Who Gets the First Dollar? The Fight Between Creditors and Victims!
I’ve written about the Petters matter a couple times before, here and here.The latest report raises an interesting question. An investor group is challenging the appointment of a trustee that they say will favor victims instead of creditors. That's an interesting conflict. Who should have priority? If both parties are innocent, who has a priority.
So, in the abstract the question is interesting. However, in this case the complaining creditor, The Richie Group, reportedly loaned the Petter’s Group money at interest rates of 80% on one loan and 362.1% on another. We should all have such a deal.
At those rates it would not take long to recover the amount of the principal, even though they probably didn't account for the payments as reducing the principal.
The only rational reason that a company would borrow money at rates that high is because they can’t get access to the normal capital markets. That normally means that the borrower is in financial trouble. That also means the lender knew these were high risk loans. So why would they get a priority? The Richie group had a choice whether or not to loan money to a company with a weak balance sheet.
The victims on the other hand were misled. I think the victims have a much better argument for a priority than the Richie Group, or any similarly situated lender.
Who knows how a Trustee will see it, or allocate what assets can be found. I would guess that the facts of the Richie Group loan will influence the outcome; or I at least hope so. Greed should not be rewarded.
