Three creditors of defunct and bankrupt Allens Inc. asked a bankruptcy judge Friday for relief from certain aspects of an order that sold the company just over a year ago, saying parts of the deal were misrepresented and resulted in not enough money put aside to pay their claims in full.
The vegetable suppliers, who have about $12 million in claims, asked Judge Ben Barry to disregard certain language in the sale order, contending it allows the company to not pay all aspects of their claims. Another suggested remedy was for the judge to make sure there are sufficient funds to pay the face value of the claims as well as attorneys' fees and interest.
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 in an interview before the hearing that Barry had flexibility to adjust the sale order as he sees fit. He said that while it's not unheard of to change a sale order, or even undo it, it's not a common practice.
Barry did not rule on the matter but took it under advisement, saying he would rule as soon as possible.
Chapter 7 trustee Ray Fulmer had argued the judge should put off the hearing but changed his position Friday, saying a ranking executive of Sager Creek, Allens' buyer, told him the company was facing severe cash-flow problems and was considering bankruptcy protection. In an interview later, Fulmer said Sager Creek's financial position made it vital to resolve the issue quickly.
Sager Creek did not return calls and emails Friday.
In a January letter, Greg Brown, an attorney for the creditors with claims under the Perishable Agricultural Commodities Act, asked Barry to quickly consider a request to alter the sale order, saying he believes Sager Creek is looking to sell.
The act -- frequently called PACA -- regulates the sale of fresh and frozen produce to avoid unfair trade practices and make sure that sellers are paid in a timely manner.
Sager Creek's attorneys said the company is seeking additional capital to complete its goal of improving productivity, lowering costs and continuing to improve product quality. It also hired New York-based Jefferies, an investment-banking firm, to explore strategic alternatives and partnerships to best position the company.
At Friday's hearing, Brown said Veg Liquidation, the former owner of Allens, and Sager Creek failed to speak up to correct misunderstandings of the particulars of the sale order.
"They shouldn't be able to come here and say ha-ha, got you," Brown told the court.
Jonathan Hickman, chief restructuring officer of Allens, testified during a February 2014 hearing that Sager Creek had mechanisms in place to pay all valid claims.
Attorneys for Sager Creek and other interested parties argued Friday that the language of the deal is clear and agreed upon at the time of the sale. They noted the sale order included wording that Sager Creek was only required to pay up to $19.4 million in PACA claims.
Sager Creek attorney Michael Mervis told the court there was $11.8 million still available to to pay the principal of the three outstanding claims. He said what was really at issue was $1.6 million in interest and attorneys' fees.
"That's what we're fighting about here," Mervis said. He said attorneys representing PACA creditors should have stopped the proceedings if they didn't understand the terms of the contract.
So far, Barry has ruled 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 valid under PACA. The rulings do not include attorneys' fees and interest.
All the rulings are being appealed to the U.S. District Court of the Western District of Arkansas. The sale order contains language that indicates all valid claims must be deemed not appealable before they are required to be paid.
Siloam Springs-based Sager Creek Vegetable Co. employs about 1,000 people across its U.S. operations. In addition to its Siloam Springs plant, the company has operations in Georgia, North Carolina and Wisconsin.
In late October 2013, Allens filed for bankruptcy. In February 2014, Allens was bought at auction and in July was renamed Sager Creek Vegetable Co..
Owned by two creditors of the former Allens -- Sankaty Advisors LLC and GB Credit Partners LLC -- Sager Creek bid $124.78 million for the company at auction, in a deal with a total value just shy of $160 million.
Business on 02/21/2015