DENVER - Centrix Financial founder Robert Sutton is expected to appeal a U.S. Bankruptcy Court ruling confirming a reorganization of the failed subprime auto lender, prolonging the outcome in a case that has cost credit unions all over the country millions of dollars.
Parties in the case still are awaiting a written order confirming the judge’s April 21 ruling, but a lawyer for Sutton said they expect to appeal the bankruptcy ruling to the U.S. Court of Appeals.
The reorganization apportions approximately $30 million from the sale of Centrix, now called Peak 5 Financial, to Falcon Investments and to secured creditors, with nothing left over for unsecured creditors, including more than 200 credit unions. The only possible recovery for credit unions would be if and when a bankruptcy trustee appoints a law firm, expected to be New York-based Foley & Lardner, to pursue litigation against Sutton and his affiliates.
“The plan of confirmation does not comply with the statutory requirements,” said Sutton’s lawyer, Glenn Merrick of Denver.
Among other things, he said the appointment of Foley & Lardner would violate several provisions of the bankruptcy statute. “The plan, as it is, seems to require that the trustee hire Foley & Lardner to pursue litigation, in violation of the statute,” Merrick told Credit Union Journal. In addition, he believes the appointment of the New York firm would create a conflict of interest because Foley has represented creditors in the case.
At one time, Centrix provided subprime auto lending for more than 450 credit unions, helping create a portfolio of more than $4.3 billion in loans. When NCUA realized there was a high rate of defaults on the loans–in excess of 35%–it issued a letter to credit unions in 2005 effectively warning against their participation in the program, driving the company to file for bankruptcy in September 2006. The high default rates continue to cost credit unions millions of dollars in losses, even as the company continues to service the loans.
