• by Steve McClellan  @mp_mcclellan, December 31, 2013

Janet Miller-Allen is out as both KSL Controller and the trustee overseeing the wind-down of the media agency which filed for bankruptcy in September. According to a company court filing on Dec. 30, Miller-Allen resigned both posts.

In her role as trustee Miller-Allen has been replaced by David Gottlieb, partner in charge of bankruptcy and insolvency services at the accounting and consulting firm of Crowe Horwath.

Miller-Allen’s departure came amid a flurry of year-end activity in the KSL case. In the past week both the Unsecured Creditors Committee and the U.S. Trustee requested in separate filings that the Judge hearing the case -- Alan M. Ahart --  replace Miller-Allen, who was deemed to be in over her head and unqualified to oversee the wind-down process.

KSL countered that Miller-Allen resigned because the Unsecured Creditors Committee refused to waive rights to sue her for any actions she has or would have taken in her role overseeing the wind-down process.

Both the U.S. Trustee and Creditors Committee told the court that evidence was accumulating that top KSL managers, including company founder Kal Liebowitz, had tapped large amounts of KSL funds for personal use -- and had, by their mismanagement, helped drive the company to financial ruin.

In a further twist, KSL told the court it was converting its Chapter 11 proceeding into a Chapter 7 case, and that it wants to go directly to liquidation without further effort to reconstruct past financial records over a period of years, which it said was a virtually impossible task at this point.

With Miller-Allen’s departure, KSL said, “the Debtors cannot complete the reconciliation process because they now lack anyone with 1) the historical knowledge of the Debtors’ media contracts, and 2) the necessary knowledge to manage the proprietary software related to the Debtors’ business.”

Miller-Allen’s tenure at the firm lasted about six years, and extends to the time when Geoffrey Charness, to whom she reported, is alleged to have bilked the company out of millions, diverting some $145 million of company funds into personal credit card accounts opened in his name and that of his wife Jennifer. When it filed for bankruptcy in September, the firm cited Charness’ alleged thievery as a primary cause for the company’s financial demise.

The firm has employed a forensic accountant, Grobstein Teeple, to help reconstruct the firm’s books. In its latest filing however, KSL said that it was now “unaware of the identity of any reliable third-party media claims reconcilers that could finish the Debtors’ claims reconciliation process.”

Essentially, the firm said, its books are in such disarray that it “cannot determine specific amounts owed to any particular creditor.” It has estimated however, that total debt amounts to approximately $100 million.

The company also admitted that many of its tax returns from prior years “appear to be substantially inaccurate,” and that it won’t be able to correct them given the unlikelihood that it can reconstruct its books.

As far as finding out which company insiders embezzled how much from the company, KSL said: “Without reconstructing the Debtors’ financial books, the estates will be unable to determine how much money was embezzled and by whom” or “how much money was improperly paid to third parties for fraudulent transfer purposes.”

Without the ability to reconstruct its financial records, KSL has become “a collection of non-operating assets and accounting entries,” best wound down by a Chapter 7 trustee, KSL concluded. “Obviously if a Chapter 7 Trustee disagrees with this assessment, that Trustee will be free to seek re-conversion of these cases,” to Chapter 11 status.

No response yet from the Creditors Committee or the U.S. Trustee on KSL’s latest move.