Nation’s Seventh-Largest Accounting Firm Files For Bankruptcy
NEW YORK (AP) _ Laventhol & Horwath, the nation’s seventh-largest accounting firm, filed for bankruptcy court protection Wednesday as expected, but said its partners would continue to service clients so the firm could pay its debts.
Laventhol, which said earlier this week it would be forced to take the step, said the bankruptcy filing was prompted in part by the cost of settling or defending itself against more than 100 lawsuits seeking tens of millions of dollars in damages.
The suits primarily were initiated by clients challenging Laventhol audits or by shareholders of client companies claiming Laventhol provided faulty financial information.
Laventhol filed under Chapter 11 of the bankruptcy laws, which allows a company to continue operating while it reorganizes and pays creditors. But the Philadelphia-based accounting firm said its name was so tarnished by the filing that it cannot keep operating on its own.
Instead, many of Laventhol’s 318 partners plan to open independent offices in cities where the firm operated. These offices would attempt to retain Laventhol clients and funnel income to the parent company, allowing it to pay its debts, according to the filing in U.S. Bankruptcy Court in Manhattan.
In addition, Laventhol partners that find work at other firms would continue to service Laventhol accounts under the plan.
″The whole thrust of it is to preserve the clients and the business and maximize the assets,″ said Michael Crames, a New York-based lawyer for Laventhol.
Crames said the plan was novel, but it was unusual for professional partnerships such as accounting and law firms to file for bankruptcy. He said he believed the plan provides the best chance for creditors to be repaid.
Laventhol said the court must suspend the lawsuits it faces in order for the plan to work. Laventhol received a temporary injunction Wednesday halting the suits and plans to seek a permanent bar at a Dec. 4 hearing before U.S. Bankruptcy Judge Cornelius Blackshear, Crames said.
During the bankruptcy case, Laventhol will attempt to determine its total liaiblities, including claims made in lawsuits, he said. Crames said he could not estimate what those liabilities would be.
In its bankruptcy filing, Laventhol said it owed $146 million to various creditors. Its two largest are Chase Manhattan Bank and Fidelity Bank, which are owed $85 million, Crames said. But its actual liabilities will be much higher, he said.
Laventhol, which had 50 offices nationwide, said most of its annual income came in the tax season of January-April. These banks provided credit that helped Laventhol meet its cash needs the rest of the year.
But in the past few years, Laventhol increasingly was hit by lawsuits seeking damages, the firm said in its filing.
″From L&H’s perspective, its inclusion in such actions was more a result of the perception of it being a ‘deep pocket’ than the result of deficiencies in the satisfaction of its professional responsibilities,″ the filing said.
″Because of the high cost and general unavailability of professional liability insurance, L&H was required on an ever-increasing basis to fund the cost of defense and settlement of such claims out of its own operations.″
During its fiscal year ended Feb. 3, 1990, the firm also said it made ″significant capital expenditures″ funded by its bank credit. It did not say what these expenditures were for.
Also during fiscal 1990, Laventhol said it paid $10.5 million to settle a case filed by Grabill Inc., a Chicago company that used Laventhol as its accountant.
Laventhol also faces a lawsuit over its auditing of Jim Bakker’s PTL ministry. That case is on trial in Charlotte, N.C.
Since Laventhol is a partnership, not a corporation, its current and even retired partners could end up paying out of their own pockets to settle claims if Laventhol can’t come up with enough money.
″Partners may find themselves on the hook″ for work that the firm did while they were employed there, Crames said.
Laventhol said it thinned its payroll as it entered its credit crunch, leaving about 3,200 employees in addition to the partners and principals as of this month. It had domestic revenue of $350 million last year.
Laventhol also said it sought to merge with several other major accounting firms but had no offers.