SLBiggs Insolvency Case Studies

Insolvency Case Study

Cobe Chemicals

Cobe Chemicals was a manufacturer of cosmetic creams, lotions, nutritional and diet drinks. As accountants to the trustee in this Chapter 11 case through its conversion to Chapter 7, the Firm provided comprehensive tax, accounting, investigative, and advisory services to assist in the termination of debtor’s business and the transition of operations to Beauty Health Science Innovation (BHSI), the purchaser of debtor’s assets

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Forensic accounting work involved preference and insider analyses in which we identified approximately $500,000 in fraudulent and voidable transactions, of which the Trustee collected $480,000. We also furnished the Trustee and his counsel with evidentiary analysis and documentation in connection with multiple complaints and adversary actions.

Tax and accounting work included preparation of Monthly Operating Reports in the Chapter 11 proceeding, as well as accounting, financial statements, creditor schedules and other reports necessary for the Chapter 11 Final Report and Account. We also prepared payroll, sales & use, property, and corporate tax returns.

Upon the sale of debtor’s business assets, we recovered debtor’s computer and financial records to manage all financial aspects of the cessation of debtor’s operations, including handling accounts payable and accounts receivable collections and facilitating the transition to BHSI.

Insolvency Case Study

Unique Premium Metals

Ch. 11 Reorganization through Post-Plan Administration

The Firm was involved in all financial aspects of this case, from its initial Chapter 11 filing, through the development and implementation of its plan of reorganization, to post-plan administration. The debtor’s business was collecting, processing and assaying scrap gold. We examined debtor’s financial condition and performed a valuation of the business to determine whether a plan of liquidation would be the most effective means of satisfying creditor claims.

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Our professionals worked with the debtor and its counsel to prepare the liquidating plan and disclosure statement, and assisted in negotiating and drafting the asset purchase agreement for the sale of debtor’s assets.

Additionally, debtor maintained a defined benefit pension plan with termination insurance administered by PBGC. Debtor was bound to PBGC for all unpaid premium obligations, and PBGC filed claims for funding contributions owed to the pension plan. We analyzed and verified PBGC claims and worked to determine the amount of funding required to satisfy participant benefit liabilities.

Partner Samuel R. Biggs was designated Liquidating Agent for purposes of making all distributions provided under the plan. Post-plan, the Firm analyzed and verified claims and handled all creditor distributions. We also prepared and filed all post-confirmation status reports with the U.S. Trustee.

Insolvency Case Study

LanguageForce, Inc.

Ch. 11 Reorganization

We assisted with the Chapter 11 bankruptcy filing and reorganization of LanguageForce. We worked with the company’s comptroller to prepare the emergency petition, schedules and statement of affairs, and U.S. Trustee compliance package. We provided the debtor-in-possession comprehensive consulting, accounting, tax, and bankruptcy support services. We assisted in pre-petition planning and development of insolvency financial strategies, developed cost-cutting and management actions to achieve break-even or positive cash flow, prepared bankruptcy reports and accountings required by the U.S. Trustee, assisted in defense of creditor actions, and prepared financial information for the disclosure statement and plan of reorganization.

Insolvency Case Study

Mednet MPC Corporation

Insolvency Analysis and Expert Testimony

We performed an insolvency analysis, prepared an opinion report and provided testimony relevant to the insolvency of Mednet, a publicly traded company, in connection with its acquisition of Arc Ventures. Expert work involved analysis on opinion of Mednet’s insolvency at the date of the transaction, insolvency  as a result of the transaction, and insolvency at the dates of subsequent transfer payments, even following subsequent capital infusions.

Insolvency Case Study

Big A Drugstores, Inc.

Liquidating Ch. 11

We were accountants to the debtor which operated a chain of 20 retail pharmacies located throughout California. This was a liquidating Chapter 11 case in which we assisted debtor in the wind down of business operations. We prepared payroll, sales, income and property tax returns, U.S. Trustee reports, and the disclosure statement. We also performed a preference analysis, analyzed and verified claims, and handled all activities to manage the wind down of debtor operations.

Insolvency Case Study

Piloti, Inc.

The debtor in this involuntary Chapter 7 case designed, manufactured, and sold unique auto racing and casual footwear. As accountants to the trustee, we consulted and assisted in all financial aspects of the case, including examination and inventory of assets for liquidation and preparation of trust accounting, payroll and income tax returns.

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We assisted the trustee in marketing the debtor’s assets for sale by coordinating the due diligence investigations with interested purchasers, including meeting with prospective buyers, overseeing access to debtor records, and analyzing vendor distribution agreements, intellectual property rights, corporate records, and inventory.

We also assisted in handling the termination of debtor’s 401(k) retirement plan, coordinating with the plan administrator and participants, investigating and verifying account balances, managing the distribution election form process, and consulting on tax implications. The debtor’s assets were purchased by retail giant Canadian Tire

Insolvency Case Study

Faries Bankruptcy Estate

$973,000 Tax Refund Recovery

In this Chapter 7 case, the Firm recovered nearly $1 million in tax refunds resulting from the carryback of NOL tax attributes. Amended tax returns and refund requests had been prepared by debtor’s former CPA; however, due to NOL calculation and IRS administrative errors, the refunds were denied.

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We revised the amended tax returns to resolve errors in NOL and AMT calculations and analyzed 8 years of IRS account transcripts to offset IRS claims against refunds due the Estate. We worked closely with the IRS to resolve the agency’s administrative errors and effectuate acceptance of the amended returns. We successfully recovered $972,979 in tax refunds for the Estate.

Additionally, the FTB had filed a secured claim in this case for $304,000, of which $59,000 was for penalties and interest. We analyzed and verified the claim as to its validity and prepared a declaration attesting to our findings for the trustee’s objection. The Court granted the objection, and the penalties and interest were voided pursuant to 11 U.S.C. § 724(a).

Insolvency Case Study

Standard Quality, Inc. dba Alaco Ladder Samuel R. Biggs

Chapter 11 Trustee

Alaco is a manufacturer of ladders with sales volume at the time of its filing of approximately $2 million per year. As Chapter 11 Trustee, Mr. Biggs operated Alaco for approximately 4 years, managing its operations under its plan of reorganization until priority taxes and bankruptcy administrative expenses were paid. Mr. Biggs restored operations to profitability and generated cash to liquidate over $500,000 in creditor and administrative claims. He marketed and sold the business as a going-concern operation at a competitive auction through the Bankruptcy Court and realized sufficient cash to liquidate all creditor obligations and pay substantial funds to the former shareholder.

Insolvency Case Study

American Industrial Supply

Disbursing Agent

Mr. Biggs was appointed Disbursing Agent under debtor’s plan of reorganization. We set up bank accounts for claims disbursement, analyzed and verified claims, identified priority, unsecured, Class 3 and Class 4 claims, and disbursed allowed claim payments.

Insolvency Case Study

Black on Black

Forensic Accounting and Expert Testimony at Trial

We provided forensic accounting, consulting, expert witness services, and testimony at trial in support of an objection to the discharge of creditor obligations in the bankruptcy case of debtor’s principal. We traced and identified alleged undisclosed assets and fraudulent transfers to remove assets from the debtor’s company to other entities. Samuel R. Biggs provided expert testimony at trial related to our findings.