LUBBOCK, TX (KCBD) - On Tuesday, Ford Motor Credit Company filed an objection to Reagor-Dykes Auto Group's request to hire a Chief Restructuring Officer, saying Reagor-Dykes Auto Group "created their own financial mess" and the company is not following the rules set in the court's interim cash collateral order by the bankruptcy judge.
The first paragraph of the introduction in the court documents, Ford says Reagor-Dykes have "insinuated that its difficulties (an undefined 'cash hole') have been 'created by Ford sweeping Debtors' cash.'" Ford says this "could not be farther from the truth."
They say Reagor-Dykes Auto Group "created their own financial mess" by:
- selling vehicles without paying Ford Credit the amounts advanced for those vehicles (referred to as “Sales out of Trust” or SOT”);
- double flooring vehicles – a process whereby Debtors fraudulently floored vehicles with Ford Credit and floored those same vehicles with other financing sources;
- flooring vehicles that may never have existed or were not owned by the Debtors; and
- submitting electronic payments drawn on accounts with insufficient funds. Ford Credit agrees that the Debtors’ records are completely unreliable. Not only that, post-petition, Debtors are not selling vehicles, are unable to match vehicle inventory to specific dealerships, are unable to match keys and titles to its vehicle inventory, and are unable to fulfill its obligations to customers such as registering vehicles after a sale. In addition to being incapable of fulfilling its obligations as Debtors-in-Possession, Debtors have not presented any information about the cost associated with employing a Chief Restructuring Officer or how Debtors intend to pay for a Chief Restructuring Officer.
The documents also says Ford Credit believes that a CRO can play a constructive role in certain cases, it cannot fill the shoes of a Chapter 11 trustee when cause exists warranting the appointment of an independent fiduciary under § 1104. As in the present case, Debtors have engaged in pre-petition activity that disqualifies current management from serving as the debtor-in-possession.
Debtors seek to employ a CRO who will report to the same management that failed to detect or remedy prior malfeasance. As much as Ford Credit respects the integrity and qualifications of the proposed CRO, the appointment of a CRO which merely preserves current management's prerogatives may substantially harm the estate as a CRO lacks the independence associated with a Chapter 11 trustee.
Ford Credit also says Reagor-Dykes Auto Group has not provided any budget information regarding the cost of a CRO or how it intends to pay the CRO. "Although Debtors have disclosed the hourly rates associated with the proposed CRO, there has been no proposed monthly budget disclosing the anticipated expense of a CRO nor an explanation of how the CRO is to be paid. Outside of the use of Ford Credit's cash collateral, the Debtors have little ability to pay any expenses, let alone the cost associated with employment of a CRO. Further, Debtors' application is unclear whether the CRO will be employed as a regular employee under § 363 of the Bankruptcy Code or as a professional under § 327 of the Code. This lack of disclosure further evidences the fact that the Debtors do not have the wherewithal to continue to operate as Debtors-in-possession."
The documents summarize the documents by saying Reagor-Dykes application to employ a CRO is nothing more than an "end run" around Ford Credit's pending motion to appoint a Chapter 11 trustee. They also say Reagor-Dykes "past fraudulent activity and malfeasance disqualifies current management from continuing control and the Debtors should not be permitted to proceed in this case as Debtors-in-possession. Cause exists to appoint a Chapter 11 trustee. As such, Debtors' application should be denied.