In the latest event to unfold in the ongoing saga surrounding the May closure of Virginia-based lender Live Well Financial, three of the company’s former creditors are now seeking to use the court system to force the remains of the company into involuntary bankruptcy protection, using apparent investigations being made by regulators and federal law enforcement as reasoning for seeking the court-supervised liquidation.
As first reported by the Richmond Times-Dispatch and according to court documents obtained by RMD, the three petitioners – Flagstar Bank, Mirae Asset Securities Inc. and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS) – claim that Live Well owes them a combined figure totalling over $130 million, with the debt coming from different financing arrangements Live Well engaged in with each creditor.
Each of the creditors have also been contacted by the Securities and Exchange Commission (SEC) and the Federal Bureau of Investigation (FBI) regarding the activities of both Live Well at-large, and former CEO Michael Hild specifically, according to an additional filing made on June 13 by the legal counsel representing the creditors.
Each of the three companies are petitioning the court to force Live Well into Chapter 7 bankruptcy protection, which is designed specifically for liquidation: the sale of a debtor’s nonexempt property and the distribution of the proceeds to its creditors. According to separate documents in the court filing, Flagstar engaged in a Mortgage Warehousing Loan and Security Agreement in November 2016, while both ICBCFS and Mirae made separate Master Repurchasing Agreements (MRAs) in April 2016 and March 2017, respectively.
After Live Well abruptly closed its doors in early May, both ICBCFS and Mirae accelerated the repayment dates for their MRAs, immediately making them due and payable. When Live Well allegedly exhibited an unwillingness to follow through on their obligations related to their MRAs, the companies filed suit in bankruptcy court to structure the liquidation of Live Well’s assets in the absence of the company cooperating.
“Based on the foregoing and other information publicly available to Flagstar, the other petitioning creditors and Live Well’s stakeholders, it appears beyond any conceivable or serious dispute that Live Well is insolvent and is not paying its debts as they become due,” Flagstar’s complaint reads. “This is evidenced by, among other things, Live Well’s failure to pay its debts to the Flagstar and the other petitioning creditors, its wind down of operations and the layoff of substantially all of its employees.”
In order to facilitate repayment in a more efficient way, forcing Live Well into bankruptcy has the chance to more correctly satisfy Live Well’s remaining financial obligations, the filing says.
“Flagstar submits that there is better alternative for the Debtor’s creditors and estate than the coordinated, controlled, court-supervised liquidation that can be accomplished only through a bankruptcy proceeding,” the filing reads.
Because of the company’s recent mass layoff, Flagstar says that there are “serious questions” regarding Live Well’s management and control, along with its ability to protect and preserve its assets. This is why Flagstar and the other Live Well creditors are seeking to compel bankruptcy, the filing says.
“Flagstar and the petitioning creditors have filed the Involuntary Petitions in order to initiate a court-supervised, orderly liquidation process that will preserve the debtor’s assets, protect value and, ultimately, provide for the distribution of such assets and value to parties entitled to them,” the filing concludes.
In an additional filing, the counsel for Live Well’s creditors add that the companies have each been separately contacted by the SEC and the FBI, which are conducting investigations into Live Well’s financial activities. These investigations also focus on Live Well’s former CEO, the filings state.
“The Petitioning Creditors are not the only entities concerned about Live Well’s past and current practices,” says attorney Adam G. Landis in the separate filing. “Each of the Petitioning Creditors has been contacted by one or both of the SEC and the FBI regarding Live Well and Mr. Hild, and each is cooperating in those entities’ investigations, including by producing requested documents.”
Further making the case for the appointment of an independent trustee to oversee the Chapter 7 involuntary bankruptcy and liquidation, the counsel for the creditors say that intervention by the bankruptcy court is important in order to compel what remains of the company to cooperate.
“In addition, upon information and belief, Live Well, at Mr. Hild’s direction, has taken numerous actions that have served to protect and promote Mr. Hild’s personal interests to the detriment of Live Well and its creditors,” the filing reads. “Mr. Hild can be expected to continue to do so absent this Court’s immediate intervention.”
Live Well’s response
In a late filing Monday, counsel for Live Well Financial responded to the Chapter 7 suit being brought by the creditors, citing precedent and saying that the appointment of an independent trustee would be detrimental for Live Well in meeting its outstanding financial obligations.
“As the Court and all parties to the Involuntary Bankruptcy Case are aware, the appointment of an interim trustee can disrupt the alleged debtor’s financial life, and leave a company ‘scarred and crippled beyond any real chance for recovery,” even where “[a} debtor was victorious in resisting the involuntary petition,” Live Well’s counsel writes, citing a previous case.
The company’s legal counsel also say that while there may have been mistakes made in delaying communication with creditors, that does not necessarily mean that anything illegal took place.
“Certainly prior to the Filing Date, Live Well could have been more forthcoming in its ‘dealing with the Petitioning Creditors,’” the company’s counsel writes. “Delayed communications during a period when Live Well was in severe financial distress, however, is not evidence of management mismanagement and is not the basis for the ‘extreme remedy’ of the appointment of an interim trustee.”
This is the latest in a series of unfolding events concerning the abrupt closure of Live Well Financial, which RMD learned about on May 3. The closure was followed by more than 100 lay-offs at the company’s Richmond, Va. headquarters, which led to the filing of a class action lawsuit from a former employee attempting to recover lost wages. Live Well intends to challenge that suit.
Flagstar Bank had previously filed a lawsuit against Live Well, seeking repayment of more than $80 million in delinquent loans and interest, according to a court filing made with the U.S. District Court for the Eastern District of Michigan.
Multichannel lender Open Mortgage also recently announced that it had hired the core team of mortgage lending executives from Live Well, in addition to approximately 50 former Live Well sales and operations employees to expand its retail, wholesale, principal agent and closed-loan seller mortgage channels.