JK Harris at a crossroads
Bankrupt tax representation giant JK Harris & Co. will likely learn over the next few weeks whether it will face a fresh beginning or the bitter end.
The firm's shaky future hinges on what is likely a large cash injection that would help the debt resolution company get back on its feet partly by restoring a cornerstone of its business: television commercials.
"If we don't get … financing, we won't make it though to New Year's," founder and Chief Executive John K. Harris said while being quizzed by his creditors Tuesday in downtown Charleston.
Goose Creek-based JK Harris and two of its affiliates sought Chapter 11 bankruptcy protection in October, namely to fend off efforts by the Texas attorney general's office to force the companies into receivership.
Among other issues, the finances of the closely intertwined businesses had been hurt by cash-flow problems and big settlements stemming from claims from Texas and others that JK Harris' main tax arm misled consumers, typically for taking fees from clients who didn't qualify for the debt relief they were seeking.
Bankruptcy papers listed liabilities of more than $21 million.
Harris said he plans to seek court approval soon to borrow money that would enable JK Harris to pay off some of its debts and continue operating independently. He said he was to meet with three investors, including his current primary backer, about how to structure the new financing immediately after Tuesday's hearing.
Harris was confident the funding would come through.
Ideally, he said, the cash infusion would buy JK Harris enough time to emerge from bankruptcy, stabilize its tax representation business and sell itself at a reasonable price. Without the financing, the company would be forced into a quick, court-supervised fire sale.
An informal offer is on the table, said JK Harris attorney Bill McCarthy, who described the size of the bid as "a low amount." The prospective buyer was not identified in court testimony.
Harris recalled how in the mid-1990s he was chatting with a client about an idea for a business that would resolve tax debts for individuals and businesses in trouble with the Internal Revenue Service and other authorities. At the time, he was a certified
public accountant working in downtown Charleston.
"I got this wild hair one day and wanted to become the largest company in an industry," he said.
A $2 million startup loan was quickly repaid. By 2002, JK Harris was raking in $10 million a year in revenue.
"We were making money hand over fist," he said.
Harris, who said he hates paying taxes, started investing his profits in new business ventures to avoid sending his company's earnings to Uncle Sam.
The strategy ultimately backfired. For example, a division he set up to recoup delinquent credit card debt had to be shut down after a change in law in South Carolina.
In another misstep, JK Harris turned over all its collection efforts to its main financial backer, which specialized in recovering money owed to small retailers. It was a bad fit, and revenue plummeted, Harris said.
"That was a mistake," he said.
The recession that took hold in late 2007 further eroded the company's finances. Harris said he first considered a bankruptcy filing in September 2009.
If it nails down the new funding, JK Harris plans to resume promoting its tax services on TV stations in the 60 biggest markets. The company has been relying solely on name recognition for new business since July, but with cash running low, it needs to step up its marketing efforts in a hurry, the CEO testified.
"If we don't start advertising by the first week in January, we might as well liquidate," Harris said during Tuesday's three-hour hearing, which was laced with accounting jargon and included tearful pleas from two laid-off employees seeking back wages.
Harris said the company was forced to cut costs in all areas, noting that even his girlfriend lost her job. Also, his salary has been cut to $236,000 a year from $400,000.
JK Harris, which shuttered 100 satellite offices in 2009, now has about 135 employees in Goose Creek. It could restore up to 90 jobs in the first quarter next year if the financing comes through, Harris said.
Reach John McDermott at 937-5572.