A South Bend, Ind., judge will hear arguments this month over whether a bank can recover a $1.5 million overdraft from Interlogic Outsourcing Inc. (IOI) despite bankruptcy protection.
This story by Jordan Fouts originally appeared in The Elkhart Truth.
IOI sought Chapter 11 bankruptcy in August shortly after KeyBank filed a lawsuit alleging that the Elkhart payroll business owes tens of millions of dollars for transactions made in July that weren’t sufficiently funded. Wells Fargo has asked the U.S. Bankruptcy Court in Northern Indiana to allow it to apply funds in accounts held by IOI toward an overdraft that resulted.
Then-owner Najeeb Khan had IOI issue checks totaling $250 million, which drew from Lake City Bank accounts in Warsaw, according to Wells Fargo’s motion. There wasn’t enough money to cover the full amount of the withdrawals, according to KeyBank’s lawsuit.
Wells Fargo said it resulted in an overdraft of more than $1.5 million on one account that IOI holds with the bank. Other accounts have a positive balance of $720,968 and $2.1 million.
The bank asked the judge to allow it to apply those funds to cover the overdraft, as well as attorney’s fees, legal costs and monthly account fees, and to continue to freeze the funds.
The bank would normally be prevented from using the funds by the automatic stay in the Chapter 11 bankruptcy protection. Wells Fargo argues that the money in the account rightfully belongs to the bank under the terms of its service agreement with IOI, and that its value shrinks as Wells Fargo continues to accrue its own fees and expenses.
A similar request has been lodged in a personal bankruptcy filing that Khan made in October. He filed it in U.S. Bankruptcy Court in Western Michigan.
