On May 23, 2011, Jackson Hewitt Tax Services Inc. (“Jackson Hewitt”) filed a petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  This post will look at Jackson Hewitt’s operations, why the company filed for bankruptcy, as well as what Jackson Hewitt hopes to achieve will in bankruptcy.  As is often the case,  much of the information discussed in this post comes from the Debtor’s Declaration in Support of First Day Pleadings (the “Declaration” or “Decl.”).  A copy of the Declaration filed in the Jackson Hewitt bankruptcy is available here for review.

Jackson Hewitt’s Operations

Jackson Hewitt provides tax return preparation services for individual and corporate clients throughout the United States.  The company claims to be the second largest tax return preparer in the United States, having prepared approximately 2.6 million returns in the 2011 tax season.  Decl. at p. 2.  Jackson Hewitt operates through a network of 700 franchisees who work out of over 4,800 offices in the U.S..  Most of the returns prepared by Jackson Hewitt – approximately 84% – are prepared by one of the company’s franchisees.  Id.

In 2010, 44% of Jackson Hewitt’s revenue came from royalties, marketing and other fees generated from its franchisees.  During this same time period, 34% of Jackson Hewitt’s revenue came from tax return preparation fees for the Debtor-owned offices. The remaining 22% of the company’s revenue came from financial products such as assisted refunds and refund anticipation loans.  Decl. at pp. 2-3.

In 2010, Jackson Hewitt and Wal-Mart entered into an agreement whereby Jackson Hewett received exclusive right to offer tax return services in Wal-Mart’s stores.  Through this agreement, the company added “tax preparation kiosks” in over 2,000 Wal-Mart stores.  Nearly one quarter of the tax returns prepared by Jackson Hewitt in 2011 originated from customers in the company’s Wal-Mart kiosks.  Decl. at p. 3.

Events Leading to Bankruptcy

Jackson Hewitt’s bankruptcy filing is a result of its inability to service its debt obligations.  As of the petition date, Jackson Hewitt’s prepetition secured debt totaled $357 million.  The company entered into loan agreements with its lenders in 2006.  In the years that followed, earnings were strong – reaching $75 million in 2009.  However,  by 2010, earnings had dropped to $46.8 million.  Decl. at pp. 5-6.  Jackson Hewitt projects modest revenues going forward, in part, because fewer lenders are providing the refund anticipation loans which the company previously offered to its clients.  Decl. at p. 7.

Objectives in Bankruptcy

On May 23, 2011, Jackson Hewitt began soliciting votes from its lenders for a “prepackaged” plan of reorganization.  According to the Declaration, the company received “overwhelming acceptances” to the proposed plan.  Decl. at p. 8.  With such support behind the plan, Jackson Hewitt hopes to implement the plan as quickly as possible and emerge from bankruptcy.  Id.

This bankruptcy proceeding is before the Honorable Mary F. Walrath, a former Chief Judge of the Delaware Bankruptcy Court.  Jackson Hewitt is represented by the law firm Skadden, Arps, Slate, Meagher & Flom LLP.