Factoring company’s legal dispute halts operations and puts drivers in a bind
Freight factoring is used by many drivers and aims to provide initial capital to run their businesses. However, as a large group of truckers recently learned, freight factoring is not without its risks.
On July 18, a temporary restraining order and injunction were filed on behalf of CoreFund LLC. The Waterford, Texas-based factoring company says bank accounts used to run the business were wrongfully frozen, essentially halting day-to-day operations.
The temporary freeze – which CoreFund said was the result of a disagreement between the two brothers who control their holding company and trust – has jeopardized the livelihoods of more than 350 customers. The Owner-Operator Independent Drivers Association became involved in the case in an effort to help drivers.
“The role of factoring companies, including CoreFund, in financing these smaller trucking companies has become an important factor in mitigating some of the supply chain impact challenges facing industries across our country. “, say the court documents. “Many of these truckers who cannot obtain financing from CoreFund will be forced to park their trucks and close their doors because they cannot obtain financing from traditional sources or even other factoring companies.”
Additionally, CoreFund representatives say they were not made aware of the impending account freeze. No money has been paid to drivers who bill the company since July 18.
Lack of money is just one of the problems faced by drivers caught in the middle of legal wrangling. The problem is to make the problem worse of Privileges of the Uniform Commercial Code.
The Uniform Commercial Code is a comprehensive set of uniformly adopted state laws governing all business transactions in the United States. A UCC lien is used by lenders to establish a prior claim on a borrower’s assets, including the collateral used for the loan. Simply put, the lien protects lenders by making it easier to collect money owed if a borrower goes bankrupt or defaults on their loan.
Additionally, the lien prohibits the borrower from factoring charges with another company or obtaining collateral from multiple lenders. CoreFund holds UCC privileges on every contract that has considered charges with them. However, when the company’s operations came to a halt, privileges prohibited drivers from seeking the factoring services of another company to keep their business running. To make matters worse, no one was available from CoreFund to help drivers end the lien.
On July 27, OOIDA Executive Vice President Lewie Pugh made a statement to the court regarding the case. In the statement, Pugh highlighted the difficult position that CoreFund’s legal issues have placed drivers in.
“CoreFund’s failure to pay individual motor carriers under their contracts imposed an immediate hardship on motor carriers, preventing them from being able to pay their expenses necessary to keep their business operating,” Pugh said. “CoreFund’s inability to terminate its UCC privileges on motor carriers has caused further difficulties for motor carriers who are thus unable to enter into contracts with new factoring companies to keep their businesses going.”
In the statement, Pugh called on the court to immediately terminate UCC liens held by CoreFund, which would allow carriers to make alternative financing arrangements. Additionally, Pugh demanded that all outstanding debts be paid to the motor carriers.
Jim Jefferson, Director of OOIDA Business Services Department, followed the case closely. According to Jefferson, many drivers had to park their trucks while they waited for the case to be resolved.
“There are truckers who are closed and cannot operate at the moment because not only do they owe them money according to their contract, but because that money has been paid, they have no funds to continue to operate,” Jefferson told Land Line. “They can’t pay their fuel bills, so they can’t get fuel. Essentially they are closed and cannot operate because CoreFund is closed. »
The first step towards resolution has been taken. On July 28, the court appointed Timothy Hassenger as receiver of CoreFund Capital.
According the Security and Exchange Commission, a receiver is a neutral third party appointed by the court to protect property belonging to a person being sued. The court grants the receiver powers over the property that generally include taking legal control and protecting the assets. Additionally, the receiver is responsible for filing claims on behalf of the entity and distributing assets to defrauded investors, plaintiffs, or creditors through a court-approved plan.
Essentially, by appointing a receiver for CoreFund Capital, the company can return to factoring charges for drivers as soon as possible. On August 1, the receiver told the courts it could take up to two weeks to get the company back on its feet. According to Jefferson, since the afternoon of August 3, money owed to drivers during the account freeze has not been paid.
A number of OOIDA members were among the drivers affected by the closure. OOIDA President Todd Spencer said members play an important role in alerting the Association to issues facing drivers.
“Our members are our eyes and ears on the front line of almost all trucking, both good and bad,” Spencer said. “Having a direct link to the problems that need to be solved allows us to be better informed to find the best solution. Truckers have always been absolutely essential to our entire country. Anything that harms those behind the wheel needs to be addressed.”
In addition to OOIDA’s role in legal proceedings, the association’s business services department has been working to help truckers get back on the road.
Jefferson said the department distributes application forms that drivers can submit to CoreFund Capital’s receiver. The application asks CoreFund:
- File a UCC-3 termination with the Texas Secretary of State and provide confirmation of filing.
- Provide carriers with a general revocation of its existing assignment notices on company accounts receivable that carriers can pass on to their customers.
- Provide a commitment that CoreFund will not seek redress or pursue any legal remedy against the carriers’ business as a result of their decision to leave CoreFund because “the recent closure of CoreFund frustrated my ability to run my business.”
While factoring can be seen as a “necessary evil” for some drivers — providing the capital needed to run their business — Jefferson says the Association doesn’t recommend truckers go this route.
“We try to steer members away from factoring companies when we talk to them all the time because of the commitments involved in this UCC,” Jefferson said. “When you transfer all your customer accounts to a third-party company, anything can happen at this point.”
One suggestion he makes to drivers looking for faster pay is to look for brokers who offer fast payout options. While brokers will charge a fee for quick-pay loads, Jefferson says the percentage is usually about the same rate a factoring service would charge. However, unlike factoring companies, prompt payment charges do not involve the same financial commitment on the part of the driver, allowing them to negotiate loans with whomever they see fit. LL