Legal Collector Axiant Files Bankruptcy; NCO Group to Acquire

Axiant LLC, a leading provider of integrated legal collections services, said late Friday that it will be acquired by accounts receivable management giant NCO Group. To facilitate the transaction, Axiant commenced chapter 11 bankruptcy proceedings.

Axiant listed between $10 million and $50 million of both assets and debts, according to its Chapter 11 filing on Friday with a U.S. bankruptcy court in Delaware. In the filings, Axiant said it has reduced its workforce to 506 employees from 1,069.

The sale to NCO will be subject to higher and better offers at an auction and to the approval of the Bankruptcy Court. The transaction is expected to close in the first quarter of 2010.

Kevin Keleghan, CEO of Axiant, said in a statement, "Combining our resources with the litigation services already offered by NCO will create a dominant force in the legal collections market. Axiant’s unique working relationship with Mann Bracken, the largest collection law firm in the United States, in conjunction with NCO’s technology driven Attorney Network platform should maximize our clients’ performance and create opportunities for many of our associates."

Michael Barrist, Chairman and CEO of NCO, stated, "Combining Axiant, which has a strategic relationship with Mann Bracken, to our company enhances our suite of service offerings and furthers our strategy of expanding our litigation capabilities.”

Axiant LLC is a portfolio company of Accretive Technology Partners, a New York based private equity firm. It was formed in 2007 through the consolidation of the non-legal operations of three large debt collection law firms in the United States – Mann Bracken, Eskanos & Adler, and Wolpoff & Abramson. Accretive’s goal was to establish a national debt collection law firm, and at its peak Axiant’s geographic coverage included a majority of the U.S. population.

In 2006, J. Michael Cline, Accretive’s founding partner, made a bet on the trend in consumer debt settlement that for over a decade had incorporated mandatory arbitration for credit card disputes.  He invested in the National Arbitration Forum (NAF), the nation’s largest consumer debt arbitration body.  According to an October 15, 2009, Wall Street Journal article, a strategy of expanding arbitration into the realm of disputes between hospitals and patients, Cline believed consumer debt arbitration could become a multi-billion dollar business.

Cline’s business plan unraveled in September when the law firm of Milberg LLP filed a class action lawsuit in the United States District Court for the Central District of California on behalf of all persons who used NAF’s arbitration services since June 1, 2006 ("Milberg LLP Files Class Action Against NAF for Consumer Fraud and Breach of Contract…," Sept. 16).

The complaint alleged that NAF, National Arbitration Forum, LLC ("NAF LLC"), Mann Bracken, LLP ("Mann Bracken"), Accretive LLC ("Accretive"), Agora Fund I GP, LLC, Axiant, LLC, and Forthright Solutions (collectively "Defendants"), falsely held NAF out to be independent and unaffiliated with any persons or entities within or outside the collections industry and falsely presented its arbitration services as neutral. According to the complaint, “Mann Bracken is a law firm that claims to specialize in consumer debt collection matters, but is a debt collector in its own right. NAF and Mann Bracken are both owned by Defendant Accretive who owns and controls both NAF and Mann Bracken, and their related entities.

The complaint also stated, NAF is now "under siege by local and state prosecutors for working alongside creditors, rubber-stamping illegitimate arbitration awards against consumers, deceiving the courts and the public, and undermining the integrity of the arbitration system."

Mark Russell, Director of Kaulkin Ginsberg, noted “Unfortunately, the economic recession coupled with Accretive’s involvement with Forthright Solutions, the back office operation of the National Arbitration Forum, negatively impacted Axiant’s performance. This is an ideal acquisition opportunity for NCO, who has previously acquired Risk Management Alternatives and OSI, two companies that previously filed for bankruptcy.”

Correction: In an earlier version of this article, we stated that Axiant had reduced its workforce to 50 employees. In fact, Axiant reduced the workforce at its headquarters to 50, while total company workforce was cut to 506.