On October 1, l983 the CPA firm of C.E. Frisby Co., (currently: Chris E. Frisby, P.C. and Jayson & Frisby) was formed in Houston, Texas. I had decided to leave the security of the Big Eight Accounting firm of Coopers & Lybrand to start my own practice. At the time, Houston was entering an economic downturn with symptoms of high unemployment, falling real estate prices, a record number of foreclosures on real estate, businesses shutting down, and increased bankruptcy activities. Houston=s base economy was closely tied to the oil and gas industry and that industry was suffering from the same extremely low commodity prices that helped bring down the Soviet Union.
Although it was not the best of times to start a practice for a 27 year old C. P. A., it was a good time to gain experience in dealing with businesses going through major financial strain and fiscal difficulties. Many clients had difficulty meeting bank loan covenants and payment terms during this period. Bank troubled loan departments were gearing up. In order to protect the bank’s assets, they demonstrated a willingness to assist worthy customers through these difficult times. Occasionally, meetings were called with unsecured creditors to offer extended payment terms as an alternative to filing for protection in the bankruptcy courts. That was commonly referred to as doing a bankruptcy outside of bankruptcy. Bankers and creditors appreciated a debtor who was upfront and sincere, and had a tendency to work with such a debtor.
During the last few years of the 1980’s, my current partner, Michael P. Jayson, CPA contacted me to see if I would work on a major tax issue for a Chapter 11 Bankruptcy Case in which a Chapter 7 US Bankruptcy Trustee had been appointed to administer the case. Two CPA firms had been employed by that trustee. They had determined that the $1,000,000 in the debtor=s trust account was going to the IRS. That would leave nothing to pay other creditors. I was engaged by the debtor to review the validity of the determinations of the other CPAs. After researching the issue, I determined that the facts and circumstances surrounding the recovery of the $1,000,000 would not result in any taxes. The Chapter 7 trustee=s accountant concurred with my finding. At the time this was the longest running Chapter 11 case in the Southern District. The case lasted a few more years. It had opened my eyes to the bankruptcy industry. Representing the debtor was very interesting, and allowed me to gain many insights into their way of thinking.
During those years, I registered and took all the insolvency tax courses that were being provided by the Texas Society of CPAs. At one such course, sitting next to me was a newly appointed Chapter 7 Trustee. We became friends, and over the following years worked together on numerous Chapter 7 cases. There were several operating Chapter 7 cases. In an operating Chapter 7 case the business is allowed to continue operations while it is being liquidated. In an operating case, I had to deal with debtors who were operating a business that they knew was going to be closing. In other cases the business had already closed down. A trustee=s professional has the power and duty to investigate the activities of the debtor that had occurred prior to filing for protection under the bankruptcy laws. I will always be grateful for the experience gained by having such an opportunity.
After working for the Chapter 7 Trustee, we started representing Official Unsecured Creditors Committees. The committees could be formed and the law required the debtor to pay the expenses for the professionals representing such a committee. Many powers to investigate the financial affairs and activities of a debtor are given to the professional representing the committee. Debtors and their counsel normally hate unsecured creditors committees for that reason. They interfere with a debtor’s goal of getting away with lack of full disclosure and with their ability to offer extremely low payments under their proposed plan of reorganization. Debtors who did not adequately assist the committee’s professionals could find themselves replaced by a Court appointed trustee for the remaining management of the concern, or allow the committee to offer a competing plan of reorganization. The time spent on creditor committees allowed an insight to the mind set of those that had the most to lose during the bankruptcy process.
After a few years of working with the creditor committees, we shifted the focus of our work on debtors. The number of bankruptcy cases in the Houston area was finally going down. Lucky for us, we had obtained valuable experience in the field.
Today my partner, Michael P. Jayson, CPA, is routinely appointed as the accountant on many Chapter 11 cases in the Southern District. He teaches litigation support and bankruptcy at Rutgers University, and his class is rated number one by graduate students in their masters program. Our firm of Jayson & Frisby gladly accepts engagements in litigation support and the bankruptcy field. As mentioned earlier, we can work either side of the fence!
Based upon the years of experience gained over the last 23 years in dealing in the bankruptcy arena, I would like to share some observations of the characteristics of both debtors and creditors. In addition, I would like to identify how those characteristics are evident in the debtor government of the US, and in its creditors. Our government is little different from the individual citizens and enterprises that it represents when it comes to being a debtor.
