DENVER – In a move certain to drag the case on indefinitely, former Centrix Financial owner Robert Sutton on Friday filed a notice of appeal with a federal bankruptcy court of the court’s order confirming the Chapter 11 liquidation of the failed subprime auto lender, sending any possible recovery for the hundreds of wounded credit unions farther into the future.
In requesting that the U.S. District Court hear his appeal, Sutton asserted the U.S. Bankruptcy Court erred in confirming the liquidation plan last month. The plan, among other things, would give a trustee authority to pursue claims against Sutton for the benefit of the hundreds of credit unions and other unsecured creditors who failed to capture any recoveries from the reorganization.
In addition, Sutton claims the bankruptcy court erred in approving financial disclosure statements, and erred in ordering Sutton to stop objecting to creditors’ claims, among other things.
The liquidation merely confirmed last year’s sale of the remnants of the once-high-flying subprime auto lender to Boston-based Falcon Investments for $30 million, all of which will be earmarked for secured creditors, leaving nothing for credit unions and other unsecured creditors.
Centrix, now known as Peak 5 Financial, at one time provided subprime auto loans for more than 400 credit unions, originating a total of more than $4.3 billion in loans. As the default rate began to soar past 30%, NCUA issued a Letter to CUs, effectively warning them off the product and ending the Centrix business, forcing it into bankruptcy in September 2006.
The bankruptcy case has spawned numerous civil suits between Sutton and his insurers, Everest National and Lyndon Insurance, with both sides claiming fraud and threatening to cut off insurance claims by credit unions.
Since the bankruptcy filing, the company has sought to reorganize and continue its auto servicing business, according to Kevin Barry, president of Peak 5. The Centrix credit union portfolio has been run down to around $700 million. The default rate on loans has been approximately 35%, according to Barry.
