From Publishers Weekly:
The Donadio & Olson literary agency filed for Chapter 7 bankruptcy December 3 following years of embezzlement by its former bookkeeper, Darin Webb, who was sentenced December 17 to two years in jail for his crimes.
The agency filed for Chapter 7 in the U.S. Bankruptcy Court for the Southern District of New York, listing assets of $47,241.90 and liabilities of $186,613.90. The agency’s authors are owed a total of $2.7 million in royalty payments. The firm has already begun liquidation proceedings.
The two principals in the firm, Edward Hibbert and Neil Olson, explained how the embezzlement led to the downfall of D&O in separate letters to the judge made public at the time of Webb’s sentencing. Olson provided the more complete explanation of what took place, saying that Webb had been the agency’s bookkeeper for about 20 years and, during that time, had taken over most of the agency’s back office functions. What looked like dedication to the job, Olson wrote, was really part of Webb’s scheme to steal $3.4 million.
According to Olson, Webb, over time, stole an “ever larger portion of our and our client’s money. His means of doing this were complex—hidden bank accounts, fraudulent reports, gently squeezing out a part-time assistant who asked too many questions.”
When Webb confessed to the theft, it became clear, Olson wrote, that he did not “have the means to repair what he has ruined, and we do not have the means to continue.” As a result, Olson wrote, the agency “will cease to exist within weeks.” (The letter was dated October 21, 2018.)
Link to the rest at Publishers Weekly and thanks to Kris for the tip.
PG wonders how much money the principals of the agency, including Edward Hibbert and Neil Olson, have received from the agency during the last year or so.
He asks because US bankruptcy laws include what are sometimes called “clawback” rights of creditors for any Preferential Transfers by the bankrupt entity or person.
Here’s one description of preferential transfers:
A preferential transfer occurs when a debtor, prior to filing for Chapter 7 bankruptcy, pays off a particular creditor or group of creditors and by doing so, causes other creditors to get less in the bankruptcy. For example, a debtor may wish to repay a debt to a friend or family member, to make sure that person gets paid in full (and shield the money used to repay the debt, which would instead be divided among all of the debtor’s creditors).
. . . .
Only transfers made within a certain amount of time before you file for bankruptcy count as preferences. The rules depend on your relationship to the creditor:
- During the year before you file for bankruptcy, any payment of more than $600 to an “insider” creditor — typically, a friend, family member, or business associate — counts as a preference, subject to the clawback.
- During the 90-day days before you file, any aggregate payment of more than $600 to a regular creditor (someone other than an insider).
The problem with preferential transfers (also called preferences) is that it benefits one creditor at the expense of the rest. Rather than having their debts tossed into the bankruptcy hopper and receiving pennies on the dollar from the bankruptcy trustee (if that), creditors who receive preference payments are paid in full (which leaves that much less money to be distributed to other creditors).
If the agency is a corporation (the Donadio & Olson website identifies the entity as “Donadio & Olson, Inc.”) and the corporation has filed the Chapter 7 petition, it is possible that payments to corporate officers, directors, shareholders or other insiders during the year prior to the bankruptcy filing date or during the 90 days prior to the filing date could be subject to clawback proceedings as described above.
It has been a very long time since PG has worked on any bankruptcy matters, so he’s not current on bankruptcy law, but authors who haven’t received royalty payments the agency collected and spent on salaries and bonuses (if any) for corporate insiders may wish to consult competent bankruptcy counsel to see if they might be able to collect at least some of that money.
It would not be unusual for a single attorney or law firm to represent a class of creditors who are similarly situated rather than each creditor hiring his/her own counsel.