August 10, 2011
By: Mary Ann Pekara
Jackson Hewitt Tax Service Inc. won court approval of a reorganization plan Monday, which the company hopes will allow for its exit from bankruptcy by week’s end.
U.S. Bankruptcy Judge Mary Walrath confirmed the Chapter 11 restructuring plan of the nation’s second largest tax preparer at a U.S. Bankruptcy Court in Wilmington, Del. The company initially sought bankruptcy protection in Judge Walrath’s court in May.
With an outstanding $357 million owed to lenders, Jackson Hewitt is offering up ownership of the company and a $100 million term loan under its reorganization. Existing stockholders will be offered nothing under the new plan.
Court papers estimate the company’s worth at $225 million, and lenders will be providing a $115 million revolving loan to keep the company running until the next tax season begins.
Mark A. McDermott, a bankruptcy attorney representing Jackson Hewitt, spoke with the Wall Street Journal after Monday’s hearing.
“The lenders in this are really giving a lot to get this company reorganized,” McDermott said.
The bulk of the company’s unsecured creditors are made up of plaintiffs in class-action lawsuits that challenged Jackson Hewitt’s practice of giving loans based on customers’ expected tax returns. The practice, which functioned as a major source of revenue for the company, was highly criticized by consumer advocates.
Critics accused the company of violating consumer-protection statues by offering the high-interest loans to tax filers. After the IRS stopped providing tax preparers with advance notice of filers whose returns might be at risk, the refund loans became too great of a threat and the practice ended.
Jackson Hewitt’s new restructuring plan creates a $1.1 million trust to be paid out to its unsecured creditors.
When the company filed for bankruptcy on May 24, it showed assets of $338.6 million and debts totaling $444.8 million. At the time, Jackson Hewitt announced it hoped to emerge within two months.