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November 10, 2013

Receiver’s report filed in Mike Terry Auto case

DUNCAN — The court appointed receiver for the Chisholm Trail Auto Group LLC filed his initial report with the Stephens County District Court in the case regarding Mike Terry Auto.

In the report, the receiver, Michael E. Deeba, talked about the investigation into the Terry civil case, following Terry filing a temporary restraining order and injunction for the Mike Terry Auto Groups dealerships. The restraining order was filed July 16, one day after the investor group (excluding Terry) took control of the dealership. The restraining order returned control of the car dealerships.

He continued to have control of the dealerships through negotiations with the investor group to have an independent third party take control of the cash and cash management. This was when Deeba was appointed.

“For the reasons enumerated in this report, a sale of the assets on any emergency basis and expedited basis without traditional marketing efforts was necessary,” noted the documents. “Receiver initially proposed selling the assets through a competitive bidding process; however, the receiver subsequently determined that the accounting records of the companies were in such disarray that no meaningful financial information could be provided to third-parties on such short notice to conduct due diligence. Thus a competitive bidding process was not feasible, and the receiver withdrew the motion to auction the assets for sale.”

The court entered into an agreed order Sept. 6, to sell the assets of the dealerships, as long as General Motors and Chrysler agreed to the transfer of the existing franchises to new entities formed by the New Investor Group. Deeba entered into an agreement with Randy Byford to manage the assets.

Deeba cited having difficulty reporting the companies existing financial and non-financial information because of incomplete or inaccurate records.

“Cash flow and banking issues consumed the majority of receiver’s time during the first 22 days of receivership,” according to the report. “One of the receiver’s first charges was to assess the cash and payable situation, which should have been a simple task.”

Deeba noted that he could not obtain credible information on the cash status — neither through management nor accounting staff.

The receiver found the last bank reconciliations were for June 30, performed by a ‘controller consultant’ on July 22.

“In analyzing these bank reconciliations for the operating accounts and comparing the balances were off and inconsistent with the books and records for June 30, the receiver found the balances were off and inconsistent with the books and records form on the account system at June 30. Also, the receiver found (after the first attempt of reconciling the bank accounts) that multiple bank accounts were co-mingled on the books and accounting system into one general ledger account which caused further problems in assessing the cash and bank.

“Additionally, as the time of receivership, the CDJR (Chrysler/Dodge/Jeep/Ram) books shows a certificate of deposit for $250,020 from June 30, and to Aug. 13, which found not to exist at any time. The CDJR books also reflected a balance in the Summit Bank account of $448,167, on Aug. 13, when the actual reconciled and bank balance was $31.61.”

Deeba also found the accounting staff lacking the skills needed to perform the bank reconciliations. This led to him performing a daily reconciliation of cash and outstanding items.

“To further complicate matters and cash flow, the receiver also found that payroll due on Aug. 10, had not been issued, totaling $108,125.27 with payroll taxes, which further deepened the cash shortage and cash position,” he cited in the report. “This Aug. 10, payroll, along with the associated withholding taxes and other withholds and payroll taxes were paid on Aug. 20, along with all payrolls with come due during the receivership period.”

A notice of default, served by Ally Financial Inc., along with a notice of first lien on all assets of CTAG and CTAG II to Terry, put the receiver in a bind as the the receiver had no ability to use any funds derived from the sale of Ally liened vehicles.

“Simply said, Receiver had insufficient funds to pay operating expenses, including, but not limited to, payroll and customer trade-in lien payoffs.”

On Aug. 20, Deeba realized as receiver, making timely payments to Ally would not happen and Ally was notified. He also discovered two vehicles had not been paid for, but were in Terry’s possession.

Terry was ordered to return the vehicles and the report documented that he did comply.

In the receiver’s report, Deeba also said employee insurance hadn’t been paid and started to be declined. Several vehicles were sold at auction after several employees, including Terry, were given orders that no vehicles could be taken off that car lot.

“The receiver found the dealerships lacked ‘internal controls’ necessary to safeguard the assets, ensure proper reporting of financial statements and organization of treasury management,” according to the report. “Internal controls are safeguards, procedures and checks that help to insure that duties are performed by qualified people at various levels, in sufficient numbers, at the correct time, and that information produced by the organization, especially financial data, such as financial statements, is as accurate and reliable as possible.

“The receiver also found the cash management system to be insufficient and accounting and cash internal controls to be absent. The lack of such controls and systems in any business is a major hindrance and obstacle in understanding the information and the reasons for inaccuracies in the financial statements, accounting records and reporting arena. These controls are critical in running a dealership.”

Deeba also noted in his report that when he arrived to take over the issues, there were 121 employees, including part time and porters. Two of those were terminated, 40 were laid off during the time period of Aug. 26 to Sept. 19 and 13 employees walked out or quit. The remaining 66 employees are working for the Buyer Group and other individuals have been hired. He will update that number in his next report.

In his efforts, Deeba has also notified the Internal Revenue Service and Oklahoma Tax Commission of payroll taxes for certain delinquent periods. Second quarter 2013 payroll tax reports were not filed and are still outstanding, cited the receiver’s report. Those were due July 31.

Deeba cited that he still has to complete an investigation into the credit card activity and will report that in a future document.

A receiver’s demand for monies from Terry cited that an email chain revealed Terry “improperly utilized $250,000 in Chisholm Trail Auto Group funds and $134,000, in CTAG II funds for his own personal benefit. Deeba outlined where and when Terry used the funds.

Deeba noted that Terry’s counsel had responded to his request for monies, wanting an explanation of the amounts. Deeba noted he contacted counsel by phone and explained why they were considered “unauthorized.”

“To date, neither Receiver nor his counsel has received any new response.”

Yet, Deeba noted that on Sept. 25, Terry’s counsel made demand on Receiver for repayment of funds advanced to the Receiver, along with other demands. Deeba is also working with an insurance agent on possible insurance claims for theft/missing monies by Terry. Deeba has not submitted an invoice for fees and expenses as of Oct. 9. A retainer of $75,000 was paid to Deeba.

Deeba believes that a package for final approval for Randy Byford as dealer principal will be prepared and submitted to GM this week.

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