Alternative Workouts Part 6: DWC’s Problem-Solving Diversity
For every problem there is a solution, yet the path to that solution can take many forms. As businesses confront challenges relating to debt and solvency, or a dispute among ownership, often that path leads to a time-consuming bankruptcy process. But it may not have to.
Professionals like those comprising the team at Douglas Wilson Companies can serve in many roles to help avoid the costly path to bankruptcy for operating companies, lenders and owners in distress. By serving as a court-appointed Receiver, a Chief Restructuring Officer, a financial advisor or forensic accountant, often an experienced professional can navigate the path to problem resolution swiftly by applying years of expertise in workouts, wind downs and more.
From Assignment for the Benefit of Creditors to Chief Restructuring Officer and Forensic Accountant, Parts 1 through 5 of this series detailed many of the roles a workout professional can serve. The final part of this series touches on these roles.
Assignment for the Benefit of Creditors — “ABC”
An Assignment for the Benefit of Creditors (ABC) is a bankruptcy alternative that places an assignee to oversee the distribution of assets to creditors. The assignee works to preserve operational value and ensure creditor interests are protected.
In the recent case of Zulily, DWC served as assignee in the wind down of the company, which at one time was valued at $4 billion. As an e-commerce company, Zulily had two 700,000+ square foot warehouses located in Nevada and Ohio that held over 1.6 million in total units of product and extensive conveyor and racking inventory systems. The ABC facilitated the swift wind down and distribution of assets to creditors.
Operating Company Liquidation
For companies that have valuable assets, liquidating those assets — whether real estate, intellectual property, physical inventory, equipment or other types — is a critical step toward repaying creditors and winding down the business.
In the matter of JL Furnishings, DWC effectively wound down this well-established Los Angeles-based furniture manufacturing company with $100 million in annual sales. The company had a significant warehouse and manufacturing operation in North Carolina and served hospitality industry customers in providing custom furnishings for hotel lobbies, lounges and other common areas in need of furnishings.
In another assignment, DWC worked to liquidate the assets of J.E. Higgins Lumber Company, a family-owned business that operated a large scale, regional lumber company and supplier of various construction-related hardwood, flooring and window framing products. At its peak, the 125 year old company had annual sales exceeding $300 million, with more than a dozen locations and more than 600 employees. When the company suddenly faced financial stress, DWC was appointed as Receiver to wind down the business and return value to creditors.
Chief Restructuring Officer
The Chief Restructuring Officer is an important role held by an individual who can take a proactive stance toward problem resolution. Usually, the CRO is hired by a company’s Board of Directors or an ownership group with court approval (if needed in the case of a bankruptcy proceeding). The CRO should possess experience in areas such as C-suite participation, team leadership, operational oversight, financial acumen, strategic execution, and board and stakeholder communication.
In the recent case of SilverRock, a massive, 525-acre resort property in La Quinta, Calif. DWC was appointed as CRO to aid in bankruptcy proceedings and asset preservation. The real estate portfolio included hotels, residences, golf facilities and other resort amenities facing various stages of partially complete construction. Adding complexity to the situation, the workout involved the city of La Quinta due to the development’s use of city-owned land.
Forensic Accounting and Financial Advisory
While most workout scenarios do not require forensic accounting expertise, some do. DWC’s experience in serving as Receiver on cases brought by federal agencies like the U.S. The Securities and Exchance Commission has required its team, including two CPAs with experience in forensic accounting, to review tens of thousands of transactions — sometimes involving cryptocurrency transactions — in order to recover funds for fraud victims.
In DWC’s most recent case involving forensic accounting work, company President Michele Vives was named Receiver in a $690-million Ponzi scheme that defrauded investors based on fabricated movie deals. The receivership involved continuing to oversee the legitimate business operations of the film production company, while delving into the many fraudulent transactions that were made under the scheme. This included reviewing more than 24,000 transactions and reviewing nearly 3,000 bank statements.
In another ongoing assignment, DWC is tasked with the turnaround of a Washington, D.C. 373-unit multifamily complex. With little documentation on operations, the assignment was made challenging from a management perspective.
DWC has since worked to create an accounting structure including documentation of rent collection and all other financial operations, that will support the asset going forward.
A Remedy for Every Problem Scenario
When one of the above roles is not a fit for a workout, there are many others to be considered, as well. An Accountant for the Trustee, for example, provides accounting services for the assigned Trustee. As a Partition Referee, DWC acts to manage the sale or division of real or personal property when co-owners cannot agree. A Special Master may be appointed as an by a judge to ensure judicial orders are followed, or to hear evidence on behalf of the judge.
“Many entities facing distress rush into costly court proceedings when much of the problem resolution could be provided by the expertise of a workout professional, such as a Chief Restructuring Officer, a Receiver or another fiduciary,” says DWC Chairman and CEO Douglas Wilson, who with the DWC team has served in these roles to resolve more than 1,200 matters. “These roles and others should always be considered when possible, as often they can work to smooth and expedite the workout or wind down process.”
