More light was shed Tuesday on the accounting practices that played a role in toppling longtime local general contracting firm MGT Construction.
Those practices were called into question during an initial creditors meeting in the company’s Chapter 7 bankruptcy case, as the trustee and attorneys handling the liquidation continue their asset search for the collapsed firm’s creditors.
Mike Kain, a consultant hired to man MGT as it’s being unwound and liquidated, faced questions from Chapter 7 trustee Harry Shaia, attorney William Broscious of Kepley Broscious & Biggs – who is working the case for Shaia – and Shannon Pecoraro, an attorney working for the U.S. Trustee’s Office.
Pecoraro asked Kain to explain why MGT, a wholly owned subsidiary of local real estate firm Thalhimer, ran into trouble and fell into bankruptcy.
Kain pointed to the company’s expansion into larger jobs outside of Richmond and its accounting.
“The accounting and reporting of profits on jobs was faulty and the losses on jobs were not apparent until it was too late,” he said, emphasizing he was not tasked with taking a backward look at the company’s operations.
Questioned further, Kain added: “Jobs were performed and not all costs were properly attached to jobs.”
Asked who would have been responsible for that, Kain said only that Michael Logan Sr. was MGT’s president and Patrick Lindsey was director of operations in recent years.
Logan left the company in January. Lindsey, according to statements at Tuesday’s hearing, left the company in November 2016.
Logan, his son Michael Logan Jr., who worked in business development for MGT, and Lindsey likely will face questioning in coming weeks, as the trustee has requested permission to conduct a so-called 2004 examination. It’s the bankruptcy court’s version of a deposition, which allows the trustee to question, under oath, those with knowledge of a debtor’s operations.
Thalhimer, which has taken a financial hit from MGT’s troubles, has said in court documents it discovered the scheme in fall 2016. However, exact details of the scheme have yet to be disclosed.
Bankruptcy court documents show MGT owes more than $28 million to more than 500 creditors, while claiming only around $50,000 in assets. The largest creditor claim – nearly $15 million owed to Thalhimer – was a topic of discussion at Tuesday’s hearing. Broscious asked Kain to find more specific information about what makes up that total, which has been labeled in bankruptcy filings as “loans, advances, etc.”
Other questions about MGT’s accounting during Tuesday’s hearing came from Broscious, who told Kain he’d like more information about who at MGT or Thalhimer would have been overseeing the accounting after Lindsey’s departure.
Broscious also asked for Kain to dig up more information about bonuses paid to the Logans dating back to early 2015 and a $137,000 claim filed by MGT under a crime insurance policy. Broscious said during the meeting they believe the underlying claim, which has since been assigned to Thalhimer, substantially exceeds $137,000.
Another creditors meeting is set for May 1 at 9 a.m.
At least one of MGT’s creditors is fighting for permission to reclaim money outside the confines of the bankruptcy case.
CentiMark Corp., a national roofing contractor with a presence in Richmond, has asked the federal bankruptcy court to undo the freeze that the Chapter 7 filing has put on a dispute with MGT that dates back to 2014 for allegedly unpaid work on two Manchester projects. The trustee has opposed that argument and the process is still pending.