Jackson Hewitt Pushes Chapter 11 Fight With Creditors To August
Peg Brickley
| 30 June 2011
Jackson Hewitt Tax Service Inc. agreed to push its Chapter 11 plan confirmation hearing from July until August, giving more time to creditors who say the prearranged restructuring needs a closer look.
The country's second-largest tax preparer is looking for a quick pass though bankruptcy to swap out debt for equity and shake off lawsuits brought by low-income people who accuse Jackson-Hewitt of running afoul of consumer protection laws.
Thursday, however, company attorney Mark McDermott said Jackson Hewitt agreed to a 30-day delay to give the official creditors committee time to perform its work.
That work includes testing the validity of the bank loan claims that will knock unsecured creditors out of any hope of recovery in the case. It includes vetting Jackson Hewitt's program for notifying consumers that its bankruptcy wipes out their right to sue over "refund anticipation loans."
Along with Jackson Hewitt's Chapter 11 plan, the refund anticipation borrower notice program will be reviewed Aug. 8 in the U.S. Bankruptcy Court in Wilmington, Del.
The short-term, high-priced loans against expected tax refunds are a thing of the past because of changes in Internal Revenue Service practices. However, they once accounted for a significant chunk of Jackson Hewitt profits. They also triggered class-action lawsuits accusing the company of victimizing low-income consumers with alleged predatory lending practices.
Jackson Hewitt's plan will end the threat of those suits, allowing the company's lenders to take over the operation minus the liabilities.
Creditor attorney Christopher Winter of the Duane Morris firm said Thursday that Jackson Hewitt is attempting to strip vulnerable people of legal rights in bankruptcy without giving them a chance to protest.
"The debtors here don't want to give notice to all the creditors," Winter said. "They want all the benefits of Chapter 11 without all the balance of the process."
Lenders say they have lost enough on Jackson Hewitt, which owes $357 million but is only worth an estimated $225 million.
Document DJFDBS0020110630e76u000jh
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