Payroll firm seeks bankruptcy protection

Elkhart Truth PhotoInterlogic Outsourcing Inc. was the victim of a “significant and ongoing scheme of intentional financial mismanagement” by owner and CEO Najeeb Khan, new company Chief Restructuring Officer Daniel Wikel says in documents in support of the bankruptcy filing.

ELKHART — An embattled Elkhart payroll company is asking for bankruptcy protection, claiming it owes over $10 million to as many as 10,000 creditors, while a new lawsuit alleges the company didn’t make tax payments for its clients.

Interlogic Outsourcing made the Chapter 11 filing Saturday in U.S. bankruptcy court in the Northern District of Indiana. The company estimated it owes between $10 million and $50 million to between 5,000 and 10,000 creditors, but has assets worth only $1 million to $10 million.

The company was the victim of a “significant and ongoing scheme of intentional financial mismanagement” by owner and CEO Najeeb Khan, new company Chief Restructuring Officer Daniel Wikel says in documents in support of the bankruptcy filing.

The filing lists affiliate companies also affected by the bankruptcy, including IOI Payroll Services Inc., Timeplus Systems LLC, IOI West Inc., Lakeview Technology Inc., Lakeview Holdings Inc. and ModEarn Inc.

Seven clients have also filed a suit against the company in Elkhart County court. The complaint filed Friday alleges that the companies were notified that Interlogic had not made their federal and state tax payments.

Both moves follow a lawsuit filed in federal court in July by an Ohio bank. KeyBank of Cleveland claims Interlogic overdrafted its account by $122 million and didn’t repay the money.

Bankruptcy

Interlogic entered the Chapter 11 case in an attempt to save hundreds of local jobs, according to Wikel, and to preserve the integrity of the payroll and withholding processes for thousands of businesses, including a number of not-for-profits.

The bankruptcy has “become an unfortunate necessity following the unforeseen and destructive alleged financial mismanagement by ... Khan,” Wikel wrote in one document accompanying the filing.

“Khan initiated a series of wire transfers purportedly in aid of (IOI’s) payroll-processing obligations, but which in reality were in furtherance of a sophisticated scheme of carefully orchestrated intercompany wires,” he wrote. “The transfers initiated on July 8, 2019 failed for insufficient funds and resulted in a significant overdraft on the (company’s) payroll processing accounts, in particular those held with KeyBank.”

Khan resigned July 13 and no longer has any involvement with the company, Wikel said. Wikel has been overseeing the potential sale of the company and is in talks with five potential buyers while the bankruptcy process goes through.

Court documents in the bankruptcy list the 30 creditors across the country to whom Interlogic owes the most.

They range from a Virginia shipping company, LaserShip Inc., which is owed $1,011, to an Indianapolis software company, E-Gineering, which is owed $159,425.

Interlogic also owes $69,751 to shipping company Federal Express, $42,277 to South Bend data analysis company Aunalytics Inc. and $26,470 to Utah workforce management company Swipeclock.

Another 14 companies are each owed $5,000 or more. 

Timothy Daileader is listed in the bankruptcy documents as the sole director of Interlogic Outsourcing Inc. and Wikel is named as the “chief restructuring officer.” Khan is listed as the equity security holder.

The court set a hearing for Wednesday on a number of related motions, which would allow the company to continue to operate its cash management system and to cover things like payroll and utility bills.

New lawsuit

The new lawsuit was filed by Jones Law Office LLC on behalf of itself and six other South Bend companies. It names Interlogic Outsourcing Inc. and Khan as defendants.

The companies are at risk of losing an undetermined amount of money because of IOI’s actions, the suit states.

The suit claims that IOI sent its customers an email on July 25 addressing service interruptions, saying it had resolved the “vast majority” of them. The email was meant to calm the fears of its clients but didn’t directly address the KeyBank lawsuit, the complaint states.

The email also notified clients that Khan had resigned, that Daileader was named independent director and that Wikel was the new interim president. The email claimed that Khan had “ceased all involvement with the company,” which the lawsuit says is false. 

The email also stated that “any funds provided to our banks for payroll and related to tax and benefit processing will be used for those purposes only.”

The plaintiffs began receiving notices on Aug. 1 that their federal and state tax payments had not been made by IOI. The company sent an email Aug. 6 telling the plaintiffs how to find a spreadsheet showing which state and federal tax payments IOI had collected from them, and which tax payments had not been made to the respective government agencies by IOI.

The court filing says IOI was negligent in not making those tax payments from the wages of its clients’ employees, and that IOI is in breach of contract. It also claims that IOI interfered in the business relationship between the plaintiffs and their employees and that IOI’s conduct constitutes fraud and conversion.

Interlogic made false statements when it agreed to pay taxes or wages owed by the plaintiffs and knew that those payments would not be made when it removed funds from the plaintiffs’ bank accounts, the suit alleges.

Settlement possible

The lawsuit seeks a jury trial and an award of damages from IOI. It also seeks a temporary restraining order requiring that Khan and IOI not dispose of any funds or assets.

In further court filings, the South Bend law office notes that the plaintiffs’ requests go beyond what has been granted to KeyBank in its own case against Interlogic.

It says IOI is still “in business,” still collecting fees for payroll processing and other services, is still earning profits, and its employees and executives are still presumed to be drawing wages from company funds.

Interlogic recently requested a continuance in the KeyBank case, saying that it is attempting to negotiate a settlement with the bank, court documents state.

Documents in the KeyBank case show that the bank consented to a 60-day extension of the time for Interlogic to respond. The bank and IOI requested a new deadline of Oct. 4, but the court granted an extension only until Aug. 27.

The law office says any funds IOI might use to settle with KeyBank are the rightful property of the plaintiffs in its own case. 

(7) comments

DocRS

Did any of the embezzlement start before January 2019. I closed my business The end of last year. Do I have anything to be concerned about? I have not heard from the government over the past 8 months, thank goodness.


FlyNavy

So, are workers going to lose the money that was taken out of their pay for taxes that ultimately wasn't paid to the State and Federal Governments? How will they know how much of their withheld taxes were not paid? This could be a very unpleasant surprise come tax filing time.


sidearm

Not at my company. We have paid the taxes owed to both state and federal gov't. There was no penalty to the company or the employees. We had to file an insurance claim to get our money back but we will be made whole.


Local Citizen

How about Khan’s personal assets. There are 2 airplane hangers at Elkhart Municipal Airport with multiple aircraft and numerous collector cars. Likely not worth $122 Million, but certainly worth millions.


Joe King

Has Najeeb Khan been arrested? Charged? is he being investigated? This has been going on for a few weeks now and I haven't heard anything to his current situation? Is he still in the country? someone robs a bank and get a few thousand, they go to jail for 15-20 years....someone steals or (white collar crime=embezzlement) then they are free for ??? weeks, months, years??? I know a weapon wasn't used, but stealing is stealing.....


raindrop

Khan seems like a flight risk....


sidearm

IOI failed to pay $40,000.00 payroll tax from my company and some payroll checks that were direct deposits bounced.The problem with that is that many workers live week to week, deposit their checks and pay their bills from their checking account. While we can reimburse them for the bounced checks we can't fix the damage done to their credit scores for the checks they wrote, believing they were good, bounced.



This guy should be put in old fashion stocks on Main street and give his victims a chance to slap him around.


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