DENVER - Centrix Financial founder and former president Robert Sutton asked the federal bankruptcy court here last week to reject the reorganization of the failed subprime auto lender under a Chapter 11 bankruptcy plan and instead, to order the dissolution of the company under a Chapter 7.
The request comes as creditors, including hundreds of credit unions, are voting on a reorganization plan that would pay secured creditors a portion of their claims, with the promise of more to come if the bankruptcy trustee is successful in suing Sutton for hundreds of millions of dollars.
The bankruptcy court was scheduled to give its decision on the reorganization plan last Thursday.
In a motion filed with the court last week, Sutton’s lawyers argue that the plan violates provisions of the Bankruptcy Code by allowing the trustee to retain and compensate counsel without court approval.
Sutton’s lawyers also assert that the plan approves payments to creditors that exceed the available cash, making it infeasible, if not impossible, to satisfy. “The plan,” said the lawyers, “is plainly not subject to credible proof of feasibility–there are just too many variables and unknowns to make it a rational determination of feasibility.”
The Sutton bid comes as the 18-month-old bankruptcy case is culminating with a six-week vote by creditors on the reorganization plan.
The plan would pay secured creditors from the proceeds of any successful litigation, including any suits against Sutton, as well as the sale of the company’s remaining assets to Kendrick Acquisition, now known as Peak 5, which closed last February for $30 million.
Kendrick Acquisition is owned by Falcon Investments, a Boston-based investment partnership which funded Centrix Financial.
Payment of claims by unsecured creditors which includes hundreds of credit unions, depends on whether the creditors want to pursue Sutton.
Centrix said that both it and the creditors’ committee have identified potential credit union claims of more than $100 million against Sutton for fraud and breach of fiduciary duty.
