Reagon-Dykes Auto Group Bankruptcy may be bad-facts/bad news for honest auto dealers.

Another out-of-trust dealer files for Chapter 11 Bankruptcy in an attempt to protect its assets and keep operating or orderly liquidate. Last week, on August 1, 2018, Reagor-Dykes Auto Group, a franchised Ford Dealer of Lubbock, Texas filed for Chapter 11 bankruptcy in Texas. The voluntary petition was filed in the Bankruptcy Court for the Northern District of Texas. The court’s docket showed at least 6 related cases for Reagor-Dykes related company. Case Number are 18-50214-rlj11, 18-50215-rlj11, 18-50216-rlj11, 18-50217-rlj11, 18-50218-rlj11, 18-50219-rlj11. As of this morning, many creditors filed their appearances and the cases are to be jointly administered. The hearing on the Debtor’s motion to use cash collateral to pay salaries and some other obligations is set for hearing on August  16, 2018.

The filing stems from the dealer’s default on its obligation on floor-plan financing. According to Ford, the dealer defaulted on $41 million in floor plan financing. Allegedly, the dealer was also falsifying the financing paper and double financing the same assets multiple times. The parties are expected in court this week to start the proceeding and the dealer will try to keep its door open and to prevent Ford from repossessing or otherwise moving the collateral from the dealer’s location. The filing is a stark reminder of the common occurrence from about 10 years ago, when during the financial crisis of 07-09, many dealers were unable to meet their obligation under their flor plan loans and cripple defaults were very common though-out the country. While many dealers, especially large one, were able to file for bankruptcy and emerge at somehow controlled liquidation or reorganization, many others were simply “left to die,” when their floor-plan lenders, often in panic, repossessed or removed their inventory.

We will closely monitor the case and its development simply because the above dealer is one of the Ford’s largest and most prestigious dealer in the nation. Let us hope that a set of bad facts does not bring out a set of bad law, as other honest and hardworking auto dealers might be detrimentally affected by this case, especially if they find themselves in need of a bankruptcy filing.