Allens' judge hears asset-transfer sides

Creditors object to shift of property

FAYETTEVILLE -- A bankruptcy judge heard objections Thursday by produce suppliers to the transfer of property once owned by bankrupt Allens Inc. to its buyer until more than $12 million is set aside to cover their claims made under the Perishable Agricultural Commodities Act.

In August, Sager Creek Vegetable Company -- the buyer of Allens -- asked the court to authorize the transfer of what it called the Crawford County properties to Sager Creek so deeds could be obtained.

Sager Creek's lawyer, Jason Bramlett, told the court the sale order covered all of the bankrupt vegetable company's assets, including the six small sections of a larger parcel that make up the Crawford County properties.

D&E Farms of Pennsylvania, H.C. Schmieding Produce of Springdale, Hartung Brothers Inc. of Wisconsin and Great American Appetizers Inc. of Idaho objected to the transfer. All have made claims under the Perishable Agricultural Commodities Act. Valid claims made under the act, commonly called PACA, typically are given precedence in bankruptcy cases, even ahead of secured debt.

Greg Brown, representing D&E Farms, H.C. Schmieding, and Hartung Brothers, said assets held in a trust for claims made under PACA cannot be considered part of a debtor's estate and transferring them as part of the sale order is improper. He asked the court to deny Sager Creek's request until funds were specifically put aside to pay PACA creditors in full if their claims are upheld, along with any other awards the court may choose, including interest and attorney's fees.

Bramlett countered that assurances to pay PACA claims had been discussed, agreed to and spelled out in the sale order and Brown's arguments were about a year too late.

In October, 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, Allen's former owners, claiming it has no substantive assets since the sale of the company.

Sager Creek Acquisition Corp. bought the assets of Allens Inc. at auction in February with a winning bid of $123.8 million. The total value of the deal is just less than $160 million. The new owners changed the name of Allens Inc. to Sager Creek Vegetable Co. in July.

During the hearing Thursday, Ray Fulmer, Veg Liquidation's Chapter 7 trustee, testified that with the exception of one promissory note that is still being investigated, Veg Liquidation had less than $30,000 in assets. Stephen Leara, a PACA escrow agent, testified that as part of the sale order there was at least $11 million to pay approved PACA claims, including just shy of $4 million in an escrow fund and $7.7 million in letters of credit.

Bankruptcy Judge Ben Barry took the objection under advisement and said he would rule as quickly as possible.

Court filings don't place a value on the Crawford County properties. Filings by Brown show six parcels in the city of Van Buren owned by Allens Canning. Bramlett said the parcels were "slivers" of a single tract that included a warehouse and plant that Veg Liquidation has already sold as part of a larger $7 million deal.

In August, Barry overruled objections by Veg Liquidation to nearly all of $1.2 million in unpaid bills claimed by H.C. Schmieding. An attorney for Veg Liquidation has said an appeal was being considered.

Earlier, Barry overruled the majority of objections made by Veg Liquidation to $1.9 million in claims by D&E Farms. Veg Liquidation, along with Sager Creek, has appealed that ruling to the U.S. District Court of the Western District of Arkansas.

In June, Barry heard Veg Liquidation's objection to the total $8.2 million claim by Hartung Brothers. Barry has not made a ruling on the matter. Great American was part of a hearing in March. A hearing on its $89,720 in claims, along with attorney's fees and interest and other costs, will be heard on Oct. 23.

In other filings, both Sager Creek and Veg Liquidation contend the sale order states payment is not required until the court rules the claim is final and cannot be appealed. Barry is scheduled to hold a hearing on this matter in November.

Business on 09/26/2014

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