A bankruptcy trustee wants a judge to toss a Cleburne County farmer’s $38.8 million bankruptcy case.
The acting United States trustee, Daniel Casamatta, filed the complaint last month in James Wayne Wilkison’s Chapter 7 bankruptcy seeking a denial of his discharge, which, if successful, would prevent Wilkison from being excused from paying his debts.
In the year before he filed for bankruptcy protection, Wilkison allegedly “engaged in a pattern of transferring assets to and from related controlled business entities in an attempt to evade and conceal from creditors,” according to the trustee’s complaint by Joseph DiPietro of the Office of the United States Trustee in Little Rock.
DiPietro also said that Wilkison’s bankruptcy should receive a denial of discharge because Wilkison failed to keep proper financial records from which his financial condition or business transactions might be determined.
Wilkison filed for bankruptcy protection in April 2020, listing $15.1 million in assets and $38.8 million in debts, making it one of the largest farmer bankruptcies in recent memory.
But nearly all the debt — $36.1 million — was to secured creditors, so those creditors should receive the value of their collateral back.
Wilkison is an owner, either directly or indirectly, of more than 20 farming and other agricultural operations including Wilkison Equipment LLC and Wilkison Flying Service LLC.
Those entities farmed about 16,000 acres in multiple counties, with the main crops being rice, soybeans and cotton, according to an operating report prepared by Angela Hopkins, a CPA and member at Frost PLLC of Little Rock, and filed in Wilkison’s bankruptcy.
In 2018, his companies reported $19 million in revenue and a net farm loss of $5.6 million. In 2019, the companies reported revenue of $27 million and a net farm loss of $5.5 million, Hopkins said in the filing.
In 2019, Wilkison’s crop sales were $5.3 million lower than they were the previous year.
“Large amounts of rain significantly delayed planting for all Arkansas crops,” Hopkins said.
At the end of 2019, Wilkison “decided he no longer wanted to farm personally, given the losses he had sustained in recent years and difficulty in obtaining financing,” Hopkins said.
Instead, he decided on custom farming, which includes site preparation, planting and harvesting, and formed Wayne Wilkison LLC to enter into employment contracts to do that.
But on April 14, 2020, Wilkison filed for bankruptcy protection. In November 2020, the bankruptcy court approved Hopkins to examine the legitimacy of Wilkison’s books.
In her report, Hopkins said she was concerned with the “high number and volume of transactions between the primary entities … and other related entities.”
Hopkins asked Wilkison and Keith Lockley, who works closely with Wilkison at Wayne Wilkison LLC, for financial records. Wilkison told Hopkins that his records were in disarray and that he and Lockley “had been through every file folder from the past four years and that much information had been filed in the wrong year or wrong folder,” Hopkins said in the filing.
Her analysis of transactions during 2019 and 2020 found $13.1 million in payments with only $8.6 million “supported by some type of documentation,” the trustee’s complaint said.
Hopkins also said it was difficult to get the financial documents. “We were continually met with resistance or no response on our earlier requests,” she wrote.
Hopkins said Wilkison didn’t keep all the records necessary to determine his financial condition. The IRS requires taxpayers to keep records to support income and expenses. The length of time the taxpayer should keep a document depends on the action, expense or event the document records, Hopkins wrote. And the taxpayer must store the record as long as needed to prove the income or deductions on a tax return, she wrote.
Still, Hopkins wrote, while Frost “found no conclusive actions of fraud” during its investigation, “the extreme disorder of the accounting records and lack of adequate support for transactions lends the business to exploitation. The failure of the debtor to keep the required records to substantiate business deductions can lead to manipulation by employees, management and owners.”
As of Tuesday, Wilkison had not filed a response to the trustee’s complaint. Wilkison’s attorney, Kevin Keech of Little Rock, didn’t return a call.
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