just to ensure that you've paid all of your unemployment uh premiums before you sell now we see transactions where this is required and often it simply isn't required so you really need to look at the transaction documents to find out you know what the other side is looking for um although there may be this technical requirement everybody doesn't always follow it particularly because it can be a timing issue when you're trying to close a deal so and the issue is bigger for the buyer than this for the seller because the seller already owes whatever taxes the state is looking for it's to relieve the buyer of any lien against the assets that they just bought from the seller which makes it a bigger deal to them than it does to you if you're the seller okay so let's say you've now sold all your assets you're not working in the entity anymore you're not using the entity anymore what are the next steps to kind of just get rid of the entity and i assume the answer would be the same for somebody who just wants to go out of business or just wants to close down what are your thoughts on what those steps are well i think the answer is the same relative to the paperwork that needs to be filed uh you can decide to either voluntarily dissolve the entity or you can involuntarily dissolve the entity i'll take the second one first involving involuntarily dissolving the entity involves not filing your annual report the next time it is due with the illinois secretary of state or the secretary of state or similar uh governing body in the jurisdiction where your business has been formed a voluntary dissolution means you file forms they're called articles of dissolution with the same agency and the difference between the two are one once you file the voluntary dissolution paperwork you'll be dissolved as soon as accepted by the state and two you can continue to avail yourself of things like the courts if you have to sue to collect your accounts receivable or monies that are owed to you um and so that would be for voluntary dissolution if you've paid all your bills no one's ever going to come to you no one even cares that you continue in existence you can choose the involuntary dissolution and that doesn't require any filing it doesn't require a filing fee so after six months of what the state calls delinquency they will consider to be administratively dissolved or involuntarily dissolved one thing also is in common to both types of dissolution and in both scenarios both the practice sale where you just have your shell left or you're looking to retire is that once you have dissolved you have to cease doing business in your entity it doesn't mean you can't collect your accounts receivable it doesn't mean that you don't pay your bills it just means that if you're a medical practice you stop treating patients if you sell bicycles you stop selling bicycles okay make sense now i know and and everybody listening knows that we in particular handle uh healthcare practices dental medical etc now if you're shutting down a practice and it's not part of a sale there are some additional things that you want to think about as well do you want to speak to those sure uh number one if you're a medical or dental practice you're going to want to provide a notice to your patients to know that you are no longer in practice as a particular certain date so that they can go find new physicians or dentists as the case may be you're not under a legal obligation to tell them where to go only that you are terminating the practice and that they need to find other care you could certainly recommend them going to the ada or the ama for suggestions on practitioners in your specialty the other issue which we believe is bigger to you than that has to do with malpractice insurance coverage just because you're closing your practice does not mean that either you or your practice are free from being sued in the future especially if you have what's called claims made coverage if you have occurrence coverage you'll be fine you'll be covered for all exposures up to the date you terminate your policy going back to the date that you acquired that policy but if you have claims made coverage you will not be covered for any claims that are filed against you if you do not get what is referred to as an extended reporting endorsement or tail coverage and what tail coverage does is it acknowledges the termination of your rendition of professional services as of the date you tell the carrier but it allows you to report claims that are filed against you after that date and that's what's of notable importance now in a retirement situation if you're of a certain age and you've been with your carrier for a certain number of years say 55 and you've been with that carrier for 10 years you may be eligible to receive a free tale but one of the topics that we wanted to talk about here relative to tail coverage and closing your entity is tail coverage for the entity itself uh if you are not a sole shareholder or sole owner of your practice who has what's known as a shared limit of coverage with your entity uh then your entity probably has its own coverage and the question that we get a lot is should we get a tail for the unit and there's two reasons for it and certainly you could be the judge of whether either of these are important to you first if you have that separate entity coverage you then have an extra limit of liability to apply to any claim against you so if you're sued for malpractice in addition to let's say your 1 million limit of coverage if you have entity coverage of an additional million dollars to resolve that case and to the extent that you could continue that extra million beyond the uh termination of that business entity or the practice entity uh you may want to consider that second and people i don't think think about this enough is that part of your malpractice coverage whether it's for you or for your entity covers the cost of defense and technically speaking if you have an individual entity policy a separate policy for your entity and you give it up you you do not get tail coverage then the carrier will not cover the cost of defense of the entity now we've begged borrowed and cajoled carriers to at least allow the lawyer who's representing the individual who's retained coverage to have that same lawyer represent the entity because the allegations of against you as a practitioner your guilt in those would be what would were down in liability to the entity and so having at least the same wire work on it would at least provide a for uniform defense but in that case where you have not retained tail coverage for your entity the carrier's under no obligation to provide that defense for free great and you know one thing i want to mention is that it's you know when you're giving notice to patient we also want to think about the ethical and medical issue of patient abandonment so we really want to give as much notice as we can and in terms of the medical records you can't just like throw them in the garbage obviously if you're not selling your practice you're simply retiring you really do need to have a continuity plan for what's going to happen with those medical records you need to provide notice to patients how they can get a copy of their record typically what we recommend is you make an agreement with a hospital or another local provider to take over those records and handle that responsibility but really important that you actually deal with that practical medical record issue if they're in paper or even if they're electronic so that you can meet those obligations we recently had a situation where doctor just simply retired and disappeared and we were getting all kinds of phone calls and nobody could figure out what to do with the records the state medical board wanted nothing to do with it so it created a real dilemma and i can only imagine for those patients wondering where their records are that they are out of luck at this point so um you know we want our healthcare providers dental providers to be you know responsible and aware of you know transitioning those records to somebody who can uh make them available and we've had a deal or two where uh the practice records have been transferred to another competing practice for no money but for the additional pledge that they will serve as custodian for those records now one of the caveats with respect to that is even if you're not getting money one of the things that the acquiring practice wants you to do is help with a letter going to your patients to say essentially come see this other doctor we have your records and we'll keep them for you if you want or you can send them to a new practitioner but the caveat we offer is make sure in that letter you are not providing an endorsement of the new practitioner because if they mess up you could be sued for giving an improper recommendation of that position you can say that hey they're going to this new doctor you could say what the doctor's credentials are but i would not uh add any language to that letter that encourages you to see them because of how fine a doctor that person is okay great good to know all right so one final topic that we wanted to kind of cover related to these issues would be uh the personal liability exposure after closing down your practice so let's talk a little bit about that okay one thing that i i think i talk some of the clients down the ledge on is that particular question if you've properly maintained your entity you've done your meeting minutes every year and you've filed your annual report with the state and you then dissolve voluntarily or involuntarily but you've stopped practicing the question is what is your personal liability for any corporation debts well there are some where the liability is set by statute such as payment of payroll taxes whether you're in business or you've left business if your entity is not properly withheld and paid payroll taxes and you've had control over that process you can be held personally responsible for that but the other issue the bigger issue is whether you're personally liable for the debts of your corporation in general and the answer to that question is no that's why you form these entities to insulate yourself from the liability of your corporations so if you haven't signed a personal guarantee to the lease theoretically the landlord has no right to go after you the one caution that we do provide to our clients however is that when you are distributing whatever assets that you have whether it's cash or equipment or what have you whatever you give to yourself instead of your creditors you could be personally on the hook for the value of that so if you owned somebody a hundred thousand dollars and your business owned somebody a hundred thousand dollars and it didn't pay the business and you took ten thousand dollars of the last collections of accounts receivable just gave it to yourself did not give it to that creditor who's owned the hundred thousand dollars that does not expose you to the full one hundred thousand dollar debt but what it does do is expose you to the concept that you may have to give back the ten thousand dollars or pay it over to that creditor because you cannot favor yourself over your creditors right okay that makes sense oh so this is really great advice is there any final thoughts that you have on this topic things that you want clients to understand about shutting down their business whether it's part of a sale a retirement or just you know going out of business well what do you what are your final thoughts on this topic well i think the biggest deal is the last thing that we talked about which is if you're planning on going out of business make sure to the extent you have the business assets available to pay your creditors first the more you do that and again you could owe a collection of creditors a million dollars and you only have 200 000 of cash but the more you are in the position to give up that two hundred thousand dollars the better it will be for you if they come a calling after you've closed your doors okay great advice well thanks everyone for joining us thank you lee levin for coming on today and we'll see you next time on healthcare hotspot you can also check out some other uh podcasts that we've done at ra law.com and as always feel free to reach out to us if you have any questions thanks for joining us the rental health law hotspot is made available by the firm and its attorneys for educational purposes and to provide general information not to provide specific legal advice use of the russell health law hot spot does not create an attorney-client relationship between you and the firm or any of its attorneys the rental health law hot spot should not be used as a substitute for competent legal advice and you should contact an attorney in your state about any legal needs or questions you may have