• by Steve McClellan  @mp_mcclellan, February 3, 2014

The U.S. Bankruptcy Court Judge hearing the KSL Media case has authorized David Gottlieb, the newly named trustee of the bankrupt agency, to restart the process of reconciling the media purchases that the shop made in the spring and summer of 2013 before going out of business in September.

That reconciliation process abruptly ended at the end of 2013 when KSL Media converted its Chapter 11 case into a Chapter 7 liquidation proceeding. Up until that time, about 30 KSL staffers remained employed at the agency’s Los Angeles-area offices to help wind down the agency’s affairs. That included the reconciliation process of determining which clients were owed what, based on the amounts they had prepaid to the agency for media buys, and how much of those moneys were actually paid out to media vendors for ads.

When the conversion to Chapter 7 occurred on Dec. 31, the remaining staffers were let go, including some who hadn’t been fully paid, and the reconciliation process stopped. 

Gottlieb told the court it was critical to get that process going again, so the defunct agency can make a fair and proper disposition of its assets to creditors. Those assets include at least $30 million in cash that is held in various accounts.

A proper reconciliation is critical for clients. According to one source familiar with the situation, advertisers that prepaid their buys need to know that those payments reached the intended media vendors. Otherwise, they could be on the hook for ads that were placed on their behalf, but never paid for by KSL.

Gottlieb told the court that virtually all of KSL’s clients made payments to the shop for the purchase of media prior to the media vendors issuing final bills to KSL. There was usually a month or more lag time between the time KSL placed an order for media and the time it took to receive a final invoice from the media company where the order was placed.

Discrepancies often occurred, Gottlieb said. Frequently, a client would prepay for buys that didn’t all get placed. Instead of returning the money to the client, KSL would issue a credit instead.

Separately, Gottlieb is also exploring whether additional money is recoverable from at least two of KSL’s former top-ranking executives: founder and Chairman Kal Liebowitz and CEO Hank Cohen. As part of that investigation, the judge overseeing the case, Alan M. Ahart, has issued Gottlieb subpoena power to question both executives under oath. Gottlieb has stated that Liebowitz has borrowed millions from the company that may be recoverable for payment to creditors. Gottlieb has also said both Liebowitz and Cohen may have received improper payments from a client transaction that may rightfully belong to the bankrupt agency.

In order to get the reconciliation process back on track, Gottlieb asked the court to approve a deal he cut with CoreMedia Systems, which has provided KSL with the transaction software it has used to reconcile media buys. CoreMedia was owed more than $200,000 when KSL filed for bankruptcy last September. It was charging KSL more than $14,000 per month in license fees for the software. Gottlieb told the court that CoreMedia had agreed to accept about $20,000 to settle the $200,000 debt and further agreed to accept a reduced monthly fee of a little more than $10,000 for KSL’s continued use of its product.

Gottlieb also said he would hire back about a dozen KSL staffers who would work as independent contractors on the reconciliation project. The judge also granted him authority to pay back wages to those KSL staffers let go at year’s end who were not paid in full for their work.