On Wednesday, March 10, 2021, Michigan Bankruptcy Judge Scott Dales approved the Disclosure Statement filed by lawyers for Interlogic Outsourcing, Inc. (“IOI”), Trustee Mark Iammartino of the Najeeb Khan (“Khan”) bankruptcy and Trustee Kelly Hagan of the bankruptcies involving companies referred to as the “Khan Entities.” The Disclosure Statement and Plan of Liquidation it supports also are supported by the Official Committees of Unsecured Creditors appointed in the IOI and Kahn cases, and lawyers for KeyBank, the largest creditor in the cases which arose from a massive scheme of fraud allegedly perpetrated by the Michiana area businessman. Approval was obtained over the objection of Lake City Bank.

Kahn operated IOI, a payroll company which served more than 6,000 clients nationwide, including the Archdiocese of Chicago and numerous other archdioceses and not-for-profit organizations such as Boy Scouts of America. He is alleged to have kited checks and wire transfers for a number of years, culminating in the dishonor in July 2019, by Lake City Bank of wire transfers totaling some $72 million dollars. Lake City’s action caused the dishonor of deposits by IOI intended to cover tax and payroll deposits of IOI’s many clients and resulted in IOI customers being required to pay the taxing agencies directly when they already had provided funds to IOI to cover the taxes. Ultimately, KeyBank covered the payroll of the IOI customers so workers received their pay. The unpaid customer claims total more than $30 million and are one of the main focuses of the liquidation plan proposed by IOI, Khan and the Khan entities.

KeyBank was listed in the bankruptcy cases with a secured claim of $142 million. A secured claim of this size would have consumed all of the assets of the various cases, leaving victimized customers with nothing. Under a settlement of claims investigated and negotiated by the IOI Unsecured Creditors committee, KeyBank will forfeit its secured claims and reduce its share of the distribution from the assets of the various bankruptcy estates. The Disclosure Statement reports the extraordinary settlement with KeyBank will allow the victimized IOI customers to receive a distribution of between 64 and 100 percent of their claims within thirty (30) days of confirmation of the plan as opposed to no distribution at all had KeyBank’s secured claims been enforced. The IOI Official Committee of Unsecured Creditors was represented by Louis DeLucia of Ice Miller’s office in New York and R. William Jonas, Jr., of May Oberfell Lorber of Mishawaka.

Lawyers for IOI, Khan and the Khan Entities will mail copies of the Disclosure Statement and Liquidation Plan to all creditors of the various bankruptcy estates. Creditors have the opportunity to review and cast ballots on the plan, which will be supported by KeyBank. To obtain confirmation of the plan, positive votes must total more than ½ in number of voting creditors and 2/3 of the amount of outstanding debt. Because of the size of KeyBank’s claim, its favorable vote satisfies the requirement for amount of outstanding debt supporting the plan. Ballots need to be returned by April 14, 2021 – the same date as plan objections are due – and the confirmation hearing is scheduled to take place on April 26, 2021 at the U.S. Bankruptcy Court in Grand Rapids, Michigan.

This article is for information purposes only and is not intended to constitute legal advice.