Liquidation process starts for Krahl Construction
(Crain's) — Just two weeks after being raided by the FBI, Krahl Construction has begun the process of liquidating through a bankruptcy-like procedure that's handled privately rather than in court.
The company, a general contractor based in the West Loop, has assets of $17.58 million vs. liabilities of $19.86 million, according to a letter sent Tuesday to Krahl's creditors from Rally Capital Services LLC, which is conducting a so-called "assignment for the benefit of creditors" for the company.
Such procedures are typically sought in agreement with creditors as a cheaper and quicker alternative to a court-run Chapter 7 bankruptcy-protection case.
The letter to creditors, from Chicago-based Rally Capital President Howard B. Samuels, also sheds additional details on the swift and dramatic shutdown of Krahl, which had 150 employees and had been in business since 1913.
Mr. Samuels writes that on Jan. 8, three days after Krahl's Chicago office was raided by the FBI and the U.S. attorney's office in Chicago, the company's "primary secured lender set off against Krahl's bank accounts."
That means the bank, which wasn't identified, likely called a default on Krahl's loan and swept up any cash it held for the company.
Krahl closed its doors that day, Mr. Samuels writes, and on Friday entered into the assignment agreement, "conveying all of the remaining assets of Krahl to (Mr. Samuels as trustee) for the purpose of sale or liquidation."
The company, which was based at 322 S. Green St. and also had an office outside Denver, had about 200 projects under contract at year's end with potential gross revenue of $97.86 million, according to the letter.
The letter says the Jan. 5 raid at Krahl's Chicago office was "part of an unspecified and sealed ongoing federal investigation" and that the search warrant was executed "without comment." An FBI spokesman has also said the raid was related to an ongoing investigation but wouldn't comment further.
Related story: Krahl Construction raided by FBI
Krahl's lawyer, Harold Rosen of Chicago firm Wolin Kelter & Rosen Ltd., declined to comment.
Mr. Samuels says in an interview that he doesn't think the federal investigation will impede his work and that his charge is to keep the process orderly as he deals with more than 600 creditors. He's asking creditors to file claims within 90 days and says the process could be completed in 125 days.
"I'm in the business of liquidating this company right now," he says. "We're establishing a protocol, and the start of this process is this letter."
Almost all of Krahl's assets are accounts receivable, while almost all of its liabilities are money due to subcontractors, according to the letter. The company has trade accounts receivable of $15.96 million vs. trade accounts payable of $15.25 million.
The remaining assets are: $306,345 in cash; $736,818 in vehicles, machinery, equipment and real estate, and $580,789 defined in the letter as simply "other."
The real estate includes a single parcel in west suburban Berwyn, and Mr. Samuels writes that the property and other assets will be put up for sale.
As a general contractor, it stands to reason that Krahl had few significant assets, says Joshua Glazov, a construction lawyer and partner in the Chicago office of law firm DLA Piper.
"The receivables is the big asset and, of course, that's the most difficult asset to monetize and get your hands on," says Mr. Glazov, who has a client involved and earlier this week wrote on his blog about Rally's assignment agreement. "I've got a great interest in this and am following it very closely."
In addition to the $15.25 million owed to subcontractors, Krahl's other liabilities are: $4.29 million owed to secured creditors; $257,747 in general accounts payable, and $57,195 in "other estimated liabilities," according to the letter, which notes that the financial information was provided by Krahl management and hasn't been audited or verified.
