So, 10 or 11 years ago, there was an especially showy Indianapolis business guy by the name of Tim Durham with connections to folks like Burt Servaas and Carl Brizzi. In a story reminiscent of the movie “Wall Street,” Durham bought a long-established company called “Fair Finance” that had been a going concern since the 30s and used it as a personal piggy bank. Investors and depositors in Fair Finance lost about $200 million. Greg Andrews, writing for the IBJ, reports that the bankruptcy trustee has been trying to get some of that money back from various sources but has suffered a major set back after a jury trial against a company called Textron who provided financing to Fair. I couldn’t quite make out the exact legal claims from the article (maybe I didn’t read closely enough), but I gather that Textron got a lot of its money back in one way or another while ordinary investors got stiffed. The bankruptcy trustee was likely trying to claw that money back from Textron to distribute to the regular investors. The trial hinged on whether the debt owed to Textron was secured or unsecured. The jury apparently decided it was secured and the bankruptcy trustee won’t recover those funds.
To date, the bankruptcy trustee has recovered something like $0.11 on the dollar for Durham’s victims. Durham was convicted in 2012 and currently has an earliest possible release date of 2056. (That assumes Trump doesn’t pardon him.)
lou wilkinson says
textron themselves, had a few shady things going on back in the day, as i recall….
Paul K Ogden says
Ugh, a Trump pardon. Never thought of that. Durham would be a great candidate for that. Durham has GOP connection and his white collar crime isn’t something that Trump thinks is a big deal. Probably should have been state offenses pursued…
Jay Hulbert says
I’m not an attorney, and not familiar with the details of this case, but I’ve been CEO of a company that went through Chapter 11 restructuring, and I’ve led multiple financing rounds at several businesses.
Finance companies, or industrial companies that have financing arms like Textron or (formerly) GE Capital almost always ask for a “junior secured position”. That is, they are subordinate to the banks, but senior to completely unsecured creditors, with language in the boilerplate section of their contracts attesting to that. Unlike the banks, they don’t routinely file liens to back that position up, but they are certainly prepared to protect their interests.
Finally, many small unsecured creditors will be dealing with their first insolvent company. Textron on the other hand would already have a working relationship with bankruptcy attorneys and financial advisers experienced in the particular industry in question, and they’d be spring loaded to file liens or take other actions to protect themselves at the first sign of insolvency.
The process is just not very friendly to small unsecured creditors.
Carlito Brigante says
An interesting case. I read the IBJ story and it said the Trustee was arguing that a 2004 loan extinguished a security interest that was created in a 2002 loan.
I recall that these loan documents and security agreements, even when unperfected, have a dragnet clause that pulls all assets existing or thereafter aquired from earlier loans into the later pool of assets securing the loan.
I did some farm bankruptcy in the late 1980s representing secured creditors where the debtor made a similar claim.
Carlito Brigante says
Oh, to remember Timmy Durham. He was a year ahead of me in law school, I recall. My friend and I will talk about him ever now and then.
There was an excellent show about Timmy on the series “American Greed.”
My illustrious schoolmates include a grifter of the first class order in Timmy and a Vice President leading the American effort against COVID-19.
Maybe I should have gone to Notre Dame.