In a stunning turn of events, California-based trucking company Kal Freight Inc. filed for bankruptcy protection, exposing a web of fraudulent activity that has sent shockwaves through the industry. The company is facing serious allegations of financial misconduct and asset mismanagement.
According to a filing with the Federal Motor Carrier Safety Administration, Kal Freight employs 600 drivers and 580 power units. The company was founded in 2014 and has offices in California, Texas, New Jersey, Indiana, Tennessee, Georgia, Arizona and Arkansas.
Kal Freight has filed for Chapter 11 with nearly $325 million in long-term debt. The unsecured claims total at least $24 million, according to court filings. The largest unsecured creditors include CIMC Reefer Trailer Inc., which is 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 much more disturbing picture of Kal Freight’s activities. Daimler Truck Financial Services USA, LLC, the company’s largest auto financing provider, has uncovered evidence of massive fraud committed by Kal Freight against its creditors.
In a shocking revelation, Daimler claims 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 registered liens. To make matters worse, Kal Freight continued to make monthly payments on this loan as if the trailers had been purchased and were in their possession.
Daimler’s investigation also revealed that approximately 366 trailers used as collateral for their loans were illegally transferred to Big Rig Trailers & Leasing, Inc., a Canadian affiliate of Kal Freight, owned by the same person, Mr. Singh. These trailers were then sold, rented or mortgaged to third parties in Canada, potentially creating a complex legal situation in which innocent third parties could claim a senior interest in the collateral. This unauthorized transfer could result in an additional $20 million loss for Daimler.
In yet another fraudulent maneuver, Kal Freight allegedly transferred numerous trucks and trailers that were part of Daimler’s collateral to its subsidiary Kal Trailers & Leasing Inc., a truck and trailer dealer. Kal Trailers then sold these units to third parties, allegedly free of Daimler’s liens, under the guise of ordinary business transactions. Daimler never received the proceeds from these unauthorized transfers.
The extent of Kal Freight’s fraudulent activities has seriously jeopardized the recovery of more than $40 million in Daimler loans. In light of these revelations, Daimler initially had no interest in continuing its business relationship with Kal Freight during the bankruptcy proceedings.
However, in an attempt to salvage the situation, Kal Freight has agreed to remove Mr Singh as director of each debtor company and replace him with unaffiliated independent directors. In addition, the company has committed to retain Brad Sharp as head of restructuring, giving him full control over the company’s operations, including all books, records and financial transactions.
These commitments resulted in Daimler cautiously agreeing to the debtors’ use of certain collateral, consisting of 543 trucks and 10 trailers, during the bankruptcy proceedings. This agreement is subject to strict conditions set out in the adequate protection order agreed by Daimler.
As the bankruptcy proceedings unfold, all eyes will be on Kal Freight and its newly appointed independent directors and CRO. Both the trucking industry and creditors 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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