Accountants prove their worth as clients struggle through financial reorganization.

Accountants prove their worth as clients struggle through financial reorganization

Recent Chapter 11 financial reorganization filings by businesses like high-profile retailer Carter Hawley Hale Stores Inc. are providing a new source of revenue for area CPA firms which can assist companies through the difficult process of either reorgnanizing or liqudating.

"Unfortunately during the recession we have seen more bankruptcies," said Dick Cole, tax partner at Grant Thornton in Los Angeles. Cole said that his firm receives referrals about bankrupt companies that need accounting help from bankruptcy attorneys and bankruptcy court-appointed trustees who help operate the company while it is reorganizing or liqudating.

But Cole added, "hopefully not too many of our clients are going bankrupt if we are doing our job correctly. The bankrupt companies I work with are entirely outside of my client base."

Albert Theiss Jr., managing partner at the Los Angeles office of national firm Coopers & Lybrand, said that the trend of accounting firms helping bankrupt firms is part of a general trend of "accounting firms expanding into areas such as bankruptcy, litigation support and restructering using skills gained through traditional accounting and auditing services."

One reason accounting firms are looking for additional sources of revenue these days is to reduce their traditional summer slowdown, said Howard Bookstein, managing partner of Roth, Bookstein & Zaslow. He said recent tax laws changes caused many companies to shift to a calendar year tax filing which has intensified accounting firms' summer workload reduction.

But as accountants scramble for new sources of revenues, attorneys and bankruptcy court trustees are becoming more interested in hiring accountants to help in the bankrupcty proceedings.

For example, Bookstein said that his company was recently appointed by all the parties - attorneys, investors, insurance companies and the court-appointed trustee - involved in the $250 million Chapter 11 proceedings of Property Management Co.

The assignment, which involves checking the company's complete financial information and presenting an objective report to the court, is a new one for the accounting firm. But the skills and talents needed to complete the assignment are the same ones used to complete more day-to-day accounting tasks such as auditing and tax returns, explained Bookstein.

In order for Bookstein's firm to handle the assignment during tax season, the firm has shifted a partner from his tax duties to working on the bankruptcy proceeding full time. But Bookstein said that the bankruptcy work will continue past the tax season, at which time additional accountants will be able to help out the partner.

In addition to the type of work that Bookstein's firm is doing on behalf of the court, accounting firms can work directly for companies in bankruptcy proceedings as well, said Cole.

He said that financially troubled companies on the verge of bankruptcy often "don't keep up with accounting and tax records as they cut staff to reduce expenses." So accountants who are bankruptcy specialists are called in by the attorney representing the company or company itself to reconstruct the company's records and keep track of its books.

Accurate bookkeeping is vital for a bankrupt company to substantiate that it is indeed losing money or it may have to pay taxes during the bankruptcy procedures, said Cole.

Plus, keeping accurate records of these losses is also important if the company emerges from Chapter 11 successfully, said Cole, because the company can carry these losses forward for up to 15 years in California and still receive tax deductions.

Bookstein said that he was called recently by an attorney to help advise a client who was creditor of a company in Chapter 11 proceedings. Bookstein was asked to determine if the client could collect its account receivable from the bankrupt company or if the company would have to be liquidated in order to recoup the debt.

Accounting companies that assist in bankruptcy proceedings must submit the bill for their services with the court-appointed trustee to obtain payment, said Cole. He explained that legal and accounting fees get priority but creditors and other parties in the bankruptcy can review the bills to see if they are fair.

If bankruptcy trends continue in 1991, accounting firms should be able to generate a large volume of revenue from assisting in the proceedings. Bankruptcy filings for the first nine months of 1990 for Los Angeles, Ventura, Santa Barbara and San Luis Obispo counties were up 11.5 percent over the same period in 1989, according to the records of the U.S. Bankruptcy Court for the Central District of California.

PHOTO : Chapter 11: High-profile bankruptcies boost workload