Ford Motor Credit Files Objection in Reagor Dykes Bankruptcy Case
On Tuesday, the Ford Motor Credit Company filed an objection in the Reagor Dykes’ application to employ a Chief Restructuring Officer in their bankruptcy case. In their objection, Ford Motor Credit raised concerns that Reagor Dykes isn’t honoring the Interim Cash Collateral Order that was issued after the company filed for bankruptcy on August 1, 2018.
A surprise audit by Ford in July found that Reagor Dykes owed them more than $42 million dollars due to fraud. The following excerpt from the objection further details the allegations:
"The Debtors are in default of their obligations to Ford Credit under their respective Loan Agreements with Ford Credit because as of July 31, 2018, Debtors have sold hundreds of vehicles and/or double floored vehicles and have failed to repay Ford Credit the amounts advanced by Ford Credit to Debtors to acquire those vehicles in an amount that exceeds $42 million. This creates a sales-out–of-trust or “SOT” condition. This is a serious breach of the Loan Agreements because Ford Credit has lost its vehicle collateral (or in some instances, never had the collateral) and the Debtors have received the proceeds from the sale or lease of those vehicles and used the money for other purposes—effectively reducing Ford Credit’s Collateral that secures its loans to the Debtors."
Despite the serious allegations, Ford Credit agreed to allow Reagor Dykes to pay their employees and other expenses through an Interim Cash Collateral Order, but only if certain conditions were met.
Ford claims that Reagor Dykes has failed to meet those conditions, which include that the company return all demonstration vehicles to their respective dealerships by August 4. The order also required that Reagor Dykes pay off all trade-in liens, register all vehicles currently sold to customers, and provide Ford Credit with keys and titles to all vehicles in their inventory.
Because of these failures, Ford Credit has implied in their objection that Reagor Dykes cannot be trusted with an appointment of a Chief Restructuring Officer and have insisted that a third-party Chapter 11 trustee be appointed to oversee the bankruptcy case instead.
"Debtors seek to employ a CRO who will report to the same management that failed to detect or remedy prior malfeasance. As much as Ford Credit respects the integrity and qualifications of the proposed CRO, the appointment of a CRO which merely preserves current management’s prerogatives may substantially harm the estate as a CRO lacks the independence associated with a Chapter 11 trustee."
In closing, Ford Credit has asked the court to deny Reagor Dykes' application to appoint their own CRO.