By Maureen Flanagan
Bankruptcy Management Solutions (BMS), based in Irvine, CA, is a leading provider of software solutions and support for the management of Chapter 7 bankruptcies. The company's pioneering service, established in 1987, provides Chapter 7 trustees with the resources they need to manage and simplify the essential tasks of asset liquidation tracking, court reporting, and regulatory requirements. Previously a wholly-owned subsidiary of JP Morgan Chase, BMS captured a leading share of the market and now serves more than half of the approximately 1,200 active Chapter 7 bankruptcy panel trustees in the United States. BMS software is used in an estimated 800,000 bankruptcy cases per year.
In a December 16, 2003 transaction, BMS was acquired by Lincolnshire Management, Inc., a New York based private equity firm. To support the transaction, American Capital Strategies, Ltd. (Nasdaq: ACAS) provided a senior revolving credit facility, senior term notes, subordinated debt, a contingent credit facility and common stock. Wachovia Bank, NA also provided senior term notes. Previously American Capital partnered with Lincolnshire in 2002, providing mezzanine financing to support their investment in 3SI Security Systems.
"BMS' proprietary software and support guide Chapter 7 bankruptcy fiduciaries through the complexities of the bankruptcy rules and reporting requirements in courts throughout the country. This sophisticated technology serves a critical need at a time when bankruptcy filings are at an all-time high," said Dave Watkins, the company's President.
In the United States, debtors can file for protection under four different chapters of the bankruptcy code. Chapter 7 filings, which include both business and personal filings, account for approximately 70% of all bankruptcy filings and involve the sale of the debtor's assets for the benefit of creditors. The process often takes several years to complete.
In Chapter 7 cases, the trustee is responsible for liquidating the debtor's assets in a timely manner and distributing the collected funds to creditors. The trustee must prepare regular status reports for the Executive Office for United States Trustees (EOUST) and the bankruptcy court. There are 94 federal district courts, each of which has its own reporting requirements and timetables. The required procedures often change every year.
The company's customers are bankruptcy trustees, generally attorneys or certified public accountants, who typically specialize only in Chapter 7 cases and manage an average caseload of approximately 100 cases at one time. BMS' software system integrates the separate reporting requirements from each court system across the nation. The system automates administrative tasks relating to the bankruptcy claims, assists with the tracking and reporting aspects of liquidation and management of assets, helps customers organize, upload and manage their databases, and prepares notices and mailings. BMS recently introduced a new electronic case filing document management solution for easy retrieval of court data. The Department of Justice has mandated that the courts adopt a paperless system by 2005. This paperless system captures the electronic documents from the courts and puts them in the appropriate trustee database, thus saving the trustee from the previously time-intensive process.
BMS provides its Chapter 7 bankruptcy trustees with all they need to perform their work. In addition to software and support, the company provides clients with personal computers, a helpline call center for support with technology, banking and service issues as well as a nationwide network of managers who contact customers proactively and visit on-site. In exchange, the trustees place the cash received from the liquidation of assets in a BMS designated depositary institution. BMS generates revenue by sharing with the depositary institution the interest earned on deposited assets.
For more information about American Capital's portfolio click here.
Since 1997, American Capital has invested more than $2.2 billion in a wide range of middle-market companies.
Bankruptcy is an integral part of the economy. For the year ending June 2003, new bankruptcy filings were at an all time high, numbering 1.65 million. In 2002 an estimated $4 billion of assets were held by trustees in Chapter 7 cases alone. Since 1980 bankruptcy filings have grown at an annual rate of 8%. The growth in filings is driven in part by rising consumer credit levels, which have reached all-time highs. High credit levels have resulted in many individuals and businesses that are not able to service their obligations.
Other drivers of personal bankruptcies include inadequate healthcare insurance, gambling losses and divorce (resulting in duplicate living expenses). The decreased social stigma associated with filing for bankruptcy also contributes to a greater number of filings. These structural trends in our society are expected to continue to stimulate acute credit problems on the part of individuals and businesses. Although general economic conditions play a role in the level of bankruptcies, filings do not always decrease during periods of economic growth. Increased consumerism, coupled with a higher level of new business start ups, have fueled growth in bankruptcies even when the economy is strong, as it was in the late 1990s.
The company's case management services and integrated banking are tailored to meet the unique needs of trustees in Chapter 7 asset cases. With BMS' leading brand name, top-of-the-line services and strong trustee relationships, a promising future is in its court.
