Krell Moves to new location

Reading this thread is sad for me.  There have been so many missed opportunities to support brand goodwill by simple communications.

Can such destruction of value be deliberate?  For the experienced legal minds among us, I ask Which parties benefit from having a lower valuation for Krell assets?  If the value of Krell goes to zero, who avoids inheritance tax or . . . ?

Jea48 I didn’t wanna make the communication on this form very personal since I didn’t want to come off as any sort of know at all. However, perhaps some of my work background will be appropriate and give some perspective on why I have made the comments i have. I ran a number of large consumer products companies earlier in my career. I tired of that and then did turnarounds for private equity and venture capital portfolio companies for over a decade. Subsequent to that I started a hedge fund focused on small ( under $1B market cap) public companies in some stage of turnaround. I took a number of client companies through bankruptcy. I have a pretty good idea of the situation if not the specifics facing Krell and Buhler. 
 

As I have outlined, there is much to be desired with the communication from Bicking. I realize Krell and Bicking are both private companies and won’t have the disclosure  mandates of public companies.. What I am about to write is based on some level of conviction of the situation at Krell despite a lack of knowledge of the facts. I have researched Bicking and there is no indication that they hold an equity position in Krell or any other company. They are strictly an advisory firm and as such they are likely trying to turnaround Krell. It is unclear who hired them or for that matter who they report to. I agree it is curious that Buhler used terms like “we” or “our firm” when referencing Krell but you need to understand I suspect he is the management of the company at this point probably largely through default. Again a suspicion on my part, but this has been going on so long that personnel has dispersed and he is of the last men standing at the company. While perhaps a bit sloppy, Buhler’s note to this forum was casual and not official so the terms he used are understandable. Nevertheless he has missed some self imposed deadlines for communication on the situation. Also while not mandated, in a situation of a consumer products company communication with “stakeholders” becomes paramount in preserving brand equity. 
 
While I am not at the point of suggesting Krell is a failed company it certainly would meet my definition of being in the “zone of insolvency”. I am not a lawyer either, but I have worked clients through the bankruptcy courts, and when a company finds itself in that situation the people running the company need to take care of the debtors first and the equity holders second. Basically they need to run the company so that debtors get their money or in my case my property back. Frankly anyone who has equipment in at Krell for repair, warranty or upgrade is supposed to get their equipment back since it isn’t part of the Krell estate. 
 

I don’t want to speculate on outcomes but even if Bicking is an equity holder in the company at this point I SUSPECT their focus to shift from protecting the equity holders interests to protecting the debtors interests. I agree this whole situation is odd and it appears Buhler has had a relationship with Krell for sometime. Given the financial trials and tribulations I am not surprised Bicking has had a relationship with the company for sometime. However based on what I have seen and on some likely assumptions, the nature of their advisory services  has probably changed over time.  Unfortunately not much we can do other than rely on the better Angels doing the turnaround.

@jwei 

You asked "For the experienced legal minds among us, I ask Which parties benefit"?

My answer: Lawyers and liquidators.

Srace1 can probably chime in here, but if memory serves, the order of payoff when a company is dissolved is:

1. Back pay for former employees. This is a matter of state, not Federal, law, and state attorneys pursue this matter on behalf of the employees. Some states (like California) are quite aggressive on behalf of former employees, others aren’t.

2. Federal, then state, then local taxes, in that order. Pursued by the IRS and state attorneys.

3. Banks, then other stakeholders, including customers with equipment in for repair. Owners of equipment in for repair might pursue a class action lawsuit; this is easy in some states, and quite difficult in others. Depends on state law. And yes, the reason class action lawsuits are rare is that lawsuits are often (much) more expensive than any potential gain. It’s the duty of an ethical lawyer to warn their clients of the potential costs of a lawsuit.

4. Bond and stock holders are paid last. The value is usually zero at this point.

Lynn_olsen is largely correct but bankruptcy is a bit more complex depending upon the state and the type of bankruptcy. Most bankruptcies start out as a Chapter 11 meaning they will get some money from an outside source in exchange for basically full ownership of the company. Then Krell in this case would settle the claims of it’s the debt holders with some of the cash infused for ownership of the company with the remaining cash going into future operations of the company. Most states want to get back pay to employees but that is limited in amount, duration of pay owed and the size (cash) of the estate. As for taxes, I suspect Krell has produced losses for multiple years and has a sizable NOL (net operating loss) which is a shield against future taxes  (largely at the federal and state level) and an asset of the estate. The other bankruptcy is called a chapter 7 proceeding which is basically a dissolution of the company under bankruptcy court procedures with the proceeds going to people the company owes money to which includes employees, vendors, secured debt holders ( generally a bank) and then to unsecured debtors. If there is sufficient cash after the bankruptcy action to pay off all the above, then the shareholders get the remaining cash. This whole process is somewhat more complex than that, but this is a quick overview of the rank order of payouts. I’m sure you’ve heard the phrase “Pennies on the dollar”. That is a reference to the fact that in most bankruptcies, most entities owed money get less than what they are owed and hence Pennies on the dollar.

A large percentage of companies that attempt a Chapter 11 actually wind up as Chapter 7’s in less than a year or so. As for those of us with equipment at Krell, it should not be considered part of the estate. We never transferred title to our assets and Krell is simply “holding” our amps, preamps, etc. However, getting them sent back to us will be a chore since cash will be at a premium and there likely is nobody there to send our equipment back to us other than a court appointed trustee who wants to get this off his or her plate as quickly as possible. Sending back 60 pound amps to Oregon or Mississippi will not be high on their to-do list.

This rather negative overview assumes Krell is going into bankruptcy - an event for which we have no actual knowledge. This was merely a response to Lynn_olsen response about payment priorities under a liquidation scenario. The other caveat here is that I am not an attorney but do have experience working with clients through the bankruptcy process.