In a stunning turn of events, California-based trucking company Kal Freight Inc. has filed for Chapter 11 bankruptcy protection, unveiling a web of fraudulent activities that have sent shockwaves through the industry. The company faces serious allegations of financial misconduct and asset mismanagement.
Who is Kal Freight?
According to a filing with the Federal Motor Carrier Safety Administration, Kal Freight employs 600 drivers and has 580 power units. The company was founded in 2014 and has locations in California, Texas, New Jersey, Indiana, Tennessee, Georgia, Arizona and Arkansas.
Chapter 11 and fraud accusations
Kal Freight filed Chapter 11 with nearly $325 million in long-term debt. Unsecured claims total at least $24 million, according to court filings. Among the largest unsecured creditors are CIMC Reefer Trailer Inc., owed more than $12 million; Continental Tire, owed more than $1 million; and Cargo Solution Express, owed more than $950,000.
However, court documents reveal a far more troubling picture of Kal Freight’s operations. Daimler Truck Financial Services USA, LLC, the company’s largest vehicle finance lender, has uncovered evidence of massive fraud perpetrated by Kal Freight against its creditors.
The $16.8 million ghost trailers
In a shocking revelation, Daimler alleges that Kal Freight fraudulently obtained approximately $16.878 million to purchase 164 trailers from Vanguard. However, the company never actually paid Vanguard or received the trailers. Instead, Kal Freight somehow managed to provide Daimler with fraudulent certificates of title for these non-existent trailers, complete with recorded liens. To add insult to injury, Kal Freight continued to make monthly payments on this loan as if the trailers had been purchased and were in their possession.
The $20 million Canadian collateral shuffle
Daimler’s investigation has also uncovered that approximately 366 trailers serving as collateral for their loans were illegally transferred to Big Rig Trailers & Leasing, Inc., a Canadian affiliate of Kal Freight owned by the same individual, Mr. Singh. These trailers were subsequently sold, leased, or pledged to third parties in Canada, potentially creating a complex legal situation where innocent third parties may claim senior interest in the collateral. This unauthorized transfer could result in an additional $20 million loss for Daimler.
The phantom sales scheme
In yet another fraudulent maneuver, Kal Freight reportedly transferred numerous trucks and trailers that were part of Daimler’s collateral to its affiliate, Kal Trailers & Leasing Inc., a truck and trailer dealer. Kal Trailers then sold these units to third parties, allegedly free and clear of Daimler’s liens, under the guise of ordinary business transactions. Daimler never received the proceeds from these unauthorized transfers.
The aftermath and legal proceedings
The extent of Kal Freight’s fraudulent activities has placed the recovery of over $40 million in Daimler loans in serious jeopardy. In light of these revelations, Daimler initially had no interest in continuing its business relationship with Kal Freight during the bankruptcy proceedings.
However, in a bid to salvage the situation, Kal Freight has agreed to remove Mr. Singh as a director of each debtor company and replace him with unaffiliated independent directors. Additionally, the company has promised to retain Brad Sharp as the chief restructuring officer, granting him complete control over business operations, including all books, records and financial transactions.
These commitments have led Daimler to cautiously agree to the debtors’ use of certain retained collateral, consisting of 543 trucks and 10 trailers, during the bankruptcy proceedings. This agreement is subject to strict terms and conditions outlined in the Daimler agreed adequate protection order.
Looking ahead
As the bankruptcy proceedings unfold, all eyes will be on Kal Freight and its newly appointed independent directors and CRO. The trucking industry and creditors alike will be watching closely to see how this complex web of fraud is untangled and what consequences will follow for those involved in these deceptive practices.
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