Liberty House chief rejoices with employees
By Andrew Gomes
Advertiser Staff Writer
Bankruptcy Judge Lloyd King overruled objections made in court Tuesday by the Internal Revenue Service, which filed an estimated $35 million tax claim against Liberty House because it could be held liable for taxes of a tax-sharing group of 83 companies affiliated with parent JMB Realty Corp. of Chicago.
Liberty House attorneys said the isle retailer owes nothing, and called the IRS estimate "irresponsible." But the companys would-be owners under reorganization are willing to guarantee $10 million just in case.
The IRS wanted to take at least another year to finish auditing the tax-sharing group to which Liberty House belonged until 1996.
King on Tuesday called that option unreasonable. "This has been a plan-killer for several years," he said. "Talk about an undue delay."
His quick ruling yesterday was praised by attorneys who have worked on the case for nearly three years.
Tom Roesser, a local attorney representing several lenders waiting to become new owners of Liberty House, called the decision "huge."
"It has taken a little more time than we would have hoped for in this case, but the day has finally arrived," said Roesser. "It is a very good feeling."
Under the plan confirmed yesterday, several few investment firms owed $130 million would be issued $130 million in new Liberty House stock and would become the new owners of the retailer.
Also, a majority of 2,000 unsecured creditors, mainly vendors, holding $40 million in claims would be paid 40 percent in cash and 50 percent in notes. Creditors with claims of less than $5,000 would be paid 100 percent cash, with interest. JMB and an affiliated company with claims totaling $21.9 million would receive about $12.8 million in a mix of cash and notes.
Existing Liberty House operations would not be affected by the plan confirmed yesterday, except that company President John Monahan and isle developer Duncan MacNaughton would join three lender-appointed representatives on a new board.
The plan would go into effect, attorneys estimate, within 30 days, after all claims are paid and transactions in the deal are completed.
King still needs to set a hearing at which he will estimate the IRS claim. If the court estimate is more than $10 million, plan proponents have the option to back out. But Liberty House attorneys arent worried that the court estimate will exceed the guarantee.
An earlier $103.5 million estimated tax claim that the IRS filed in the case regarding 1992-94 taxes was settled for $4.2 million. Liberty House paid less than $500,000. A settlement could be reached with regard to the pending claim.
Bruce Bennett, Liberty Houses lead reorganization lawyer, said hes confident an agreement will be reached and said discussion between the IRS and plan proponents is moving forward.
"Im thrilled and relieved," he said. "Thrilled that we got to this point in the case, and relieved that Liberty House is going to emerge from bankruptcy."
Monahan, who became president one year before Liberty House filed for Chapter 11, said hes going to be happy to "be a retailer again."
"I feel great," he said. "Its been a very long three years."
During that time, which was taken up with mountainous court filings and complex arguments, Liberty House eliminated stores, reduced expenses, retooled merchandising and returned to profitability.
Net profits, excluding restructuring expenses, have reached nearly $9 million in each of the last two years. Excluding interest, taxes, depreciation, amortization, reorganization fees and extraordinary expenses a standard measure of a companys health earnings were about $25 million in the last two years.
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