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Bank Accuses Auto Parts Company of Using Chapter 7 Bankruptcy to Cash In on Revolving Loan – Glass & Goldberg | Financing, Property & Bankruptcy Law
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Bank Accuses Auto Parts Company of Using Chapter 7 Bankruptcy to Cash In on Revolving Loan

Bank Accuses Auto Parts Company of Using Chapter 7 Bankruptcy to Cash In on Revolving LoanM&T Bank Corp. has filed suit in a Los Angeles Superior Court against Motorcar Parts of America Inc., alleging that the company misrepresented a subsidiary’s financial health in order to use that subsidiary’s $60 million line of credit and then filed Chapter 7 bankruptcy to liquidate the subsidiary.

In M&T Bank vs. Motorcar Parts of America Inc., the bank said that Motorcar Parts misrepresented its financial health to the bank by siphoning profits from its subsidiary, Fenwick Automotive Products Ltd., in order to cash in on a revolving loan, then liquidated Fenwick in a Chapter 7 bankruptcy that left the bank with a deficit of $45 million on the loan.

M&T said it issued a revolving loan to Fenwick six months prior to its acquisition by Motorcar Parts in 2011. According to the complaint, M&T said that Motorcar Parts discovered that Fenwick had misrepresented its financial health prior to the acquisition. Rather than disclosing the misrepresentations to the bank, Motorcar Parts sought to extend and increase the Fenwick loans and then misappropriated the funds.

M&T accuses Motorcar Parts of misrepresenting Fenwick’s accounts receivable and inventory in order to inflate the subsidiary’s line of credit. M&T states that once Motorcar Parts divested itself of Fenwick via a Chapter 7 bankruptcy, the company’s stock price rose and Motorcar Parts was able to take advantage of significant tax benefits that resulted in millions in profits.

In addition, M&T has accused Motorcar Parts of an act of conversion by continuing to run Fenwick’s business following the June 2013 Chapter 7 bankruptcy filing.

On February 19, 2015, Motorcar Parts issued a statement saying it believes the suit is without merit and that it would vigorously defend itself.

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