Over our twenty-plus year history, most of our firm's special projects have dealt in some fashion with troubled business entities.
Our firm's first new engagement after we began business was a request by two bankruptcy specialist legal firms for Joe Dawson's analysis of the federal income tax consequences of a proposed plan of reorganization in a major timber industry Chapter 11 proceeding. The attorneys were clearly satisfied; various members of those two firms continue to refer us new engagements over twenty years later.
Many of Nina Gerbic's earliest litigation support engagements also involved Bankruptcy Court proceedings, and those engagements frequently called upon all of our other services in addition to Nina's expert witness reports and testimony.
For example, during the mid-1990s our firm served as the accountants in the Chapter 11 proceeding of a portion of a seven-member consolidated corporate group with assets and liabilities in excess of ten million dollars and a net operating loss of nearly that amount. In addition to her frequent testimony, the Bankruptcy Court required Nina to coordinate with the outside accountants representing the major secured creditor in preparing a series of special reports.
Joe also participated in that engagement. Once the debtors and their guarantors reached agreement with their various creditors on the economic results that they desired from the plan of reorganization, the debtors' counsel, a major Seattle legal firm, asked Joe for assistance in structuring that plan. Joe identified a series of transactions that accomplished all of the negotiated results without significant current income tax payments and without forfeiting carryforward of the unused net operating loss.
Joe's tax planning assignment required a relatively sophisticated application of the consolidated income tax return regulations and the federal income tax provisions governing discharge of indebtedness income, transfers of partnership interests, and tax-deferred contributions to corporations, because the plan's negotiated terms called for the debtors' shareholder-guarantors to contribute the assets of other operating companies to the debtor group. And Joe's planning was further complicated by the existence of foreign minority ownership in one of the affiliated debtor companies.
Becky Meehan also had a major role in that Chapter 11 engagement; once the plan of reorganization was confirmed and implemented, it was her responsibility to oversee preparation of all of the federal and State income tax returns necessary to report the various transactions.
All of the parties involved in that Chapter 11 case were apparently pleased with our firm's performance: the debtor corporations have since prospered, and continue to engage us as their outside accountants. After the secured creditor's special credits officers left that financial institution and began their own corporate turnaround management practice they, too, have chosen us as the outside accountants and tax advisors on several significant engagements, including their own firm's income tax planning and reporting.
And the bankruptcy counsel who we worked with in that Chapter 11 case subsequently engaged Joe as the debtors' outside accountant and tax consultant to assist in structuring Chapter 11 plans for a multibillion-dollar controlled group of corporations. In this engagement Joe had to grapple not only with the consolidated income tax return regulations; he also had to integrate the various limitations on preservation of corporate net operating losses during bankruptcy into his analysis. Those plans were subsequently confirmed.
For the past three years, Becky and Eva Leung have prepared the annual reports to beneficial interest holders of a creditors' grantor trust which arose from the bankruptcy of another financial corporation. That engagement was a referral by the special credit officers from our earlier Chapter 11 case.
Nina's court involvement in bankruptcy proceedings has also continued. Her recent expert witness successes include a mediated eighty percent reduction of a multimillion-dollar claim against the prior owners of a bankrupt storage tank manufacturing firm, and a Federal District Court jury judgment in favor of a major international oil company client in a dispute which arose from prior Bankruptcy Court proceedings.
It is not just Nina who has been called on for recent Bankruptcy Court testimony, though. In a recent confirmation hearing dispute concerning the magnitude of a solvent Chapter 11 debtor’s likely income tax liabilities, Becky’s testimony prevailed over the assertions of the trustee’s outside accountants, avoiding an unnecessary distress sale of a multimillion-dollar rental property.
Not all of our firm's bankruptcy-related engagements have required our participation in Bankruptcy Court litigation, of course. During the past several years Becky and Eva have represented various bankruptcy estates during Internal Revenue Service examinations in which several million dollars of claimed income tax refunds were questioned. Their success in those examinations significantly assisted in the plan confirmation process.
And we have performed engagements for financially-troubled firms that did not involve bankruptcy proceedings at all, including liquidations and successful reorganizations. Joe recently concluded a tax planning engagement for a vertically-integrated group of fruit companies in which the taxpayer corporations avoided responsibility for over thirty million dollars in debt with virtually no current income tax consequences.
One of Nina's annual recurring financial reporting clients, an affiliated electronic assembly group, originally engaged our firm over five years ago to assist its outside counsel in an equity restructuring that was complicated by an unconsolidated subsidiary and substantial obligations owed to its controlling officer-shareholders. The plan that Nina and Joe devised provided significant tax benefits and satisfied all of the equity holders' economic objectives.
In preparation for our involvement with troubled businesses, we have acquired significant specialized training. Several of us have qualified as Certified Insolvency and Restructuring Advisors (CIRA): Nina earned a bronze medal on her qualifying examinations in 2000; Joe qualified during 2002; Eva earned her certification in 2004; and Becky qualified during 2006. We currently have the largest number of CIRAs of any firm in the State of Washington, and Shen recently became a candidate as well. Nina is currently the only person in the State of Washington who has completed all of the requirements for the Certification in Distressed Business Valuation.
We have not just acquired specialized training, however; we have also helped to provide that training to others. After completion of his LL.M. degree in Taxation at the University of Washington Law School, Joe served as the instructor for the limited liability company course in that program for three years. In addition, Joe, Nina and Becky have made a series of presentations to various professional organizations on insolvency-related topics over the past five years.
