On September 30, 2013, Fresh & Easy Neighborhood Market, Inc. filed for chapter 11 bankruptcy protection in the District of Delaware and was assigned case number 13-12569. The Debtor’s voluntary petition estimates: (i) between 10,000 and 25,000 creditors; (ii) holding assets valued b…
The Official Committee of Unsecured Creditors in the Pro’s Ranch Markets’ bankruptcy case recently retained Freeborn’s Bankruptcy and Financial Restructuring Group to help maximize their recovery in this Chapter 11 case. Specifically, Freeborn possesses…
On July 1, 2013, Belle Foods LLC filed for Chapter 11 bankruptcy protection in the Northern District of Alabama.
Although Belle Foods presented a top 20 list of unsecured creditors, the business has not yet submitted its full schedules of debts and assets, statement of financial affairs or other…
On May 28, 2013, Pro’s Ranch Markets filed for Chapter 11 bankruptcy protection in the District of Arizona. Although the company has yet to file its schedules, the Debtor anticipates $7,229,772.85 in pre-petition PACA claims from 83 companies.
To be clear, the Pro’s Ranch Markets…
On March 14, 2013, SeaFax reported that:
East Coast Brokers & Packers Inc and six of its affiliates, Circle M Ranch Inc, Ruskin Vegetable Corporation, Oakwood Place Inc, Byrd Foods of Virginia Inc, Eastern Shore Properties Inc and Stellaro Bay Inc, and the companies’ principals,…
On March 6, 2013, East Coast Brokers & Packers, Inc. (“East Coast Brokers”) filed a Ch. 11 bankruptcy in the Middle District of Florida. Along with East Coast Brokers, Circle M Ranch, Inc., Ruskin Vegetable Corporation, Oakwood Place, Inc. and both Batista J. Madonia, Sr. and Evelyn M. Madonia all filed for bankruptcy protection. The Debtors are currently seeking the Court’s permission to administer all of the separately filed bankruptcy cases jointly.
Although the Debtors have not (as of the time of this entry) filed their schedules or list of top 20 creditors, court documents show that all of the debtors are “closely intertwined” and that the Madonias own at least 20% of the shares for each of the entities listed above. The Debtors did acknowledge that they owe “significant debts” and cited MetLife Agricultural Investments as an example of a creditor to whom they owe about $46 Million. The Debtors’ court documents also acknowledged owing money to Anthony Marano Company, Crop Production, and Triangle Chemical.
For those of you familiar with East Coast Brokers and the Madonias, you may remember that various news sources reported that East Coast “quit tomatoes” back in December of 2012 and that they owed “more than $15 million in judgments and liens to state and federal governments and crop production services.” At that time, Anthony Marano Company was reported to hold a $5.6 million dollar lien against East Coast Brokers.” See East Coast Brokers Quit Tomatoes
Counsel for East Coast Brokers should be filing various first day motions and the balance of its schedules in the very near future. These filings will contain additional information. Right now, we know that claims are due on May 20, 2013.
When a produce company files a chapter 11 bankruptcy case, one of the first questions my PACA trust creditor clients ask is whether the debtor will be able to keep any cash it may have in the bank or any cash it receives from collecting its accounts receivable.
The answer is that the debtor almost always has a bank or other secured creditor which holds a lien on substantially all of its assets. Property like inventory, machinery and equipment and the like is called hard collateral. Such items can be used and sold in the ordinary course of business in a chapter 11 case.
Liquid assets, like cash, bank accounts, and accounts receivable, however, are a different matter. These are called “cash collateral.” And cash collateral may not be used over the objection of a secured party without a court order. This order is called the “cash collateral order.” Simply put, the purpose of a cash collateral order is to allow the debtor to utilize its cash collateral even though the cash collateral is subject to the liens of a secured party. To do this, the debtor must provide its secured lenders with adequate protection (e.g. replacement liens in post-petition assets, super-priority administrative claims, etc.) necessary to facilitate the use of the cash collateral. Because the debtor’s ability to use its cash collateral is critical to its ability to successfully emerge from a chapter 11 filing, debtor’s counsel often seek court approval of a cash collateral order on the very first day of the bankruptcy filing.
If you are a PACA trust creditor, you must be mindful of the cash collateral order process because there are almost never any provisions included in a cash collateral order that protect the rights of the PACA trust creditors. As a result, a savvy PACA trust creditor will immediately object to the debtor’s use of cash collateral and create a seat at the negotiating table for the PACA trust creditors. A well advised PACA trust creditor understands the debtor’s obligations under PACA and will generally make the following objections to debtor’s use of cash collateral:
- The scope of the PACA trust covers the debtor’s cash collateral as a matter of law
- PACA trust assets are not property of the debtor’s estate
- The debtor cannot use non-estate property as cash collateral
- The debtor cannot use PACA trust assets as collateral for post-petition financing
A timely filed objection to a debtor’s attempt to obtain a cash collateral order will often result in the full and immediate payment of the PACA trust claim. When that is not possible, the objecting PACA trust creditor will have the ability to either seek adequate protection (just like a secured party) from both the debtor and its secured creditors or force the case to convert to a chapter 7 liquidation case. Remember, a chapter 11 case will not stand if there are no estate assets to administer.
Key Point: If the PACA trust creditors do not act quickly when they are notified of a produce buyer’s insolvency, the debtor will obtain a cash collateral order that does not include any protections for PACA trust creditors. If that happens, the cash collateral order will allow the debtor to use trust assets (the Court won’t know unless someone speaks up) to administer its estate, obtain DIP financing, and otherwise place trust assets out of the PACA trust creditors reach (e.g. paying pre-petition wages, etc.)
The bankruptcy court entered an order on March 1, 2013 authorizing Bissett Produce to utilize its cash collateral in order to incur certain operating expenses anticipated in relation to a wind down of its operations. According to court documents, at the time of its Chapter 11 filing, Bissett Produce said it owed liabilities of nearly $5.5 million, with $2.1 million of that amount due to secured creditors and the remaining $3.4 million owed to unsecured creditors, including claims held by several farms located in North Carolina.
Importantly, Bissett Produce has neither established any type of carve out to pay PACA trust creditors nor filed any motion seeking to establish a PACA trust claims procedure. Rather, Bissett Produce simply asked the Court to allow it to use its cash collateral to pay pre-petition wages and to fund the wind down of the business. In essence, the defunct entity seeks to use assets, which most likely include PACA trust assets, to pay professionals, employee wages and other operating expenses without regard to any trust obligations that may exist. This is exactly the type of situation that requires an immediate objection to the Debtor’s continued use of cash collateral so that the PACA trust may be protected. Until the PACA trust is preserved and the unpaid suppliers of produce paid in full, there may not be an estate to administer.
Industry Note: Bankruptcy cases often move quickly with numerous motions filed on the very first day the case is open. Because of this, produce companies would be well advised to get involved in these types of cases early and take the steps needed to ensure trust assets are not placed out of the reach.
On March 27, 2013, substantially all of Eurofresh’s assets will go to auction and, as it stands right now, NatureSweet has emerged as the stalking horse bidder (through Zona Acquisition) with an opening bid of $51.18 million dollars.
Eurofresh, which filed its Chapter 11 petition January 27, 2013, claims it is America’s largest greenhouse grower, spanning 318 acres of facilities. Its products include tomatoes on the vine, as well as roma, campari, beefsteak and grape tomatoes and long English and “mini” cucumbers. Eurofresh markets its products directly to major U.S. food retailers under the label “Eurofresh Farms” and “Sweet Star.” The debtor also claims its flagship facility in Wilcox, AZ is the largest single-site commercial greenhouse operation in the world with six of its greenhouses covering 274 acres. Eurofresh also operates a small wholesale business under the label Garden Fresh Selections out of a facility in Nogales, AZ that imports various types of produce from Mexico, packages that produce and then sells that produce through brokers in various wholesale channels and operates a small maquiladora facility in Agua Prieta, Mexico where some of its products are packaged.
In documents provided to the Court, Eurofresh emerged from a Chapter 11 bankruptcy in November of 2009 that resulted from a highly leveraged balance sheet, high interest rates, high energy prices and various operating issues. Importantly, Eurofresh stated that it also faced widespread pricing declines in the industry resulting from increased competitor greenhouse acreage and “shade” tomatoes crossing the border from Mexico.
To a savvy purchaser (like NatureSweet), Eurofresh is a smart acquisition! Operating issues can be resolved and the U.S. Department of Commerce is set to remedy (or at least significantly lessen) the tomato pricing decline issue as it relates to Mexico. Specifically, the new Tomato Suspension Agreement was set to take effect on March 4, 2013 and that agreement carries a 42.9% increase in the minimum price for Mexican tomatoes sold into the United States’ fresh tomato market.
When this agreement becomes effective, Eurofresh and other domestic tomato companies in the fresh produce industry will be able to increase their prices without fear of losing business to Mexican growers. As it applies to the sale of Eurofresh, the company seems to be positioned to benefit from this new agreement by gaining the ability to increase its prices without any corresponding increase in capital investments.
As I see it, this means one of two things:
(1) There should be no real reason Eurofresh cannot successfully reorganize and pay all of its creditors as it emerges from its newly filed Chapter 11 bankruptcy.
(2) NatureSweet should be applauded for positioning itself to purchase substantially all of Eurofresh’s assets (Sec. 363 Sale) in time to reap the benefits that come with the ability to increase its fresh tomato prices by about 42.9% when the new suspension agreement becomes effective, which the U.S. Department of Commerce planned on announcing March 4, 2013.
On January 28, 2013, Eurofresh, Inc. appeared before the U.S. Bankruptcy Court in Arizona and pushed for an expedited section 363 sale. Importantly, a section 363 sale under the Bankruptcy Code occurs when the debtor seeks to sell substantially all of its assets. This type of asset sale is often the path a debtor elects when they want “opt out” of the process for obtaining a Chapter 11 plan of reorganization in favor of what is often perceived as a quicker and more efficient process. A section 363 sale may also be a sign that the debtor’s estate cannot afford the administrative expense of a prolonged reorganization.
In the Eurofresh bankruptcy case, the debtor intends to sell substantially all of its assets “free and clear of any liens or other interests” under section 363(f). Section 363 will also allow Eurofresh to assign any favorable unexpired leases and executory contracts to the buyer. This adds value to the purchase and effectuate, at least in part, the purpose of a Chapter 11 proceeding without the debtor actually complying with all of the Chapter 11 reorganization requirements. This is not always a successful move… Ample case-law exists where courts have refused to approve a 363 sale because the transaction appeared to be a back-door reorganization effort that significantly restructured the rights of the creditors. When a court denies a 363 sale the debtor is forced to continue to satisfy all of the Chapter 11 requirements.
Right now, it appears that Nature Sweet is going to be the stalking horse bidder, which means they will set the price for the purchase of Eurofresh’s assets. This does not guarantee that the stalking horse bidder will win or that the terms of the sale are not objectionable to the creditors. These are all issues that will need to be addressed.
One such issue will be the payment of all PACA trust claims. At this time the Court is entertaining a motion to set up a procedure for handling PACA claims, but a proposed PACA claims procedure order has not been filed. A proper order will be critical to both the success of the section 363 sale and the debtor’s proper use of its cash collateral. As usual, a PACA claims bar date will be set and notice will be issued.