BUY IT OR BUILD IT?
Experienced CPAs and
lawyers say there are three basic ways a CPA firm
can add a bankruptcy niche. They are:
To buy a CPA firm with a successful
bankruptcy practice. Although an acquisition is
the fastest way to add comprehensive services,
such practices tend to prefer to remain
independent and purchase prices can be high.
To hire a CPA with bankruptcy skills,
or an attorney with bankruptcy experience and a
client base, and charge him or her with building
up a niche. David Ringer, CPA, partner with New
York firm Richard A. Eisner & Co., was brought
in to expand his firm’s bankruptcy practice under
such a plan.
To build the new business by learning
as much as possible and using networking tactics
to get client referrals from other bankruptcy
professionals. Options include forming an alliance
with a law firm or CPA firm that already has a
foothold in the arena. Staff can spearhead the new
niche, using reciprocal referrals and providing
services to an alliance partner in your firm’s
best specialty areas such as tax or business
Practitioners who want access
to bankruptcy engagements should take these
additional simple steps, adds Steve Comeau,
Meyners & Co. attorney and manager in the
litigation and valuation services department: They
should identify the bankruptcy bar and then market
“The real gatekeepers of the
engagements in bankruptcy proceedings are the
attorneys,” Comeau says. Almost all a CPA firm’s
bankruptcy work comes from the referrals of
lawyers acting as counsel to a debtor. These
attorneys are a close-knit and specialized group
that prefers to work with professionals they know,
Conversely, a CPA with a client
needing to file for bankruptcy may recommend the
bankruptcy lawyer. A practitioner should be frank
and tell the attorney he or she is interested in
some of the accounting work at the time of the
referral, says Comeau.
MANY SERVICES ARE NEEDED
Burrage suggests that
a firm make its initial pitch for bankruptcy work
in its strongest service areas. Although his firm
recently tried to get creditors’ committee work
for the Furr’s Supermarkets bankruptcy petition (a
chunk of business worth in the seven digits, he
says), it lost that engagement to another firm.
Instead, because of the firm’s expertise in taxes,
“we wound up getting the role of filing the final
tax returns for the debtor,” Burrage says. “That’s
still quite a substantial engagement for us” and
will be several years of work for the firm.
Goddard segued into bankruptcy from a tax
position at Coopers & Lybrand. “I was in tax,
but I did a lot of bankruptcy work and it just
expanded,” she says.
It’s useful to
remember that in bankruptcy the debtor still needs
general accounting work such as monthly
operating-report filings, ongoing bookkeeping or
tax return preparation. Whether a debtor files for
protection from creditors under Chapter 11 (which
involves continued operation, reorganization and
possible recuperation of the company) or under
Chapter 7 (which liquidates assets, distributes
them among creditors and dissolves the company),
many CPA services—general and bankruptcy
specific—are required en route. For example, a CPA
Provide tax services.
Several CPAs suggested that firms
use tax expertise as a way into the bankruptcy
business. Every entity “has to file tax returns,”
says David W. Roberts, CPA, certified fraud
examiner and insolvency and restructuring adviser
with Andersen. He advises, “Obtain a list of the
panel trustees (as many as 50 or more in a given
district), and then market your bankruptcy
tax-preparation services to those trustees,
typically the nonaccountants.” Panel trustees are
both CPAs and non-CPAs, and the U.S. Trustee
approves them to serve, on a rotating basis in a
given district, as trustees of individual Chapter
7 bankruptcy cases.
Become a panel trustee. A
CPA who is willing to undergo a thorough
background examination can apply to become a panel
trustee in his or her district. It “requires some
experience,” Roberts says, “so ask your local
trustee’s office what the qualifications are.”
The trustee’s office assigns Chapter 7
cases. Panel trustee members are required to
handle assigned cases even when there are no
assets to pay their advisory fees. When there is
truly nothing, the CPA gets a nominal statutory
fee (and gains knowledge)—along with a chance to
be assigned later to larger, more complex and more
“Some view being a
panel trustee as a loss leader because you get an
opportunity to work on cases that require
additional services that result in significant
fees,” Roberts says.
Become an examiner.
“Examiners are appointed by the
court to report on the facts and circumstances
surrounding the bankruptcy,” Roberts says. For
example, if the parties to the bankruptcy disagree
about whether it’s necessary to appoint a trustee
in a particular case, a judge might ask an
examiner to gather details about the case before
making a decision. Examiners look for preferences
(unacceptably large payments made within 90 days
of the filing), fraudulent conveyances and
anomalies important to the case.
Market to examiners. This
can be another point of entry into bankruptcy
There are many other potential
clients for accounting services, say
bankruptcy-savvy CPAs and attorneys. They are
Companies that want planning help to
avoid bankruptcy or that need a restructuring
recommendation. (If those efforts are
unsuccessful, the debtor still will need
prebankruptcy accounting, referrals and
The unsecured creditors’ committee or
other nondebtor parties to the bankruptcy. (Those
parties may need a review of the debtor’s
The debtor. (On behalf of the
unsecured creditors, the debtor may obtain the
help of a CPA to avert secured debt obligations.
For example, a CPA examination of bank-loan
covenants might reveal why part or all of a bank
loan doesn’t have to be repaid.)
Any of the secured creditors.
Employee associations including
Investment bankers (those working on
an asset sale need valuation services).
The trustee who may need a CPA to
gather the debtor’s books and records, safeguard
assets and collect receivables.
also may need CPA services such as these:
Reconciliations of creditors’ claims
with the debtor’s records.
Assistance in evaluating and/or
structuring deals for the plan to pay creditors.
Liquidation analyses for Chapter 7
THE DOWN SIDE
assignment may be working for the debtor under
Chapter 11, which carries three nonpayment risks:
The debtor simply doesn’t pay the
bill for whatever reason, which requires the CPA
acting as adviser to dun the debtor or appeal to
the bankruptcy court.
The debtor explicitly objects to
paying the CPA for some reason, and the court
upholds the objection.
A Chapter 11 bankruptcy gets
converted to a Chapter 7 bankruptcy for purposes
“This happens more often
than I’d like to talk about,” says Davidson.
The examiner role is a bit different with
respect to risk, Roberts points out. Examiners
know that recommending a conversion to Chapter 7
from Chapter 11 means they risk not being paid if
they have to wait in line behind others creditors
owed administrative fees first. Yet examiners
can’t compromise their integrity by failing to
recommend a conversion when it’s warranted. “There
have been plenty of cases where the examiner
doesn’t get paid,” Roberts says.
A LIMITED POOL
The participants in
the world of bankruptcy services admit that most
of the engagements are dispersed among a limited
group of accountants and lawyers. They may work on
the same side of the table for one client at the
same time that they are adversaries for another.
“You tend to see the same players over and over,”
says Ringer. Although “it’s not as competitive as
you might think,” Comeau adds.
Conflict-of-interest considerations usually
require the work to be parceled out to several
accounting firms, which means attorneys always are
looking for new CPAs to whom they can turn. And
because law firms also have such considerations,
working on one case is like having an audition
with the entire bankruptcy bar at one time.
“Bankruptcy proceedings are resplendent with
lawyers,” Comeau says.
learn about the bankruptcy process and
the services they can provide to clients
by talking to attorneys and to other
CPAs in the field; attending litigation
consulting forums; examining the
standardized forms in the district U.S.
Bankruptcy Court office; and reading
about bankruptcy in books, magazine and
journal articles and newsletters from
bankruptcy law firms and specialty CPA
Other resources are
The Association of
Insolvency and Restructuring Advisors,
, a national not-for-profit
organization serving insolvency and
reorganization accounting practitioners
that offers programs and literature.
Membership information: 541-858-1665.
U.S. Bankruptcy Court, www.uscourts.gov/bankform
, with links to official bankruptcy
Overview, published by the Legal
Information Institute of Cornell Law
. An overview of bankruptcy with
links to federal, state and private
sources of information.
. A multidisciplinary, nonpartisan
organization dedicated to research and
education on insolvency matters.
, and CPA2Biz, www.cpa2biz.com
, which offer the consulting
services practice aid Providing
Bankruptcy and Reorganization
Services, as well as selected
special publications readings.
, a good source of bankruptcy
publications. Phone: 800-323-8724.