Failure To Explain Structures And Transactions Leads To A Denial Of Discharge In Link
Bankruptcy Law
Tucker Link was a CPA who at times in his career had worked at Peat Marwick Mitchell and various financial institutions, mostly involving oil & gas projects. Tucker was married to Vickie Link, and the couple had two adult children, Erick Link and Andrea Walker. The couple liv
ed in Oklahoma and had degrees from Oklahoma State University. Tucker was hired by Nimir Petroleum Global Group (“Nimir”) in 2001, and within six months had become the Chief Operating Officer of that company.
While employed by Nimir, Tucker created Knightsbridge Investment Limited (“K-Investment”) in Bermuda. The Links owned the majority interest in K-Investment and Tucker was the CEO. Tucker then used K-Investment to buy out Nimir. Thereafter, between 2004 and 2006, K-Investments sold Nimir’s oil & gas operations for $460 million. Ultimately, the Links pocketed $65 million in after-tax dollars and this $65 million was used to fund the Links’ various trusts, described below, and a company called Knightbridge-Link LLC, which is also described below.
Though K-Investment had sold off the oil & gas interests, it continued to own a chemicals business called K-Chemicals, the latter having three subsidiaries that were ultimately sold off between 2009 and 2019.
Beginning around 2004, the Links created revocable trusts for themselves, and two years later Tucker and Vickie each created grantor trusts for each of their children. Tucker’s buddy, Robert Scott, served as a trustee of the four Links’ children’s trusts as well as manager of several entities which those trusts owned.
Also in 2004, the Links caused the Knightsbridge Foundation (“K-Foundation”) to be created in Bermuda. From time to time, Tucker and Vickie served as the trustees of K-Foundation, which was purportedly to create schools in various foreign countries ― and which apparently never actually happened. Instead, through a series of transactions with other of the K-entities, some $17 million was transferred to K-Foundation and that money was used to fund the Links’ other businesses. Ultimately, K-Foundation ran out of money and it was closed.
Two other Link entities were Knox Marine Ltd. (known simply as “Knox”) and KL Marine LLC (“KL Marine”), the former which was used by the Links to acquire a 30-meter yacht for over $11 million and the latter which was owned by Tucker and Vickie and became the ultimate owner of the yacht.
This now brings us to the Links’ various LLCs in the United States. The first of these was Knightsbridge-Link LLC (“K-Link”) which was a Delaware LLC formed in 2005 and owned by the Links’ trusts and their children’s trusts. It was used as an investment vehicle for those trusts.
Knightsbridge-Resources LLC (“K-Resources”) was also a Delaware LLC formed in 2003 and ultimately was owned by the Links’ and their children’s trusts as a holding company for the proceeds of the Links’ various domestic business operations. K-Resources was used to fund two other of the Links’ LLCs, described below, and received more than $16 million from the aforementioned K-Foundation as loans ― loans which were never repaid.
One of the LLCs which K-Resources funded was KiamichiLink, LLC, which was likewise a Delaware LLC used by the Links to purchase for $10 million a 11,700-acre (18.28 sq. mile) cattle ranch in Oklahoma. Between 2006 and 2023, the Links paid certain of their personal expenses from KiamichiLink’s bank accounts.
Next up is GuggenLink LLC, formed in Delaware in 2005 and used by the Links to own three residential properties in Oklahoma, including a $3.3 million (in 2005 dollars) home adjacent to the Southern Hills Country Club in Tulsa. Although GuggenLink was ostensibly owned by the Links’ children’s trusts, the Links lived in the Southern Hills property from 2005 to 2018 by way of a $20,000 per month lease ― for which lease payments were never made. The Links also used GuggenLink’s bank accounts for their personal expenses, though characterizing them as “operating expenses” of GuggenLink.
The last entity worthy of mention is Knightsbridge Partners LLC (“K-Partners”) which was formed in Oklahoma in 2019. This Oklahoma LLC was created in 2019 and was partly owned between K-Link which owned 50% and William Walker and JTK Investments which owned the other 50%. This entity was used to create an airpark in Ardmore, Oklahoma, and was paying Tucker $7,500 per month for his services.
Into all these entities waded the IRS which audited the Links for tax years 2004 through 2012 and also look into K-Foundation. When the audit was completed, the IRS assessed penalties for tax years 2008 and 2012 totaling about $2 million. The Links then and now dispute these penalties.
The IRS issued a levy on July 30, 2017, to collect nearly $2.8 million in tax liabilities owed by Tucker Link. The IRS levy hit, and apparently emptied, four of Tucker’s bank accounts including the bank account of his revocable trust. Very quickly, Tucker removed his name from the signatory authority over all his business accounts as well as the accounts for the various K-entities and other Link-related entities. Tucker also started to move himself and Vickie out of control of these companies and instead insert William Walker and his buddy Robert Scott as the nominal controlling persons. Tucker later admitted that he made the changes because of the IRS levy and that the changes really didn’t change his control of the entities’ assets or his access to their money.
The IRS was not, however, the Links’ only problem. The financial high-water mark of the Links was apparently reached after they sold their oil & gas and other assets in K-Investment during 2004 to 2006. Yet, by the end of 2014, the Links’ net worth was still nearly $62 million ― but it was headed downhill. The next year, 2015, the Links’ net worth was no greater than about $35 million. A year later, in 2016, it was about $20 million. Then, about $7.4 million in 2017 and 2018. Still a lot of money for most folks, but only about 1/10th of the wealth the Links had enjoyed at their peak. And they had liabilities, including outstanding loans taken by the Links’ entities.
The 2017 levy by the IRS caused the Links to try to liquidate various of their properties to try to engineer a soft landing. They tried to sell their residence in Southern Hills, but the IRS had put a tax lien on that property which inhibited sale. Ultimately, their residence was foreclosed upon in 2020.
The Links also ended up selling their ranch by 2018, and the $3.2 million received from this sale was deposited into KiamichiLink’s bank accounts. The money was ultimately distributed around by way of loans or loan repayments to various of the Links’ trusts, entities and also their children. Likewise, the yacht was sold off in 2016 for $2.2 million and those funds were similarly used to pay off loans or dispersed around.
The final denouement came on March 5, 2023, when Tucker and Vickie filed a petition for Chapter 7 bankruptcy relief. The petition listed the Links’ total assets to be just short of $80,000 against nearly $31 million in liabilities, most of which was owed to the IRS. The U.S. Trustee brought an action to deny the Links a discharge and a trial was held. All of this resulted in the opinion in U.S. v. Link (In re Link), 664 B.R. 832 (N.D.Okla., Nov. 22, 2024).
Debtors in a bankruptcy proceeding will generally only receive a discharge if they provide a reasonably full and accurate picture of their financial affairs. Attempting to win their discharge, the Links provided numerous bank account statements for their trusts and entities, as well as themselves personally, plus numerous other financial statements and similar documents. They also claimed to have provided copies to the U.S. Trustee of their state and federal tax returns for themselves and their entities for various years.
Yet, at trial it became clear that the Links had not provided a large number of documents, including certain financial statements, balance sheets, income statements and information about loans. Some of the records which the Links did provide only gave numerical values without any explanation as to the involved transaction. But even further, the Links had not filed any tax returns for the years 2016 through 2023, mainly blaming the ongoing IRS disputes regarding previous years as preventing them from making those filings. Nor did the Links provide any W-2 or 1099 information, nor their K-1 information for those years. The Links admitted that they used the business accounts of GuggenLink and KiamichiLink to pay various personal expenses, but they provided no accounting of those transactions.
The bankruptcy ourt noted that a debtor’s right to a discharge depends, among other things, upon the debtor providing sufficient proof of the debtor’s financial condition and important business transactions. Moreover, a debtor is not merely required to produce the books and records which the debtor has, but the debtor has an affirmative duty to create books and records which document the debtor’s financial situation, including those of business entities that are closely-held by the debtor. These books and records do not have to be perfect, but they must be sufficient to give the bankruptcy court and creditors a reasonable picture of the debtor’s finances and income. Central to the records that a debtor must produce are federal tax returns, which are said to be “quintessential documents from which the debtor’s financial condition or business transactions might be ascertained.”
It will be recalled that the Links did not file tax returns between 2016 and 2020, ostensibly because they were in various disputes with the IRS over previous tax years. Thus, the Links’ tax returns for those years could not be provided to the U.S. Trustee or the court. This was not fatal ipso facto if the Links have provided equivalent financial and income statements with supporting documentation, or even something like unsigned drafted tax returns, but the Links did not provide those either. Thus, the bankruptcy court:
“After the departure of [bookkeeper] Fitzgerald in 2016, Tucker Link testified that he served as the accountant and bookkeeper for most of the Link Entities. For the five years preceding the Petition Date, he kept no books, records, basic financial statements, or other documentation beyond general ledgers and bank statements for those entities. He provided no reason or explanation for the paucity of records kept during that time. The absence of corporate records makes it impossible for the Plaintiffs and the Court to understand the various loans, financial dealings, and intercompany transfers between and among the various Link Entities. The Links suggest that the various loans, payments, and transactions among the Link Entities were documented in those entities’ bank statements. This answer ignores their duty, as voluntary debtors, to provide organized and coherent books and records from which their financial condition can be ascertained. Neither the Plaintiffs nor the Court are required to undertake the burden of reconstructing the Links’ financial affairs.”
While the Links did provide their tax returns for years prior to 2016 and other information, that did not create a financial picture of the five years prior to their bankruptcy filing. Thus, from the viewpoint of the bankruptcy court, “the Links true financial condition remains shrouded in mystery.”
It was here that the complexity of the Links’ structure of trusts and business entities worked against them. While such structures are often created with the idea that their complexity and interrelated transactions will deter creditors, the opposite effect can be reached when the debtor seeks a discharge:
“The Links purposely crafted the Link Entities into a complex corporate structure to hold title and/or ownership of business entities, real estate, personal property, and other valuable assets like the Yacht. The Links used the Link Entities to comingle personal and business expenditures in ways that have effectively hidden their financial condition from view without detailed records and tax documents. Such a complex business structure may offer benefits, such as tax relief and limitation of liability, but, in bankruptcy court, it also comes with a cost: its business activities and intercompany transactions must be documented in a manner designed to inform and educate the trustee and parties-in-interest regarding the true financial condition of the entities and their principals. A debtor cannot be the architect of a complex business operation and then hide behind that complexity to justify failure to keep sufficient books and records that would make its inner-workings transparent to all parties.”
The Links were also unable to fully explain what had happened to much of their finances or decipher the numerous intercompany transfers between their entities. Merely producing reams of bank accounts did not address these issues. Thus, the bankruptcy court:
“Despite the voluminous collection of bank statements from many of the Link Entities, neither the Plaintiffs nor the Court were able to make heads or tails of their business operations. The Links engaged in an elaborate shell game wherein millions of dollars were shuffled between the various Link Entities as need arose. None of that money is traceable in a coherent way from the documents provided. With a few notable exceptions where specific losses can be traced, the Links appear to have simply frittered away a vast fortune over several years just prior to filing bankruptcy. The documents provided to the Plaintiffs, no matter how voluminous, do not explain why or how those losses occurred. The Court is left with a ‘cloud of doubt’ regarding the Links’ pre-petition activity and whether substantial assets might be available for recovery for the benefit of creditors. The Links have not satisfactorily explained how they lost millions of dollars in assets in the years prior to the Petition Date such that they are now unable to meet their liabilities.”
Based on all of this, the bankruptcy court denied the Links’ discharge.
ANALYSIS
The obvious lesson of this case is that if one has a complex business or estate structure and desires to take bankruptcy, they had better make sure that their books and records are fully in order. If somebody is going to play shell games to try to hide assets from creditors, they might as well scratch a bankruptcy filing from their possible courses of action.
The denial of a bankruptcy discharge is very harsh. From a practical standpoint, debts that were not discharged may never be discharged. The impact of this is that non-discharged creditors may aggressively pursue judgment enforcement against the debtor literally until either the debt is satisfied (which often never happens) or the debtor dies ― and even thereafter the creditor can pursue their probate estate.
The more complex a business or estate plan, the more difficult it will be for a debtor to obtain a bankruptcy discharge. This is due to the inherent suspicion of bankruptcy judges that a debtor is playing shell games with assets. Therefore, it may be that the debtor’s pre-bankruptcy planning will include voluntarily winding things up, but keeping good books and records of transactions of course. The debtor must also be able to honestly and cogently explain all that has gone on in the years preceding the bankruptcy.
Finally, it should be recognized that the purpose of asset protection planning is to not merely create protective shells around assets, but also to actively take chips off the table so that if the sky falls then a core of wealth may be preserved for the beneficial use of the debtor in a way that would survive a bankruptcy filing. How that might be accomplished would require a description of the entire universe of asset protection strategies, but suffice it say that it was not accomplished here.
U.S. v. Link (In re Link), 664 B.R. 832 (N.D.Okla., Nov. 22, 2024).
