FAYETTEVILLE -- The Chapter 7 trustee in the Allens bankruptcy case filed a complaint Monday saying the three brothers who owned and operated the now defunct vegetable company failed to maintain the $24.8 million needed to pay off debts owned to produce suppliers.
The adversary complaint by Ray Fulmer named as defendants Josh Allen, Nicholas Allen and Roderick Allen -- trustees, officers and shareholders of what was once Allens Inc. and the holding company that owned it, All Veg LLC, now know as Veg Liquidation Inc. According to the filing, the three men breached their fiduciary duty and interfered with payment of claims made under the Perishable Agricultural Commodities Act, commonly called PACA.
Adversary proceedings are lawsuits filed separate from but related to a bankruptcy and are not unusual, professor Tim Tarvin of the University of Arkansas School of Law in Fayetteville, who teaches bankruptcy and nonprofit law, said in an email.
Joshua Silverstein, a professor at the W.H. Bowen School of Law at the University of Arkansas at Little Rock who researches and writes about bankruptcy law, said adversarial complaints most commonly target third parties related to the debtor, such as trustees, officers and shareholders. He characterized them as side disputes in the bankruptcy and noted that some issues require adversary complaints to be settled.
In the filing, Stephen Leara, attorney for the trustee, asked the court to compel the Allen brothers to pay the $24.8 million still owed to the unpaid vegetable suppliers, plus interest and attorney's fees. He argued the debtors did not preserve sufficient funds to fully satisfy all qualified claims under the act as is required.
Valid claims made under the commodities act typically are given precedence in bankruptcy cases, even ahead of secured debt, and are paid dollar for dollar. Vegetable buyers working under the act are required to keep a fund known as the PACA Trust readily available to pay sellers' unpaid claims.
Grant Fortson of Little Rock, the personal attorney listed for the three Allen brothers in court filings, did not return a phone message or email Monday.
In October 2013, Siloam Springs-based Allens Inc. filed for Chapter 11 protection in U.S. Bankruptcy Court for the Western District of Arkansas. The case has since been shifted to Chapter 7 with Veg Liquidation contending it had no assets remaining since the sale of Allens. In February, the company was bought at auction. It was renamed Sager Creek Vegetable Co. in July.
In a related matter Monday, bankruptcy Judge Ben Barry overruled a motion requesting immediate payment of about $12 million in claims made under the agricultural act, saying the language of a sale order requires rulings be nonappealable before they are paid.
Barry has ruled that a $9.1 million claim by Hartung Brothers Inc. of Wisconsin, a $1.2 million claim by H.C. Schmieding of Springdale and a $1.9 million claim by D&E Farms of Pennsylvania were all valid under the act. Those rulings have been appealed by Veg Liquidation and Sager Creek to U.S. District Court of the Western District of Arkansas.
Barry said there is a rationale behind the language of the sale order, noting it would be a huge problem recovering the money if the orders were overturned on appeal.
"It's still hanging out there," he said.
Attorney Greg Brown of Washington, D.C., who represents the three vegetable suppliers, argued the procedure order required payment within 30 days of a ruling. He noted there was $3.9 million in an escrow account set up by the sale of Allens to Sager Creek and additional assets set aside to pay the claims.
"It's not Sager Creek's money," Brown said.
Sager Creek's lawyer Jason Bramlett told the court the sale-order language makes it clear that payment is not required until the ruling is both final and not appealable.
Fulmer, the bankruptcy trustee's attorney, said $11.8 million was set aside to pay claims under the commodities act, including nearly $4 million in an escrow account and the rest in commitment letters from Sager Creek.
After his ruling, Barry told those present that he believed the claimants were owed the money, and he urged both sides to try to reach a reasonable settlement.
Barry said he's not prejudging the motion to challenge the sale order and that he takes the motion seriously. He said unraveling the sale at this point would cause chaos.
"I suggest and urge the parties to give it another shot," he said.
Business on 11/11/2014