Jonathan Carson and Eric Kurtzman ditched careers as bankruptcy lawyers four years ago to court the battered companies they once represented.
They are now third-party claims agents and they’ve developed a proprietary creditor database that can be accessed by lawyers and financial advisers through the Internet thus simplifying a bankruptcy’s paper trail. The software allows lawyers to slice and dice the data in a variety of ways, creating documents that can be attached as pleadings in a bankruptcy.
Kurtzman Carson say their proprietary software is designed to reduce the administrative paperwork that used to be foisted on attorneys, and added to the whole cost of a bankruptcy.
Their claims agent service was launched in late 2000 and last year, revenues were nearly $12 million. So far this year, the firm has signed three of the top 15 corporate bankruptcy filers, including automotive supplier Collins & Aikman, jewelry chain Friedman’s Inc. and home electronics retailer Ultimate Electronics Inc. (The firm is paid by the company in bankruptcy.)
“They’ve become a real player in the industry, popping up a lot in the last few years and gaining market share,” said Peter Heckmann, an analyst at investment bank Stifel Nicolaus & Co.
The industry’s top players are still Bankruptcy Services LLC and Poorman-Douglas Corp., both units of publicly traded Epiq Systems Inc. of Kansas City, Mo. They were claims agents on the bankruptcies of Worldcom Corp., Enron Corp., Global Crossing Ltd. and Adelphia Communications Corp.
The No. 2 player, Trumbull Group LLC, a unit of Wells Fargo & Co. in San Francisco, has gained some ground largely because Wells Fargo has been successful at cross-selling its services. Trumbull, based in Windsor, Conn., landed in a dispute last year when Kmart, now a unit of Sears Holding Corp., claimed the company charged excessive printing fees.
As attorneys, Kurtzman and Carson had worked with nearly all their new firm’s competitors and knew they could streamline much of the administrative work that bankruptcy attorneys had performed at exorbitant rates.
Take the case of Interstate Bakeries, the Kansas City, Mo. maker of Wonder Bread and Hostess Twinkies that filed for Chapter 11 bankruptcy protection last year.
With 34,000 employees, Interstate had a list of more than 1 million potential creditors including vendors, former employees and taxing authorities.
Other claims agents would typically cobble together a list of creditors, send out a mass mailing of letters, and then collect boxes of claims every week that were then forwarded to the bankruptcy lawyers. After that, midlevel bankruptcy attorneys would spend hours going through boxes and inputting the data to create a working database of potential claimants.
Kurtzman Carson simplified the process. They weeded out duplicate names and addresses in the Interstate Bakeries case, whittling the list of potential creditors down to 750,000 names. That saved the company thousands of dollars in excess postage and letterhead.
They also created bar codes for each creditor name so individual claims could be tracked electronically. Potential creditors were instructed to log onto the company’s Web site for basic questions, which eliminated another big expense: attorney’s fees. When Carson worked as a midlevel associate, he fielded as many as 200 calls a day from inquiring creditors, and his firm simply billed the bankrupt estate.
“Our goal throughout the process is to alleviate the burden on the financial professionals so they can focus on the big game, the substantive matters of the bankruptcy,” Kurtzman said.
Kurtzman, 34, and Carson, 33, first worked together on a Delaware bankruptcy, in which a third-party claims agent had been fired. At the time, Carson was at Kirkland & Ellis in Chicago, while Kurzman was with Pachulski Stang Ziehl Young Jones & Weintraub in Los Angeles. “No one was doing the work the way that we, as lawyers, wanted it done,” said Kurtzman, now chief executive of Kurtzman Carson Consultants LLC in Marina del Rey.
Kurtzman Carson’s offices feature huge paintings of characters from “The Simpsons.” The company spends so much time printing documents that it they named each printer after a different “Simpsons” character.
“It was easier saying the document was on Apu or Marge than on printer No. 4,” said Carson, who is president and conducts a class on Bankruptcy 101 for employees.
Having grown from two employees to 80 in less than four years, Kurtzman Carson is moving beyond its niche in bankruptcy. It has taken over administrative tasks as ballot tabulations on reorganization plan voting and automated disbursements of claims. It also is courting class-action clients.
“Sometimes it’s like we’re trying to hold onto the back of a bullet train,” said Carson. “We’re just trying to keep up with all the work.”
