Rea Keech Buick, the Ellicott City dealership that is struggling to reopen its doors amid fraud allegations, has filed for bankruptcy.
Wednesday's Chapter 11 bankruptcy action seeks to free the company to reorganize. A week earlier, sheriff's deputies closed the dealership, froze its accounts and impounded more than 140 vehicles. Keech wasshut down and its 50 employees put out of work pending resolution ofa $3.5 million lawsuit against it by Mellon Bank, which claims the dealership falsified records to avoid paying on $2.75 million in debt.
Bank attorneys plan to present evidence to support that claim at a hearing tomorrow in U.S. Bankruptcy Court in Baltimore.
Rea Keech Jr., owner of the dealership, is seeking to reopen the company. A hearing on the matter had been set for last week in county Circuit Court, but was indefinitely postponed when the Chapter 11 filing put thematter under Bankruptcy Court jurisdiction.
W. Michel Pierson, the attorney for Keech in the case, declined comment on the bankruptcy filing.
Although Keech filed as a "debtor in possession," which would allow him to control the company, Mellon attorney Joel Sher said the bank on Thursday asked Bankruptcy Judge James F. Schneider to appoint a trustee to take over the company and review its books. To do so, the bank must prove fraud, dishonesty or gross mismanagement on the dealer's part.
In its suit, the bank charged that Keech and his daughter, dealership manager Leslie Keech, repeatedly denied bank loan officers access to financial records during audits of the dealership's Mellon-financed inventory.
A loan officer's affidavit charged that cars missing from inventory were accounted for with false sales contracts or promissory notes, which indicated that the cars were sold to individuals but the financing had not come through yet. Documents obtained later showed that 31 of the 70 missing cars had been sold for cash to dealers, the bank alleges.
Mellon relied upon the contracts until the dealership's checks to the bank began bouncing, and then demanded other documentation for the missing cars, which Keech and his daughter repeatedly refused to supply, the affidavit says.
When a trustee is appointed to run a company reorganizing under Chapter 11, its employees can be asked to return to work at the company under court supervision.
"Unfortunately, it's a theoretical possibility at best at this point," Sher said.