A judge in the Allens Inc. bankruptcy case approved a $4.8 million settlement -- nearly all of an insurance policy covering three of the defunct company's former directors.
After a hearing Monday, Judge Ben Barry with the U.S. Bankruptcy Court for the Western District of Arkansas ruled the agreement was in the best interest of the estate despite some objections to the deal. Attorneys representing several interested parties wanted the judge to hold back $1.4 million until they settled with the insurance company on other claims.
Barry said the trustee's decision to take the settlement was solid, noting the claims against the directors could be defended and, even if the trustee's claims were upheld in court, the cost of that litigation could be extensive.
"Take the money and run is a pretty good rule," Barry said.
He added concerns others had with the insurance fund being depleted as a result of the deal were between them and the insurance company.
"I really think it's first come, first serve," Barry said.
In January, Ray Fulmer, the trustee for the estate of Veg Liquidation, formerly known as Allens Inc., asked Barry to approve a payment to the estate by Zurich Insurance Co. for $4,795,730. The money came from a directors and officers liability insurance policy covering John Allen, Nicholas Allen and Roderick Allen. The policy had an approximate top-end payment of $5 million.
In an adversary proceeding first filed in late 2014, Fulmer argued that the Allen brothers made fraudulent or avoidable transfers of the company's assets to themselves or related parties when they knew the company was insolvent. Adversary proceedings are lawsuits filed separately from but related to a bankruptcy.
In a July filing, Fulmer contended that the total claims were valued at more than $17 million, including interest and attorneys' fees.
In court documents, the Allen brothers denied Fulmer's allegations, contending the moves were part of their compensation and that the company wasn't insolvent at the time.
During testimony Monday, Fulmer said he decided it was wiser to take the nearly $5 million from the insurance policy rather than risk trying to get more funds from the Allen brothers over a long-running court battle.
In closing arguments, attorney Robert Jones of Fayetteville, representing the Allen brothers, told Barry it was time to put the issue to rest.
"It's time for some peace," he told Barry. "It's time for closure."
Allens Inc., which had been in operation since 1926, filed for Chapter 11 bankruptcy protection in October 2013. At the time, Allens owed its primary lenders $114.36 million and its secondary lenders $65.6 million, according to documents.
Sager Creek Acquisition Corp. bought Allens at auction in February 2014 with a winning bid of $123.8 million. At the time, the total value of the Allens sale, along with debt and other considerations, was just shy of $160 million, according to court filings.
The bankruptcy has since been shifted to Chapter 7. Allens Inc. was renamed Sager Creek Vegetable Co. in July 2014.
In early 2015, California-based Del Monte Foods Inc. bought all the assets of Sager Creek for $75 million in cash. The Sager Creek Vegetable Co., owned by Del Monte Foods, is not part of Fulmer's suit.
In March, Fulmer filed an adversary proceeding contending several business entities involved in the initial sale of Allens Inc. made shady arrangements that left the estate's coffers bare.
Fulmer says Sager Creek Vegetable Co. -- along with the investment funds that owned the company, several of Allens' financial advisers, and some of Allens' suppliers -- significantly affected the value of the estate and its ability to pay back creditors, either through intentional actions or lack of candor with the court. The suit is still ongoing.
Business on 03/07/2017