ALBANY, Ga. (CN) - Relatives of the founder of Georgia lender The Money Tree cannot dismiss claims that they received money that should have gone to creditors in the company's $84 million bankruptcy, a federal judge ruled.
Vance "Rudy" Martin founded The Money Tree of Georgia in 1987. The business, initially based in Bainbridge, a town of 12,000 in southwest Georgia, soon opened branches in Alabama, Florida and Louisiana, operating under the names The Money Tree and Small Loans.
The companies, which provided loans to people with limited access to credit, became insolvent by 2000 and solicited money from investors, who were primarily Georgia retirees.
The Money Tree of Georgia raised about $73 million from investors between 1999 and 2005. After registering with the U.S. Securities and Exchange Commission in 2005, it raised another $71 million through public debt offerings, according to court filings.
The Money Tree filed for Chapter 11 bankruptcy, which was confirmed in May 2013. The company said it would restructure its business and close half of its 92 locations across the Southeast. Hurricane Katrina and the economic downturn that began in 2007 were significant setbacks for The Money Tree, the lender said in its bankruptcy filings.
Because the debtor companies did not have enough assets to satisfy more than $84 million in creditor claims, the Post-Confirmation Committee for Small Loans was appointed to pursue recoverable funds, including money Martin had transferred to family trusts before his death.
The trustee sued Martin's daughter and her husband, James Patrick Johnston, alleging they had received some of the companies' money through a trust Martin established in his daughter's name. Although the companies were insolvent by 2001, Martin made fraudulent transfers to avoid potential claims stemming from alleged misconduct in managing the Money Tree entities, according to the complaint.
U.S. District Judge W. Louis Sands refused to dismiss the claims against Johnston, finding that the trustee had sufficiently alleged that Johnston was a receiver of fraudulently transferred funds.
The receiver has the authority to recover any money the debtor companies transferred while insolvent, according to the Feb. 20 ruling.
The court has jurisdiction over Johnston although he is a resident of Ohio, the order adds.
Sands set aside a default judgment the court entered against Money Tree's former president Bradley Bellville and affiliated company H&B Enterprises in December. Although Bellville and H&B failed to timely retain counsel to represent them in the action and to answer the amended complaint, there is no evidence they did so in contempt of the court's order, the judge noted. Moreover, Bellville and H&B timely answered the initial complaint and other filings and showed intent to litigate the suit, the court concluded.
The trustee may seek default judgment against Best Buy Autos of Bainbridge, a former Money Tree subsidiary, within 30 days of a court order resolving the claims against all other defendants, according to the order.
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