Leaps of Business Faith That Didn’t Quite Fly

At the ripe old age of 26, it never occurred to Paul Sirimarco that he might be too young to start his own business.

Those were heady times.

Four years ago, he launched Marsh Plumbing Inc., with one worker--himself--and one truck. It started with one plumbing job, and then another, and then a lot more. Today, the North Hollywood-based operation supports two corporations, one that does business in Southern California, the other in Nevada, both of which provide plumbing services as subcontractors for Sears Home Services.

It’s 21 trucks, 35 employees.

And, oh yes, there’s the debt.

The company “grew faster than anybody could handle,” said Sirimarco, who counts three of his brothers among his employees. “We racked up a little debt.”

In round numbers, we’re talking more than $1 million worth for the twin operations.

During the last week in October, Marsh Plumbing was one of six San Fernando-based businesses to turn to the bankruptcy courts for help sorting out debts that had become too much to manage.

Sirimarco was joined that week by a disparate bunch, including Medical Clinic & Surgical Specialties of Glendale and a Merle Norman Cosmetics franchise at the Glendale Galleria. Rounding out the group, listing $73 million in assets and $65 million in debt, was Ritter Ranch Development, LLC, the latest developer hoping, still, to turn an 11,000-acre patch of dirt with a checkered past into a planned community in Palmdale.

On the surface, there’s not much similarity between the firms in this fractured fraternity. The reasons for the filings are varied.

For some, the journey to bankruptcy court represents the rock-hard landing to what began as a leap of faith. For others, it’s just one more business maneuver--a legal means to a leaner, meaner end.

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Between January and late November, about 700 firms that were either based in the Valley or whose owners listed a Valley address filed for bankruptcy, according to figures from Timely Info of Los Angeles, which collects data from public records. If the pace of 60-some new filings per month holds, 1998 would mark a leveling off of filings, after increases of 12% in both 1996 and 1997.

Since 1994, the Valley has consistently represented a disproportionately large share of all bankruptcy filings in Los Angeles County--averaging about 30%, although the region has fewer than 20% of the businesses in the county.

But the tally may not be telling.

Local bankruptcy attorneys say that, for several reasons, the numbers obscure the truth. For one, companies not actually based in the Valley often filed here in years past because of the popularity of this division’s judges, several attorneys said.

“It’s been fun to watch people twisting themselves into contortions,” to find a Valley address that would allow them to file in this federal court division, said one who asked not to be named. He noted that the chief judge has stepped in to curtail that practice.

Kenneth Jay Schwartz, who’s been a bankruptcy attorney in the Valley since 1981, also noted that the statistics may under-report the true total. Many Valley companies operate as sole proprietorships. When they fail, the owner may file as an individual, meaning their cases would not be included as business filings, he said.

Century City attorney Ron Bender, whose firm, Levene, Neale, Bender & Rankin, represents three of the companies that filed for Chapter 11 protection in late October, noted that firms that file Chapter 11 do not see themselves as failures, but as ongoing concerns seeking to work out a payment plan with creditors.

If successful, the firm emerges as a viable business entity. The approach is less Draconian than the Chapter 7 filing, in which all remaining assets are parceled out among creditors and the business is no more.

Arthur A. Greenberg, of Greenberg & Bass in Encino, said he’s seen bankruptcy filings, particularly Chapter 11s, decline this year throughout the region.

“Not only did they level off, but they probably were down in 1998,” said Greenberg, who subscribes to a service that tracks bankruptcy filings from San Luis Obispo to San Diego. “There were days earlier this year when there was not one Chapter 11 filing.

“We filed fewer Chapter 11s in the past six months than in any recent period,” he added. “The cases were not there.”

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Well, there were some.

Coincidentally, three of the six cases filed in late October involved real estate deals.

Topanga Professional Building Partnership filed for Chapter 11 protection after the lender on its Woodland Hills office and retail building began foreclosure procedures in August, according to Encino attorney David S. Hagen, who represents the partners.

“So we filed the Chapter 11, hoping to either raise new dollars . . . and finance the property or restructure the debt,” Hagen said, adding that the case is not unusual, given the battering suffered by the real estate market in the recent past.

A similar set of circumstances brought the two surgeons who own the Glendale medical building to bankruptcy court.

Greenberg, who has practiced bankruptcy law in the Valley for 15 years, said a number of firms “creatively use our insolvency laws not as business failures but as a business strategy.”

Since the late 1980s, there’s been much strategizing over the plans for Ritter Ranch, a barren strip that local authorities and its many owners have dreamed of turning into a massive residential development.

The latest theorist, Colorado developer John Musick Jr., principal partner in Ritter Ranch Development, LLC, had owned the property for only two months before he headed to bankruptcy court.

The move, said his attorney David L. Neale, was an attempt to turn down the heat from a creditor and allow the developer time to raise more cash.

“This levels the playing field,” said Neale, of Levene, Neale, Bender & Rankin. “We’re closer to getting it [the project] done now than anyone has been in the history of the development.”

Sirimarco, the plumber, also is looking to the future.

Armed with a more lucrative financial arrangement from Sears, and new controls on cash flow, he expressed confidence that his fledgling firm will make it this time.

“Our hopes are to restructure the business and become a profitable business so that all of our employees will have jobs for the rest of their lives and can retire with money in the bank,” he said.

“The most important thing on my mind is the employees.”