Deca Financial Services appears skilled at hunting down consumers who get behind in paying their doctor bills, credit cards and student loans.
In 2012, its third year in business, the fast-growing collections firm lassoed $2.5 million in conditional tax credits from the Indiana Economic Development Corp. toward creating 270 jobs by 2015. It has about 200 customers and employs about 80 people who earn an average of $55,000 a year.
But, in an irony best appreciated by anyone who’s received a belligerent call from a bill collector, the Fishers collections firm is alleged to have fallen behind in remitting money it collected on behalf of some of its 200 clients. Those clients have asked U.S. District Bankruptcy Court in Indianapolis to force Deca into involuntary Chapter 11 reorganization.
The bankruptcy court petition, filed last month by two companies and by former Deca President David Hoeft, alleges they’re owed more than $362,700.
However, the list of creditors has grown in recent weeks. No less than Indianapolis law firm Barnes & Thornburg LLP has told the court Deca owes more than $946,000 for professional services.
Another creditor, Fort Wayne-based Professional Medical Billing, said it is owed $332,800, and asked the court to immediately appoint a bankruptcy trustee.
But Deca secured a last-minute reprieve from being forced into Chapter 11.
On March 5, U.S. Bankruptcy Judge Robyn Moberly gave the company until March 17 to pay off the petitioning creditors and BMO Harris Bank, which claims Deca owes it millions of dollars on loans the bank tried to recover in a separate action in Hamilton Superior Court.
“In the event Deca fails to comply … then a trustee shall immediately assume control of Deca,” states Judge Moberly’s order.
Need some time
Like a delinquent consumer being pressured by a collector to pay up, Deca argued it just needed a little more time.
“[The company] has a plan to make everything work out. It could use a slight break to make that work out,” David Tipton of Densborn Blachly LLP, representing Deca, told IBJ.
Neither company founder and CEO Todd Wolfe nor President Garret Newbound could be reached for comment.
But in a recent court petition arguing against the need for a bankruptcy trustee, the executives’ lawyers contended the problems don’t stem from the company’s core business. Rather they point to a mortgage refinancing attempt late last year that went bad and led to its accounts being frozen.
Deca told the court that Wolfe, who developed stomach cancer and for a time wasn’t able to run the business full time, discovered that in his absence management had failed to refinance a mortgage loan on land the company uses.
Deca’s obligation to BMO is a $3.3 million real estate mortgage and a $7.5 million revolving line of credit, according to court records.
Wolfe stepped in last December, “fired a half-dozen people that he earlier thought were excellent managers, and also considered to be friends,” including Hoeft, the company said in the filing.
Hoeft and Wolfe were close business partners. In 1999, they founded Indianapolis-based Premiere Credit of North America, which was later acquired by a Minnesota firm.
“It was a hard decision, but one Wolfe knew he had to make. Wolfe found the books and records of Deca in poor shape,” Deca’s lawyers contend.
Deca said Wolfe tried to set things right with BMO but that the bank began freezing Deca’s accounts that had been pledged as collateral and amounted to more than $594,000.
“The bank’s improper freezing of Deca’s bank accounts grinded the business to a halt and wreaked havoc with Deca’s cash flow. It could not remit to clients, pay vendors, make payroll or even deposit collections,” Tipton, Deca’s lawyer, wrote in a court filing.
In January, Deca asked Hamilton Superior Court to compel BMO to unfreeze its accounts so it could meet its obligations.
Deca contends that BMO has been trying to put the company into receivership in state court “that only favored the bank and would have allowed the bank to liquidate Deca through its hand-picked liquidation specialist.”
BMO’s attorneys called on company insiders who testified that Deca was having trouble paying some clients even before the bank froze the company’s bank accounts.
The bank also said an examination raised concerns about Deca’s financial statements. Among the concerns was that Deca’s receivables were overvalued.
BMO also presented financial statements purportedly developed by Deca’s accounting firm, Sikich LLP. A Sikich accountant testified that one of the statements that appeared to have been created by the accounting firm was not.
Hoeft, who helped procure the first phase of a U.S. Department of Education contract for Deca, testified that he couldn’t account for about $2 million.
Hoeft testified that some of the company’s funds were moved into Wolfe’s personal account during 2013. At one point, witnesses said, company president Newbound loaned $70,000 to Deca to help it meet obligations
In recent filings in federal court, Deca has broadly disputed such claims.
The company said that former executive vice president Hoeft “might have motive to see Deca fail,” saying Hoeft last January formed his own collections business known as Phoenix Financial Services LLC.
Deca alleges Hoeft told Professional Medical Billing that he was going into business for himself, just before PMB terminated business with Deca.
Hoeft could not be reached for comment.
Moreover, regarding claims that money was improperly distributed into Wolfe’s accounts, Deca counters that those were in fact reimbursement expenses to Wolfe, “who frequently personally paid the expenses of Deca.”
Check’s in the mail?
Whatever the case, the Deca situation continues to swirl with claims and counterclaims in court filings.
BMO had “unfrozen” Deca’s bank accounts at least once, but the collections firm appears to have lost a recent round. Late last month, Hamilton Superior Judge David Pfleging dissolved a temporary restraining order that prevented another freeze of Deca’s accounts.
The court cited a number of concerns, including the “questionable credibility” of Wolfe based on contradictory statements provided by other witnesses. The Hamilton court also cited a restatement of financials after a field audit last December. Originally showing a profit of $9 million, financials were restated to show a loss of $5.8 million, the court said. Payables originally listed as $300,000 later were restated to $2.8 million.
That didn’t include more than $800,000 owed to Barnes & Thornburg, the court said.
No matter, Deca could put the financial nightmare behind it later this month.
Deca said Wolfe has lined up what could be an $11.5 million loan secured by real estate to inject capital into Deca, an amount “sufficient to pay off the bank loan and the unsecured creditors whose claims are not disputed.”
According to Deca’s website, Wolfe holds a designation of master credit executive with the American Collectors Association and earned a degree in accounting from Indiana University. Deca was recognized by Inc. as a fastest growing company in Indiana over a three-year period.•