DENVER - The federal bankruptcy court approved a Chapter 11 reorganization of failed subprime auto lender Centrix Financial last week, taking the next step toward recovering millions of dollars in unsecured claims by dozens of credit unions.
Once the order is signed by the judge, the bankruptcy trustee will be free to hire lawyers to pursue potential claims against Centrix founder and former President Robert Sutton and his insurance companies, according to Michael Richman, a lawyer with New York’s Foley & Lardner, who expects to be representing the unsecured creditors in their recovery bid.
Unless the pursuit is successful, credit unions will be left with little or no recoveries, said Richman. “As it stands now, if we don’t succeed in collecting litigation judgments that would be true,” said Richman.
Over the past few days dozens of credit unions have filed unsecured claims against Centrix, claiming it defaulted on millions of dollars of so-called Vendor Single Interest insurance claims, payments for borrowers who can not be located.
Among the credit unions filing claims are: Corporate America Family CU ($10.7 million); Eastern Financial Florida CU ($3.4 million); Carolina Collegiate FCU ($1.3 million); Allegacy CU ($1.6 million); Advancial FCU ($2.1 million); Credit Union 1 ($2.1 million); Meadows CU ($2 million); Arizona Central CU ($1.5 million); Chief Pontiac CU ($1.1 million) Landmark CU ($1.1 million); Community First CU of Florida ($1 million) and the Illinois CU League’s Service Corp. ($1.2 million).
The biggest unsecured claims of $165 million and $146 million were filed by Lyndon Property Insurance Co. and Everest National Insurance, respectively, which both claim they were duped into paying those funds in Default Protection Insurance on behalf of Centrix to hundreds of credit unions.
As part of the reorganization, Centrix was sold last year to its main creditor Boston-based Falcon Investments for $30 million, most of which was used to pay off Falcon’s secured claims.
The estate received about $2 million, which was quickly eaten up by administrative costs, including fees to more than three dozen lawyers, leaving nothing for credit unions and other unsecured creditors.
Falcon continues to operate the company, now called Peak 5 Financial, and to service about $1 billion worth of subprime auto loans originated through credit unions. Rashad Miller, director of business development for Peak 5, said the company continues its operations and to service the credit union loans and has branched out beyond the credit union market.
Foley & Lardner has offered to represent the unsecured creditors in their pursuit of recoveries on a contingency basis, according to Richman.
Other lawyers involved in the case say they expect the trust to accept that offer.
