A bankruptcy judge took one claim under advisement and began hearing another Tuesday as Veg Liquidation Inc., formerly known as Allens Inc., objected to the validity of some unpaid claims made under the Perishable Agriculture Commodities Act.

Michigan-based Central Produce Sales Inc. wrapped up its case Tuesday that it’s owed $128,000 in Perishable Agriculture Commodities Act claims that the company says it properly submitted.

Veg Liquidation’s special commodities act counsel contended that the company isn’t required to pay freight and fuel charges because they were not protected by the law. He also pointed out that an objection raised late Monday contended that Central Produce’s invoices were not properly marked, removing its special status protected by the act.

The Perishable Agriculture Commodities Act regulates the sale of fresh and frozen produce to avoid unfair trade practices and ensures sellers are paid in a timely manner. Valid claims are paid dollar for dollar in bankruptcy cases and are moved to the head of the line for payment, even ahead of secured debt.

In late October, the cannedvegetable company filed for Chapter 11 protection in U.S. Bankruptcy Court for the Western District of Arkansas. Veg Liquidation owed its primary lenders $114.36 million and its secondary lenders $65.6 million. Sager Creek Acquisition Corp., owned by investment funds controlled or advised by two of Veg Liquidation’s creditors, bought the company at auction in February with a winning bid of $123.8 million. The total value of the deal is just less than $160 million.

Judge Ben Barry said he’d rule on the matter later and gave attorneys for both sides until June 3 to submit post-trial briefs.

Barry also heard opening arguments Tuesday from H.C. Schmieding Produce Co. Inc. of Springdale, which contends that Veg Liquidation is improperly denying $1.16 million in valid claims under the commodities act.

Jason Klinowski of Freeborn & Peters of Chicago, Veg Liquidation’s special commodities act counsel, said Schmieding Produce acted as an agent of Allens and breached its fiduciary duty to the company, secured secret profits through transportation expenses and charged too high an interest rate on its contracts.

Attorney Greg Brown of Washington, D.C.-based Mc-Carron & Diess, arguing on behalf of Schmieding, said the company was a third-party contractor of Allens and that both federal and state law allow the 18 percent interest that Schmieding charged.

“You have no agency relationship here. You have a buyer and a seller,” Brown said.

Veg Liquidation indicates in court filings that since the sale of Allens, the debtors and Sager Creek have worked to resolve disputed commodities act claims. More than $19 million in claims had been made since Allens filed for bankruptcy.

Sager Creek posted $7.7 million in cash in escrow, and its equity holders provided a funding commitment of an additional $11.66 million for a total of $19.36 million available to pay for commodities act claims approved by the court.

A hearing on claims by D&E Farms Inc. of Pennsylvania is scheduled for later in the week.

Veg Liquidation has asked the court to shift its Chapter 11 bankruptcy status to Chapter 7 to help liquidate the remaining debt still owed after the sale of the company. Barry will hear objections to the shift May 29.

The vegetable company employs nearly 1,200 people across its U.S. operations. In addition to its Siloam Springs plant and other Arkansas holdings, the company has operations in Georgia, North Carolina and Wisconsin.

Business on 05/21/2014