Factoring company’s sudden freeze leaves drivers in the cold
August 3, 2022
Freight factoring is used by many drivers and is intended to provide upfront capital to run their businesses. However, as a large group of truckers recently learned, freight factoring is not without its risks.
On July 18, a temporary restraining order and injunction were filed on behalf of CoreFund LLC. The Waterford, Texas-based factoring company is claiming the bank accounts used to run the business were wrongfully frozen, essentially shutting down the day-to-day operations.
The temporary freeze – which CoreFund claims was a result of a disagreement between the two brothers who control their holding company and trust – put the livelihoods of more than 350 customers in jeopardy. The Owner-Operator Independent Drivers Association got involved in the case in an effort to help the drivers.
“The role of factoring companies, including CoreFund, in funding these small-business truckers has become an important factor in alleviating part of the supply chain impaction difficulties faced by our nation’s industries,” court documents read. “Many of these truckers who cannot obtain funding from CoreFund will be forced to park their trucks and close their doors, as they cannot obtain funding from traditional sources or even from other factoring companies.”
Furthermore, representatives from CoreFund say they were not given notice of the impending freeze on the accounts. No money has been paid out to drivers who factor with the company since July 18.
The lack of money coming in is just one issue facing drivers caught in the middle of the legal squabbles. Compounding the issue is the matter of Uniform Commercial Code liens.
The uniform commercial code is a comprehensive set of uniformly adopted state laws governing all commercial transactions in the U.S. A UCC lien is used by lenders to establish a priority claim to a borrower’s assets, including collateral used for the loan. Simply put, the lien protects lenders by making it easier to collect money owed in the event of a borrower going out of business or defaulting on their loan.
Additionally, the lien prohibits the borrower from factoring loads with another company or leveraging collateral with multiple lenders. CoreFund holds UCC liens on every contract that factored loads with them. However, when the company’s operations came to a halt, the liens prohibited drivers from seeking factoring services from another company to keep their businesses running. To make matters worse, nobody was available from CoreFund to assist drivers in terminating the lien.
On July 27, OOIDA Executive Vice President Lewie Pugh, offered a declaration to the court regarding the case. In that declaration, Pugh stressed the difficult position CoreFund’s legal issues have put drivers in.
“CoreFund’s failure to pay individual motor carriers under their contracts imposed an immediate hardship upon the motor carriers, preventing them from being able to pay their expenses as necessary to keep their business operating,” Pugh said. “CoreFund’s failure to terminate its UCC liens on motor carriers has caused further hardship upon the motor carriers who are thus unable to contract with new factoring companies to keep their businesses operating.”
In the declaration, Pugh called upon the court to immediately terminate the UCC liens held by CoreFund which would allow carriers to make alternative funding arrangements. Additionally, Pugh asked that all outstanding debts be paid to motor carriers.
Jim Jefferson, manager of the OOIDA Business Services Department, has been closely following the case. According to Jefferson, many drivers had to park their trucks as they waited for the matter to be resolved.
“There are truckers who are shut down and can’t operate right now because not only are they owed money per their contract, but because that money was paid, they have no funds to continue to operate,” Jefferson told Land Line. “They can’t pay their fuel bills, so they can’t get fuel. In essence, they’re shut down and can’t operate because CoreFund is shut down.”
The first step toward resolution has been taken. On July 28, the court appointed Timothy Hassenger as receiver for CoreFund Capital.
According to the Security and Exchanges Commission, a receiver is a neutral third party appointed by the court to protect property owned by someone being sued. The court grants the receiver powers over the property which generally include taking legal control and protecting assets. Additionally, the receiver is responsible for filing claims on behalf of the entity and distributing assets to defrauded investors, claimants or creditors through a court-approved plan.
In essence, by appointing a receiver for CoreFund Capital, the business can return to factoring loads for drivers as soon as possible. On Aug. 1, the receiver told the courts it may take up to two weeks to get the company back up and running. According to Jefferson, as of the afternoon of Aug. 3, money owed to drivers during the account freeze has not been paid.
A number of OOIDA members were among the drivers affected by the shutdown. OOIDA President Todd Spencer, said members play an important role is alerting the Association to issues facing drivers.
“Our members are our eyes and ears on the front line of almost everything trucking, both good and bad,” Spencer said. “Having a direct link to issues that need to be fixed makes us better informed to pursue the best remedy. Truckers have always been absolutely essential to all of our nation. Anything that harms those behind the wheel needs to be addressed”
In addition to OOIDA’s role in court proceedings, the Association’s Business Services Department has been working to assist truckers with getting back on the road.
Jefferson said the department has been distributing request forms that drivers can submit to the receiver for CoreFund Capital. The request asks that CoreFund:
- File a UCC-3 termination with the secretary of state of Texas and provide confirmation of the filing.
- Provide carriers with a blanket revocation of its existing notifications of assignment on business’ accounts receivable that carriers can forward to their customers.
- Provide a commitment that CoreFund will not seek relief or pursue any legal remedies against the carriers’ business as a result of their decision to leave CoreFund because “CoreFund’s recent closure frustrated my ability to run my business.”
While load factoring may be seen as a “necessary evil” for some drivers – providing the needed capital to keep their businesses running – Jefferson says the Association doesn’t recommend truckers travel down that road.
“We try to steer members away from factoring companies when we talk to them all the time because of the commitments involved in that UCC,” Jefferson said. “When you’re turning all your accounts receivable over to a third-party company, anything can happen at that point.”
One suggestion he makes to drivers seeking a faster payday is to look for brokers that offer quick-pay options. While brokers will charge a fee for quick-pay loads, Jefferson says that percentage is typically around the same rate a factoring service would charge. However, unlike factoring companies, quick-pay loads don’t carry the same financial commitment from the driver, allowing them to broker loans from whoever they please. LL
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