Daily Progress, Jacksonville, TX

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December 3, 2012

BREAKING NEWS: Texas Attorney General tries to block $500,000 loan to Lon Morris to ensure fairness in bankruptcy dealings

"The OAG contends that that proposed auction is actually being conducted for the true benefit of the secured creditors." — petition from the Texas Attorney General

JACKSONVILLE —

Texas Attorney General Greg Abbott is intervening in the bankruptcy proceedings of Lon Morris College to protect charitable endowments and ensure a level playing field for unsecured creditors trying to recover their money, court documents show.

Abbott's latest foray: Attempting to block a $500,000 loan that the LMC bankruptcy estate is seeking, allegedly to pay staff and maintain the college through the conclusion of an upcoming auction and sale.

But there's no guarantee the auction will take place on Dec. 13.

Late last week, AG representatives filed paperwork attempting to stall the upcoming Dec. 13 auction at least until after the New Year.

At roughly the same time Texas Attorney General officials were maintaining their strong presence in Tyler federal bankruptcy court last week, representatives of auction company Ameribid LLC were calling area reporters en masse, offering tours of the now-vacant Lon Morris College campus, chatting up the auction and making no mention of any possible postponement.

As to his office's opposition to LMC's requested loan, Abbott contends if the college bankruptcy estate is allowed to borrow money without incoming revenue — basically, with no way to pay it back — it would amount to a de facto sale, which would be to the detriment of LMC's unsecured creditors. A $500,000 loan would provide problems for the unsecured creditors because it could eat into the $585,000 the bankruptcy estate has set for them in its plan, the petition states.

"The OAG contends that that proposed auction is actually being conducted for the true benefit of the secured creditors," reads the petition filed last week in Tyler.

One AG criticism of the loan request is that "there is no specificity for what cost and expense the loan proceeds will be used."

Ultimately, the loan illustrates vast disparities in the way the auction itself will benefit the college's secured and unsecured creditors, according to the paperwork, which was provided to the Daily Progress by Tom Kelley, Texas AG spokesman.

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