Audit in progress for a restaurant group in Oklahoma City — 5 locations on OG&E. Found what looks like a significant rate class error about 3 weeks ago and was preparing the claim. Just found out the ownership group filed Chapter 11 bankruptcy. All vendor payments are frozen. My engagement agreement is an executory contract which means it might be rejected in the bankruptcy. Do I have any recourse?
What happens to my fee if the client goes bankrupt during the audit?
This is an unfortunate situation that highlights the risk of contingency work. In Chapter 11 your engagement agreement is an executory contract that the debtor can assume or reject. If they reject it you have an unsecured claim for any work completed but unpaid. A few things to consider: first, if the business is reorganizing (not liquidating) they may still benefit from the utility savings you identified, which gives you leverage to negotiate assumption of your contract. Second, file a proof of claim in the bankruptcy for your contingency fee based on the identified savings. Third, for future engagements consider adding a clause that says any utility refunds or credits identified by the auditor are held in trust for the auditor's fee before distribution to general creditors. This won't always survive bankruptcy scrutiny but it strengthens your position.
The restaurant group is reorganizing, not liquidating. Their bankruptcy attorney agreed to assume my engagement agreement as part of the plan because the utility savings help their cash flow during reorganization. Filed the claim with OG&E and the credits are being applied to the accounts. My fee will be paid as an administrative expense of the bankruptcy which means I get paid before most other creditors. Unusual situation but it worked out.