FlexShopper, Inc., a fintech company offering lease-to-own solutions for consumers, filed for Chapter 11 bankruptcy protection on December 22, 2025, following the company's discovery of reported fraud that resulted in over $140 million in improper borrowing. The company and seven affiliated entities filed voluntary petitions in the U.S. Bankruptcy Court for the District of Delaware (Case No. 25-12254) with a pre-negotiated sale agreement already in hand.
Discovery of Reported Fraud
According to a declaration filed by the company's Chief Restructuring Officer, a former executive participated in providing forged documents to the company's auditor and misrepresenting collateral to lenders, resulting in the company's borrowing subsidiary overborrowing in excess of $140 million under its warehouse facility.
The issues came to light on May 27, 2025, when an employee in the finance department reported concerns to the audit committee. The concerns included that the company had manufactured and shared fraudulent loan documents with the company's auditor to support a higher fair value on the loan portfolio, and that the borrowing base under the warehouse facility had been overstated in documents provided to lenders.
Investigation and Termination
The board of directors immediately engaged outside counsel to conduct an investigation. On June 7, 2025, the board authorized the retention of Alvarez & Marsal LLP to conduct forensic analysis of the company's business. The firm obtained full access to company systems and files and conducted interviews with at least 10 employees on multiple occasions.
On July 8, 2025, the board was presented with preliminary findings and approved the suspension of the former executive pending completion of the investigation. By August 6, 2025, the investigation confirmed that the former executive had participated in providing forged documents to the auditor, participated in misrepresentations made in the company's borrowing base certifications by pledging collateral that did not exist or meet eligibility requirements, and deleted files from an office computer upon learning about the investigation. The board terminated the executive for cause on August 6, 2025.
On July 30, 2025, the board, after consultation with Alvarez & Marsal and the company's independent registered public accounting firm, concluded that previously issued financial statements should no longer be relied upon, as reflected in an 8-K filed with the SEC.
Business Operations
FlexShopper operates as a financial technology company that provides lease-purchase solutions and loans to consumers seeking to acquire brand name electronics, home furnishings, and durable goods. The company operates through an e-commerce marketplace using a proprietary risk analytics-powered underwriting model and serves near-prime or subprime consumers who may have difficulty purchasing durable goods.
The company enables consumers to shop for merchandise on a lease-to-own basis. After approving consumers through its underwriting model and receiving a signed consumer lease, the company purchases items from drop-ship partners and leases them to customers. The company collects payments from consumers under the consumer leases, primarily on a weekly or bi-weekly basis.
Key features of the company's lease-purchase transactions include no long-term commitment, with customers able to terminate agreements at any time by becoming current on amounts due and returning the leased item. Applying has no impact on the customer's credit or FICO score. Ownership of merchandise generally transfers to the customer if all payments are made during the 52-week lease term or if early payment options are exercised.
The company also originates loans through partnerships with traditional and e-commerce retailers and by participating in a consumer finance program offered by a third-party bank partner. In late 2022, the company purchased assets that facilitated creation of a direct origination model operated in 11 states, including customers, a loan portfolio, leases for 22 brick and mortar store locations, and program agreements with 78 additional locations.
Capital Structure
As of the petition date, the company's funded debt obligations consisted of the 2024 Warehouse Facility and a subordinated note. The warehouse facility was entered into on March 27, 2024, with Computershare Trust Company, National Association as paying agent and Powerscourt Investments 50, LP as administrative agent and lender. The maximum commitment amount was increased from $150 million to $200 million through amendments executed on April 9, 2025, and April 30, 2025.
The warehouse facility involves a complex securitization structure. A wholly-owned indirect subsidiary of FlexShopper, LLC serves as the borrower under the facility. This subsidiary is permitted to borrow funds based on its cash on hand and the value of its eligible leases, less certain deductions. Funds borrowed under the facility are used by the subsidiary to purchase, through a series of transactions, consumer merchandise leases and related rights owned by FlexShopper, LLC.
As of the petition date, the warehouse agent has valid, perfected, first-priority liens in FlexShopper, LLC's 100% equity interests in one of its subsidiaries. A portion of the obligations under the warehouse facility are also guaranteed by FlexShopper, LLC on an unsecured basis. FlexShopper, LLC also provided a validity guaranty, pursuant to which it agreed to be liable for losses incurred by the agent and lender as a result of any liability event, including fraud in connection with the facility or the provision of materially inaccurate or misleading information with intent to deceive.
The company also has approximately $9 million in subordinated promissory notes issued to NRNS Capital Holdings LLC, which is managed by the chairman of the company's board of directors. Obligations under this note are subordinated to obligations under the warehouse facility. The note was purportedly secured by substantially all of FlexShopper, LLC's assets but remained unperfected. The original maturity date was June 30, 2021, but through numerous amendments, the maturity date was extended to July 1, 2025, and as of the petition date remained outstanding.
Restructuring Efforts
Following disclosure of the fraud to lenders on July 21, 2025, the company entered into a series of forbearance agreements with the warehouse agent and lender. These agreements permitted continued borrowings to fund new lease acquisitions while the parties evaluated restructuring options. FlexShopper, LLC acknowledged in the forbearance agreements that the fraud constituted a liability event under the validity guaranty, rendering it fully liable for the obligations under the warehouse facility.
The continued borrowings under the forbearance agreements did not provide sufficient liquidity for non-operating expenses, including fees incurred by corporate counsel, counsel retained by the board of directors, litigation counsel, and fees incurred by Alvarez & Marsal. As a result, while the company remained substantially current on ordinary course operating expenses, its outstanding general unsecured claims relate primarily to non-operating expenses. The insufficient liquidity also prevented the company from retaining an investment banker, requiring reliance on the Chief Restructuring Officer, existing employees, board members, and the warehouse agent's investment banker to source restructuring options.
Beginning in early August through mid-September 2025, the company engaged in extensive negotiations with the warehouse agent to restructure the debt that would have kept the lender in place with adjusted borrowing base mechanics and a revised repayment timeline. Despite over six weeks of negotiations, execution of a non-binding term sheet, and exchanged drafts of new loan documentation, the parties were unable to execute a final agreement.
Marketing Process
Concurrently with debt restructuring negotiations, the warehouse agent's investment banker and members of the company's board of directors explored the possibility of a third-party sale. The investment banker contacted a select set of parties believed to be potentially interested in pursuing a transaction and capable of doing so on a timeline the lender would support. From these discussions, only two parties delivered term sheets expressing interest in acquiring the company's assets.
The company received a preliminary term sheet from one party on or around October 7, 2025. The company, along with the warehouse agent's advisors, engaged in negotiations with this party throughout the month. However, on October 28, 2025, the party withdrew its interest.
Following the collapse of negotiations, the company reverted to the other interested party, which had submitted an initial term sheet on October 17, 2025. Between October 28 and November 14, 2025, the parties, including the warehouse agent, engaged in extensive negotiations for the sale of substantially all of the company's assets, together with debtor-in-possession financing to be funded by the purchaser. On November 14, 2025, the parties executed a non-binding term sheet.
Stalking Horse Agreement
Following execution of the term sheet, the parties engaged in arms-length negotiations concerning definitive documentation implementing the sale transaction and debtor-in-possession financing. In furtherance of these discussions, the warehouse lender agreed to continue making prepetition advances for acquisition of new leases at a sufficient advance rate to permit distribution of additional funds to FlexShopper, LLC for funding retainer payments for restructuring counsel and other advisors necessary to implement the agreement. Shortly before the petition date, the company retained Morris, Nichols, Arsht & Tunnell LLP as bankruptcy counsel, Glass Ratner LLC as financial advisor, and Two Roads Advisors LLC as investment banker.
Pursuant to the stalking horse agreement reached with Snap U.S. Holdings, LLC and its affiliate ReadySett LLC, the purchaser has committed, subject to court approval, to acquire substantially all of the assets in exchange for a payment to the debtors in the amount of $8 million, subject to certain adjustments, a cash payment to the warehouse agent in the amount of $7.5 million, subject to adjustment, and the assumption of certain liabilities.
Wind-Down of Direct Lending Business
The company also engaged in negotiations with another lender concerning its direct lending subsidiary's operations and an outstanding credit facility. The direct lending business operations were not profitable on a standalone basis and had required infusion of additional capital on an annual basis to satisfy ordinary course operating expenses.
On September 30, 2025, the company entered into a forbearance agreement with this lender that authorized the administrative agent to immediately proceed to effect a sale of the entire portfolio of pledged assets through a public UCC foreclosure sale. The UCC foreclosure sale occurred on October 31, 2025. Following the sale, the subsidiary entered into a one-month transition services agreement. Following conclusion of that agreement, there remain no further obligations to the lender and all remaining employees of the subsidiary were terminated.
Chapter 11 Goals
The debtors filed these chapter 11 cases to pursue a value-maximizing sale transaction and complete an orderly winddown. The debtors have obtained debtor-in-possession financing commitments from the stalking horse purchaser, the proceeds of which will fund operating expenses, other than the purchase of leased merchandise, and expenses related to the chapter 11 cases. The warehouse facility will continue to provide availability for the purchase of new leases.
The debtors filed or will file substantially contemporaneously a motion to approve bidding procedures for a sale process under section 363 of the Bankruptcy Code and entry into the stalking horse agreement. The debtors believe that conducting a supplemental postpetition marketing and sale process with the help of their advisors and consummating a sale transaction for substantially all assets, with the stalking horse agreement setting the floor for future bids from third parties, is the best way to maximize value for all stakeholders.
First Day Motions
The Chief Restructuring Officer stated in his declaration that the relief requested in the first-day motions is necessary and essential to ensuring that the debtors' immediate needs are met. In considering necessary first-day relief, the debtors' advisors were cognizant of the level of cash on hand and limitations imposed by the DIP budget and narrowed the relief requested to only those matters requiring urgent relief to preserve value.
The debtors filed motions seeking authority to continue their existing cash management system, pay prepetition employee wages and maintain employee benefits programs, continue their securitization program, pay certain prepetition taxes and fees, pay claims of certain critical vendors, and prohibit utility providers from altering or discontinuing services. The debtors also filed a motion for joint administration of the chapter 11 cases and a motion seeking approval of the debtor-in-possession financing.
The case is assigned to Judge Laurie Selber Silverstein. Morris, Nichols, Arsht & Tunnell LLP is representing the debtors as bankruptcy counsel.
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