Experts Resolve $30M of Disputed Claims with Government
Bankruptcy Pros Succeed in Less than 90-Days
Restructuring advisors at Pachulski Stang Ziehl & Jones LLP (PSZ&J) and turnaround firm KGI announced that Bit Lansdale’s 20-year disputes with the U.S. Virgin Islands and a major money center bank were successfully resolved in record time.
“I am so thankful to Jeff Pomerantz, Dick Alston, Steve Green and my other professionals for their hard work and dedication” said Bit Lansdale, a successful businessman and a retired Air Force Officer. “Prior to pursuing the strategy recommended by my restructuring professionals I had been unable to resolve my disputes with the Virgin Islands Bureau of Internal Revenue (VIBIR) and the money center bank. I was initially reluctant to file a bankruptcy case as I thought that would just involve more time and cost and that I might lose it all. But, these guys were brilliant and worked day and night to give me back my life. I am forever grateful for their work.”
A History of Disagreement
Through the years, Mr. Lansdale had built sizable businesses in the oil, gas, and mineral industries. Mr. Lansdale’s conflict with VIBIR began in the 1980’s regarding the parties’ disputes as to the application of the Virgin Islands Tax Code to Mr. Lansdale’s interests and properties. Although Mr. Lansdale prevailed in litigation in the United States District Court for the Virgin Islands, the Third Circuit Court of Appeals ultimately reversed the decision leaving Mr. Lansdale and his affiliates with a tax bill exceeding $30 million. Mr. Lansdale reached a settlement in 2002 with VIBIR and the court appointed receiver over certain corporate interests which he believed fully and finally resolved all disputes. That proved not to be the case as soon after the settlement was reached the receiver asserted claims that Mr. Lansdale had breached the terms of the settlement agreement.
On one side of the disagreement, Mr. Lansdale contended the 2002 settlement had fully and finally resolved the disputes and that he was entitled to retain interests in oil wells and royalties generated therefrom. The receiver, however, contended that the 2002 settlement required Mr. Lansdale to transfer these oil and gas interests and millions of dollars of royalties received over the last eight years to her for distribution to VIBIR. What followed over the next years was continuing litigation in the United States District Court for the Virgin Islands, the Third Circuit Court of Appeals and a related arbitration proceeding – litigation that overwhelmed Mr. Lansdale, both economically and emotionally. The litigation prevented him from getting on with his life and putting this chapter behind him for good.
The dispute reached a critical point when the Virgin Islands District Court for the Virgin Islands ruled that Mr. Lansdale had failed to comply with the 2002 settlement agreement and set a hearing to hold Mr. Lansdale and his professional advisors in contempt for failing to comply with the court’s order. Specifically, the court ordered Mr. Lansdale to transfer to the receiver ownership interests in certain oil and gas interests and turnover to the receiver more than $10 million in royalties received over the last eight years. At the same time, the money center bank, which had a claim of more than $2 million relating to its honoring of certain levies on Mr. Lansdale’s accounts in connection with his disputes with VIBIR and the receiver, was also pressing for resolution of such claim. With Mr. Lansdale’s options diminishing, he faced the very real possibility that he would lose control of his entire estate.
With this in mind, Mr. Lansdale made a game-changing decision: he called Jeff Pomerantz from PSZJ and Steve Green and Dick Alston from KGI All were veterans from firms specializing in distressed situations and had sterling reputations for their past work.
It’s Not Just the Rent
The total scale of a well-executed manufacturing and distribution re-alignment is upwards of 25% improvement in COGS, excluding direct materials.
“Mr. Lansdale’s situation was extremely complex. Perhaps most important was the extreme level of distrust among and between the parties which had interfered with a commercial resolution for many years. While my goal is usually to avoid a bankruptcy case if an out of court resolution can be accomplished, KGI and our team at PSZJ recognized that the history between parties made an out of court resolution unnecessary. Our discussion with Mr. Lansdale about commencing a bankruptcy case with the attendant costs and risks was very difficult” explained Mr. Pomerantz of PSZJ. “The entrepreneurs that I deal with rarely entertain the possibility of a personal bankruptcy filing. As we talked him through the options, though, he agreed this strategy, while not without its risks, had the possibility of driving the quickest and most inexpensive resolution.”
Mr. Lansdale recognized that a bankruptcy filing would put him in a fish bowl with creditors having the right to scrutinize every aspect of his financial situation. Mr. Lansdale also understood that he would lose some measure of control of his life and personal finances in the process. However, he also knew that the court protection provided tremendous leverage for his professional advisors to negotiate favorable settlements.
The advice was convincing; Mr. Lansdale filed for personal bankruptcy on November 22, 2009 in Orange County Federal court resulting in a stay of all creditor actions. Anticipating the personal attack that would be forthcoming from VIBIR and the receiver, PSZJ and KGI gave Mr. Lansdale two pieces of advice that would prove critical to ultimate resolution of his disputes. First they encouraged him to be completely transparent regarding his finances and make disclosures regarding certain transactions immediately at the commencement of the case. Second, they recommended that Mr. Lansdale agree to provide KGI with authority over certain aspects of his financial condition. Complete financial transparency and ceding control to a well respected firm that would have instant credibility with the Bankruptcy Court demonstrated the seriousness with which Mr. Lansdale filed his bankruptcy case and his interest in a global resolution.
A Quick Settlement
PSZJ and KGI recognized that Mr. Lansdale could not afford a prolonged battle in Bankruptcy Court and that a bankruptcy case that dragged on could jeopardize the assets in his estate. While there were initial skirmishes in the Bankruptcy Court, VIBIR and the receiver knew that the bankruptcy case had changed the venue of the fight and that they were up against formidable restructuring advisors with substantial credibility with the Bankruptcy Court. At a critical hearing early on in the case the Bankruptcy Court encouraged both sides to try to reach a settlement. PSZJ and KGI seized on the Bankruptcy Court’s encouragement and were able to work out the details of a settlement with VIBIR and the receiver less than 30 days after the bankruptcy case was filed.
When the dust settled, the receiver and VIBIR agreed to accept $11 million in cash, all but $500,000 of which was in VIBIR’s possession through the receiver. The settlement also contemplated transfer of the disputed oil, gas and mineral interests to the receiver and the parties agreeing to mutual releases.
Having settled with VIBIR and the receiver, PSZJ and KGI were able to convince the money center bank to accept $350,000 in full settlement of its $2 million disputed claim to avoid a protracted fight in the Bankruptcy Court.
As Dick Alston of KGI summarized, “Beyond the settlement and speed in which it was achieved, we are pleased to report that Mr. Lansdale’s other business activities progressed smoothly during the bankruptcy and his liquidity was never significantly impacted.”
Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.