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Decision: Cladek creditors retain some assets

September 2, 2010 | By More

About two weeks ago on August 13, 2010, Historic City News learned that the Chief United States Bankruptcy Judge of the Middle District of Florida, halted the sale of automobile loan assets of Lydia Cladek, Inc. — sustaining an objection to a motion to allow the sale of $1,049,000 in performing (paying) loans.

Although the non-performing (non-paying) loans of the St. Augustine-based automobile loan financier were sold at auction by the Chapter 11 Trustee on August 19, 2010, at the request of the Official “Committee” of Unsecured Creditors of Lydia Cladek, Inc., the loans that are still performing are being retained in the bankruptcy estate.

The Committee was appointed by the United States Trustee on June 5, 2010. The Committee is comprised of 7 of the 20 largest unsecured creditors, as selected by the U.S. Trustee.

Upon its appointment, the Committee immediately undertook efforts to obtain from the Chapter 11 Trustee all financial information of Lydia Cladek, Inc., (Debtor) so it could perform appropriate due diligence and determine whether the Chapter 11 Trustee’s plan to liquidate all performing and nonperforming assets of the Debtor was in the best interests of the creditors, or whether the creditors would be best served by salvaging the Debtor’s current ongoing accounts and utilizing the current income stream to invest in new sub-prime automobile loan notes under a more stringent business plan.

After receipt of the Chapter 11 Trustee’s financial information, and performing its due diligence, the Committee prepared a financial analysis of the cash flow that continued to be collected on the performing accounts, the net cash flow after expenses, the amounts to be collected by the Chapter 11 Trustee, and whether it would be in the creditors’ best interest to liquidate those seasoned accounts, as proposed by the Chapter 11 Trustee.

The Committee also performed an exhaustive financial analysis of the remaining business of the Debtor, and prepared detailed feasibility studies to determine whether the creditors would be best served by rehabilitating some of the Debtor’s ongoing business, under a much more stringent business plan. The Committee believed that the feasibility studies showed creditors may obtain a much higher return on the remaining accounts should the Court permit the Committee to propose a reorganization plan.

The Committee presented its findings to the Chapter 11 Trustee, but the Chapter 11 Trustee did not agree with the findings and still proposed to liquidate all of the Debtor’s assets.

Accordingly, on August 9, 2010, the Committee filed its Objection to the Trustee’s Motion to Sell the Debtor’s Performing Assets. The Committee argued that it was not in the best interest of Cladek’s unsecured creditors to sell the auto loans because the estimated return to investors would be substantially more than that obtained by the Trustee’s mere liquidation of the performing assets.

A hearing was held on August 12, 2010 upon the Trustee’s Motion to Sell the Performing Assets, and the Committee’s Objection thereto.

The Committee presented evidence of feasibility studies at the August 12 hearing showing that the auto loans had a current income stream of $3.2 million and that the payout to creditors could reach $15 million in five years with an eventual payout of $30 million to $60 million upon sale of the business.

After hearing over 6 hours of argument and testimony, the Court determined that the Committee’s Objection should be sustained, so the performing assets could remain in the bankruptcy estate and a reorganization of the ongoing business operations could be pursued, if appropriate. An Order denying the Trustee’s Motion and sustaining the Committee’s Objection was entered on August 13, 2010.

Category: Business

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