I first heard about Robert Kiyosaki was when I was in high school. My older brother was raving about it during one of our Sunday family gatherings. He was so amazed with the unorthodox ideas that Mr. Kiyosaki shared in his first book, Rich Dad, Poor Dad. However, being young and carefree back then, it wasn’t until after several years when I was already in law school that I began reading his books. Indeed, in communicating his point of view on why ‘old’ advice – get a job, save money, get out of debt, invest for the long term, and diversify – is ‘bad’ (both obsolete and flawed) advice, Robert has earned a reputation for straight talk, irreverence and courage. So revolutionary were his teachings that when I shared them with my dad, he simply shot them down for being a bunch of nonsense. Of course, now that I am a licensed attorney and financial planner, I realized that Mr. Kiyosaki’s teachings actually made a lot of sense.
Nevertheless, in late A.D. 2012, news began to spread all over social media that Rich Dad® Robert Kiyosaki is now a bankrupt dad because in August of that year, his company, Rich Global LLC, just filed for bankruptcy. So does this really mean that one of the world’s most famous, if not the most famous, personal finance gurus, the one who was allegedly mentored by his best friend’s rich dad several decades ago as a child, failed and became poor all of a sudden? Before we get to that, let me first give you an idea on what filing for corporate bankruptcy really means.
Title 11, of the United States Code, a.k.a. the United States Bankruptcy Code, is the main source of bankruptcy law in the United States. Chapter 7 thereof governs the process of liquidation and is the most popular and common form of bankruptcy. When a troubled business is badly in debt and unable to service that debt or pay its creditors, it may file for bankruptcy in a federal court under Chapter 7. A Chapter 7 filing means that the business ceases operations unless continued by the Chapter 7 trustee. A trustee is appointed almost immediately, with broad powers to examine the business’s financial affairs. The trustee generally liquidates all the assets and distributes the proceeds to the creditors. In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge—instead, the entity is dissolved. Only an individual can receive a discharge. Once all assets of the corporate or partnership debtor have been fully administered, the case is closed.
Here in the Philippines, our laws refer to bankruptcy proceedings as ‘insolvency’ proceedings. In fact, just five years ago, the Financial Rehabilitation and Insolvency Act of 2010 or FRIA was passed. The new law provides for the substantive and procedural requirements for the rehabilitation or liquidation of financially distressed enterprises and individuals. The FRIA defines “insolvent” as the “financial condition of a debtor that is generally unable to pay its or its liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.” Now you may ask, why would a very rich man like Robert Kiyosaki allow the company he built to go bankrupt or insolvent?
It was reported that the founder of Learning Annex, Bill Zanker, sued Rich Global for $24 million. Learning Annex was one of his supporters when he was still starting as a businessman. Actually, Robert Kiyosaki owns many businesses and Rich Global LLC is just one of those corporations. Robert now runs most of his businesses under his other company, Rich Dad Co. In fact, Rich Dad Co. CEO Mike Sullivan informed the New York Post in an interview that Robert Kiyosaki would not be putting any of his personal fortune toward the settlement. Now, that is the beauty of using a corporate entity as a vehicle for one’s business. It provides a layer of protection against asset raiders such as legal plaintiffs. You see, when a company files for bankruptcy or insolvency, its creditors, including its judgment creditors, cannot just simply collect from the company nor seize it assets legally without first complying with the requirements of the law. That is why Robert Kiyosaki is still quite rich even after filing for bankruptcy with an estimated net worth of $80 million. Having his company Rich Global LLC file for bankruptcy was merely a legal strategy in order to protect his personal assets.
Instead of losing his credibility as a personal finance coach and wealth advisor, such a bold move by Robert Kiyosaki just proves that he is indeed financially intelligent. So much so that he is certainly more financially intelligent than most people, especially those who immediately jumped the gun in judgment against him upon reading the news headlines about his company filing for bankruptcy. Although I have my differences with some of his theories, I along with my colleagues in the financial services industry consider his books as indispensable reading in personal finance and entrepreneurship. It is truly undeniable that all of us, in one way or another, were illuminated and inspired by his teachings.
I am so excited about his upcoming event, Robert Kiyosaki Live in Manila: Masters of Wealth, which will be held on November 30, 2015 at the SMX, Mall of Asia. It’s a once in a lifetime opportunity to learn not only from the master himself but also from other world class wealth coaches, economists, businessmen and educators. I believe that to be financially successful, the first asset that we should invest in is ourselves.