Hudson & Keyse LLC, a Painesville, Ohio collection firm, owes more than $63 million to an estimated 200 creditors. Last week, the company filed for Chapter 7 bankruptcy in U.S. Bankruptcy Court Northern District of Ohio. The firm reported assets of approximately $288,000.
The company, which has been in business for 25 years, closed and terminated 40 employees, company officials said. The firm's work force had been reduced from approximately 150 since 2008.
Mark S. Finston, acting president and CEO who joined Hudson & Keyse in 2008, told Crain's Cleveland Business that a flawed business model that significantly overstated what the company could collect on its assets every month helped lead to the downfall. Finston could not be reached this morning by Collections & Credit Risk.
Between 2006 and 2008, the company locked itself into commitments to purchase bad debt at a fixed price of 8 cents on the dollar. At the same time, the market fell and the price sunk to nearly 2 cents to 3 cents on the dollar.
The company's liabilities topped $90 million in May 2008, including $76 million it had borrowed from a syndicate of five banks to buy defaulted debt portfolios. The loan agreements, however, were not structured properly and the company's cash flow was not sufficient to pay down the debt like the agreements required.
The syndicate of banks wanted out of the debt agreement. The banks options were to either sell Hudson & Keyse or find a company to buy the debt Hudson and Keyse owed. After the bank rejected more than three offers from prospective buyers, it agreed to have Vion buy the debt in March 2010. Vion's purchase entitled it to Hudson & Keyse's assets.
Finston blamed previous management for the company's troubles. “When people are charged with financial responsibility of running a company, they need to understand that they have responsibilities for analyzing the company's financials properly,” he told the newspaper. “If they don't, this is the kind of thing that can happen.”
Finston did not elaborate. According to the bankruptcy filing, the firm owes the most money — $60 million — to Vion Holdings LLC in Atlanta. Vion had bought and assumed Hudson & Keyse's debt from a syndicate of banks in March 2010.
Hudson and Keyse's debts also include wages, salaries and commission and taxes and other debts owed to governmental units. Most of its creditors are vendors. Several Hudson & Keyes executives, including Finston, also are owed back wages.
A meeting of creditors is scheduled for mid-October.
