The Elkhart payroll processing company and related entities being sued for fraud along with their former owner by a KeyBank subsidiary have filed bankruptcy in the U.S. Bankruptcy Court for the Northern District of Indiana.
“Due to the disruption events during the week of July 8th, 2019, Interlogic Outsourcing Inc. and related entities filed voluntary petitions under Chapter 11,” it said in an Aug. 12 statement on its website.
“In conjunction with this filing, our primary processing bank and lender, has agreed to provide us with additional financing to adequately support us while we are under court supervision,” the company said.
“This will allow us to operate our business as usual and fulfill our payroll process commitments to our valued customers and other stakeholders.”
In the Chapter 11 bankruptcy filing, Interlogic estimated it had more than 5,000 and up to 10,000 creditors.
Court documents show the company estimated its assets exceeded $1 million and were up to $10 million, and its liabilities exceeded $10 million and were up to $50 million.
The company plans to seek a buyer in order to change its ownership through the Chapter 11 process or court supervision, it said.
“Pursuing a sale under the court’s supervision provides the quickest and most efficient means of maximizing value. The sale process will not take away from our focus on our customers,” the statement said.
IOI Payroll Services, Inc. was among the related entities filing with Interlogic for Chapter 11 bankruptcy protection.
Before resigning and relinquishing control of Interlogic’s board, its former chairman, CEO and owner, Najeeb Kahn, appointed an independent director, Tim Daileader, for IOIPay, the statement said.
Daileader, who also was appointed an independent director for Interlogic, appointed Dan Wikel as the company’s interim president and chief restructuring officer, it said.
“Wikel, along with a very seasoned and capable management team, will lead the organization through this court supervised process,” the statement said.
“Please know that the Chapter 11 process will not impact our relationship with our customers in any way,” it said.
“IOI Pay is continuing to operate in the normal course of business, including continuing to provide our customers uninterrupted payroll services. We are fully committed to providing the same exceptional customer experience you have come to expect from us.”
In addition to IOI Pay, related entities filing with Interlogic for Chapter 11 bankruptcy protection included TimePlus Systems, LLC; IOI West, Inc.; Lakeview Technology, Inc.; Lakeview Holdings, Inc.; and ModEarn, Inc.
KeyBank National Association, which is owned by Cleveland-based KeyCorp, filed a lawsuit against Interlogic and Kahn seeking $122 million and alleging fraud July 9 in U.S. District Court for the Northern District of Ohio.
Federal Deposit Insurance Corp. records show that in Business Weekly’s reading area, KeyBank National has eight offices in Elkhart County, two offices in Kosciusko County and an office in Steuben County.
Kahn was IOI’s sole director, and the suit came as a surprise to the company, according to a July 25 announcement on its website, www.ioipay.com.
“Mr. Najeeb Khan has resigned as director and ceased all involvement with the company,” the announcement said.
“We are open for business, available to speak with you, and remain steadfast in our commitment to serving our clients. We want to emphasize that IOI has secured the necessary operating liquidity to properly manage our business going forward.”
KeyBank had provided financial and cash management to Interlogic since 2008, according to the bank’s allegations in the case, which also named Kahn principal owner of the company.
KeyBank alleged Kahn also owned or controlled TimePlus Systems, LLC, and IOI Payroll Services, which operated out of the same Elkhart location as Interlogic.
On July 3 and 5, “Kahn caused TimePlus and IOI Payroll to issue a series of checks payable to Interlogic drawn from their bank accounts with Lake City Bank in Warsaw,” the complaint alleged.
Kahn then caused Interlogic to deposit those checks in its KeyBank accounts, and on July 8 directed the bank “to issue 41 separate wire transfers to various entities through three different banks: Berkshire Bank, Wells Fargo and JP Morgan Chase,” it alleged.
The amount of the wire transfers came close to $122 million. But, at the time the checks were issued to Interlogic, there was insufficient funds to cover them in the TimePlus and IOI Payroll accounts at Lake City, and Kahn knew it, the complaint alleged.
KeyCorp warned shareholders in a July 16 filing with the Securities and Exchange Commission that it had discovered fraudulent activity associated with transactions of a KeyBank National customer, and was investigating the situation to determine the bank’s exposure.
At the time of the filing, KeyCorp estimated the exposure could get up to $90 million, net of tax.
“The ultimate financial impact could be lower and will depend, in part, on the company’s success in its efforts to recover the funds,” the filing said. “The company plans to pursue all available sources of recovery and other means of mitigating the potential loss.”
The damage will show up in third-quarter bookkeeping, and Don Kimble, KeyCorp chief financial officer, said in a conference call with securities analysts on its second-quarter financial performance the company was conducting “a comprehensive assessment of all procedures and related controls.
“Importantly, this is not a cyber event or a data breach. And we do not believe this to impact our capital plans, which will include both dividends and share repurchases,” he said.
“We also do not believe that this will materially impact core expenses going forward, and we remain on track to achieve our cash efficiency ratio target in the second half of this year.”
Interlogic apologized for disruptions resulting from the unusual circumstances leading to the bankruptcy filing and said updates on it would be available at https://cases.primeclerk.com/InterlogicOutsourcing/.