Texans CU CUSO Files Chapter 11
In a Sept. 8 statement, Texans CUSO Insurance Group said it filed for Chapter 11 protection "to resolve its temporary operational and liquidity issues." The CUSO filed a voluntary petition for relief in the U.S. Bankruptcy Court for the Northern District of Texas.
"It is an important fact to note that the policyholders of Texans CUSO Insurance Group LLC will not be affected by the filing. We look forward to the successful reorganization of Texans CUSO Insurance Group LLC and its emergence from Chapter 11," said Michael Sauer, president/CEO of the $1.7 billion Texans Credit Union.
Sauer said the Chapter 11 filing would not impact credit union member accounts or services and the "entire management team at Texans CUSO Insurance Group LLC, along with their dedicated employees, will work tirelessly to successfully restructure the company through the Chapter 11 process."
The CUSO said it is negotiating a debtor-in-possession financing facility, which should be finalized shortly. In the meantime, the Texans CUSO Insurance said it has sufficient cash to operate and the consent of its secured lender to use the cash for operations. If approved by the court, the DIP financing would provide an immediate source of funds to the CUSO, enabling it to satisfy on-going expenses associated with the daily operation of its business, including the timely payment of employee wages and other business-related obligations.
During the Chapter 11 process, suppliers should expect to be paid for post-petition purchases of goods and services in the ordinary course of business, the CUSO said. Payments of insurance premiums and commissions to agents should also continue without interruption. Insurance policies issued through the Texans CUSO Insurance are unaffected by the filing and customers remain insured through their carriers, according to the CUSO.
"We want to make it perfectly clear to our policyholders and our client agencies that their policies will not be affected by this reorganization and our business should continue as usual," stated Mike Haselden, president of Texans Insurance Group.
According to Texans CU's NCUA June income statement, the cooperative's noninterest expenses, which includes miscellaneous expenditures and professional outside services, was nearly $43 million, compared to $22 million in March 2009. The credit union also transferred $1.7 million to its regular reserve in June. On Texans' Schedule C form, Texans CUSO Insurance Group is not listed among the eight CUSOs that have loans or investment allocations.
Besides a fickle insurance market and expenses incurred to fight legal battles, Texans said the economic recession and the loss of business from construction industry clients were other reasons for the bankruptcy filing that led to the CUSO's operational and liquidity issues.
One contentious legal scuffle stems back to April 2007 when Texans Insurance terminated its former president, Kevin M. Curley. Texans CU bought the Curley Insurance Group LLC and six other companies from Curley for $19 million. Curley was also entitled to a $21 million contingent right to an earn-out to be paid by Texans Insurance, according to the complaint filed by Curley. Per an employment agreement, Curley was to continue working with the new CUSO from Jan. 1, 2007 to Dec. 31, 2009. A clause limiting Texans Insurance from terminating him before the employment agreement ended included willful or negligent conduct harmful to the company, participation in felony acts and breach of contract. According to Curley's complaint, as indicated by Gary Kirkindoll, president of Texans Service Group, he was allegedly terminated for several reasons, including insubordination.
In July 2008, Texas arbitrator Susan Soussan ruled that Curley was fired from his post without reasonable or justifiable cause and ruled that the former executive was entitled to his job back. He was also entitled to a $6.3 million judgment, Curley told Credit Union Times in July. Curley had previously said a trial was set for September to recoup $24 million from Texans for the sale of his company.
Curley did not return calls for comment on the Texans Insurance bankruptcy but in a Sept. 8 Dallas Morning News article said, "This is very disappointing, and it's unfortunate, but at the end of the day, the reasons they provided for their bankruptcy are false. If you have people who are not competent, this is what you get." Texans CU spokeswoman Jo Trizila said neither the financial institution nor the insurance CUSO can comment on pending litigation.