McKay Sends 'Dear John' Letter

Agency Contacts Creditors as Burnieika Launches Harborside BOSTON--Rocked by financial turmoil, legal tangles and the departure a month ago of its founding partner, McKay Communications has ceased operations. Rather than file for protection under federal bankruptcy laws, the Boston agency has sent a "letter of assignment for the benefit of creditors" to about 30 companies and individuals, according to Joe Burnieika, who had taken over as chief executive after the recent departure of John McKay [Adweek, April 3]. Burnieika and about 18 employees from the shuttered shop have reopened in McKay's space at 253 Summer St. as Harborside Communications. The group continues to handle ad assignments for RoweCom and Merriam Webster and public relations work for various clients, Burnieika said. Venture capitalist James Rappaport, who had been an investor in McKay Communications, is majority owner of the new company; Burnieika holds a minority stake, he said. The tangible assets of privately held McKay are valued at $35,000, and the shop is owed $210,000 by various creditors, according to the April 21 letter, a copy of which was obtained by Adweek. The agency's debts, however, total nearly $1.7 million, according to the document. The shop owes roughly $1.37 million to various creditors, including former partners Marvin Fried and John McKay; $224,715 in secured debt, mainly to Citizens Bank; $28,859 for federal tax obligations; and $70,117 to "principals" who made personal loans to the shop, Burnieika said. McKay did not return calls placed to his home in Canton, Mass. Barry Levine, an attorney in Wakefield, Mass., who is identified in the letter as the assignee for the benefit of creditors, and Rappaport also could not be reached by press time. "This is my attempt to make some people whole, or at least partially whole," Burnieika said of the decision against placing McKay Communications in bankruptcy. "If we filed Chapter 11, there would be absolutely nothing" left to pay individual creditors after settling bank debts and tax obligations, Burnieika said. This is not the first time that Burnieika has been left holding the pieces of a nearly bankrupt business. His last agency, Burnieika Bearfield Emerson, closed its doors in 1996 citing slow-paying clients. Burnieika and his partners in that firm also elected to forgo bankruptcy in favor of liquidating assets in an effort to pay off their creditors. Rappaport is leading a group of investors who plan to buy McKay's corporate assets "for a minimum of 10 cents on the dollar or somewhat more than that," Burnieika said. After bank and tax debts are settled, the remaining funds will be used to repay creditors who sign the letter, releasing the McKay corporate entity from further obligations, Burnieika said. That plan will yield more money to repay creditors than a bankruptcy filing and liquidation of assets, which would not have included a Rappaport-backed repayment plan, Burnieika said. One agency creditor, speaking on condition of anonymity, said bankruptcy might have been a preferable course because the court would monitor payment and there would be more detailed disclosure. Fried confirmed receiving a letter from the agency, but de-clined further comment, citing his lawsuit against the shop which is pending in Superior Court in Dedham, Mass. Fried, claiming he is owed some $500,000 in severance and stock, exchanged suits with McKay Communications some weeks ago [Adweek, March 27]. The agency has countersued for $16,000, which it paid to Fried in an insurance arrangement. "We were in quite a bit of trouble," Burnieika said of the recent state of affairs at the agency formed by McKay in 1995. The shop actually turned in its best performance in 1999, claiming revenue of $5 million on overall billings of $35 million. Burnieika declined to discuss specific reasons for the rapid decline, but sources have said disagreements between Burnieika, Rappaport and John McKay over a variety of business practices led to the latter's resignation and hastened the agency's demise. The decision last month by a prospective client not to engage the agency for a proposed $10 million advertising contract was essentially the final straw, Burnieika said. "Clearly, we couldn't be in business as a viable agency under those circumstances." K

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McKay Sends 'Dear John' Letter

David Gianatasio

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David Gianatasio