Simply Essentials auction and sale delayed at least a few weeks

By Bob Steenson, bsteenson@charlescitypress.com

The proposed auction of the Simply Essentials chicken processing plant to a bidder who would reopen it has likely been delayed for about a month, after objections were raised at a hearing held Friday morning.

The primary objections had to do with the timing of a proposed auction, and questions over how the property had been marketed and if all the potential liabilities of the estate had been adequately considered.

The telephone hearing was held in the U.S. Bankruptcy Court for the Northern District of Iowa.

The trustee in the Simply Essentials bankruptcy case had accepted an offer of $9.5 million from Pure Prairie Farms Inc. for the company’s assets, but had then received a higher bid, and had asked the judge in the case to rule whether the accepted offer should be honored or if the sale should be reopened for further bidding.

If the judge reopened the bidding, as was expected, then the trustee — Mason City Attorney Larry Eide — had proposed a plan to quickly verify the financial capabilities of potential bidders and hold the auction on Monday, July 26.

But one of Simply Essentials’ creditors in the Chapter 7 bankruptcy, ARKK Food Company Inc., objected to how quickly the trustee wanted to hold the auction, questioned whether sufficient marketing had been done to sell the property at the highest possible price, and questioned whether millions of dollars in New Market Tax Credits that Simply Essentials’ owner had used to purchase the company could come back as a liability or administrative cost against the estate.

After several parties proposed extending the auction time frame from two weeks to more than 60 days, Bankruptcy Court Judge Thad Collins said he was “just spit-balling,” but 30 days looked like “the sweet spot.”

David Barkoff, an attorney for Heritage Global Partners, the company that the trustee had hired to market the Simply Essentials assets, said that with the global economy and the pandemic there’s no guarantee that a more attractive property won’t go on the market and pull the bidders away.

Barkoff said Heritage Global Partners had spent more than $30,000 marketing the property since it was hired in March, adding that Simply Essentials has been closed for almost two years, since Aug. 5, 2019.

“It’s been out there for a long period of time. The information has been public. It has been unrestricted,” he said. “We’ve sent thousands of emails, made tons and tons and tons of phone calls, and we’ve got a laundry list of details that can support that.

“What we are saying today, loud and clear, is time is not the answer. Time is not your friend in this situation. And we are fearful of what could happen if this does get extended. I don’t know what else we can do,” Barkoff said.

Tom Flynn, an attorney for The Best Dressed Chicken, the company that had made the higher $10 million bid, said he had no assurance that his client would still be interested in bidding if it was extended past 30 days.

“Thirty days was probably a stretch even for them,” Flynn said. “They were prepared. They did get on the website. They did their study and they made their bid. The 30 days, I think, would be the max that they’d be interested in hanging around.”

Daniel Desatnik, an attorney for ARKK Food Inc., said that the hearing Friday was the first time he had heard about the marketing efforts that had been undertaken, but Eide, the trustee, said he was “shocked” that ARKK wanted more time.

“ARKK has been involved in this case longer than I have. Longer than my appointment as trustee,” Eide said.

Desatnik said he was concerned that the assets had originally been appraised with a value of $27.5 million and now were potentially being sold for $9.5 million or $10 million.

Terry Gibson, an attorney for Simply Essentials, said the original valuation had been done when the company was working on a Chapter 11 bankruptcy filing in California, and was for what was considered an operating company.

Barkoff said, “The appraisal was done by another party. Those numbers are not numbers that we support. On a piecemeal auction if we had to put lot tags on everything and sell mops and brooms and packaging equipment and break this thing up by the piece, you’ve got 2-3-4 million bucks, on a bad day.

“I don’t think you’re going to get any more money by letting this thing bleed out any longer,” he said.

Joe Peiffer, an attorney representing a group of creditors who had contracts to supply chickens to Simply Essentials, said he was also concerned that the issue of New Market Tax Credits was not resolved. Desatnik said he had the same concern.

Pitman Family Farms, a California company that purchased Simply Essentials in 2017 then closed it two years later, used $34 million in New Market Tax Credits financing to purchase the property and make major updates to the equipment.

The New Markets Tax Credit program is a program of the U.S. Treasury Department that provides a federal tax credit for private investors to help finance businesses in low-income areas.

Eide said that three claims had been made in the bankruptcy for the New Market Tax Credits, by three entities that had provided financing, for $5 million, $9.8 million and $9.8 million. All three of the claims are unsecured, he said, meaning they would be paid only after secured claims such as mortgages are paid.

Eide said he had consulted three attorneys and a CPA who work with the tax credits and, “I was assured they’re not a problem” as far as the assets sale is concerned.

Desatnik said his client still needed more information.

“While 30 days sounds like a nice timeline, what we need here is some type of evidentiary hearing. We need some type of declarations and disclosures as to what was actually the marketing process that took place, what is the landscape of this New Market Tax Credit issue? Who holds these tax credits? What was the status of the negotiations of these tax credits with the lenders? Will this give rise to any priority of the claim? Will this give rise to any liability?” he said.

“And until we have clarity on that, 30 days isn’t really going to make the difference here. It’s resolution of those questions that’s going to make the difference here, in our opinion,” Desatnik said.

Judge Collins said, “My response is you’re not going to get an evidentiary hearing and you’re able to get the vast majority of this information quickly and readily. It just sounds like your client and maybe a couple of others haven’t been in the loop as much, and stitching you into the loop and giving you access to what’s been done already seems to answer most of your questions.”

Collins instructed Eide to work with the parties to come up with a proposal to extend the process 30 days and then go forward with an auction of the company.

Eide said he would be out of the country from Aug. 17 to Sept 1., and Collins said they could agree to hold the auction shortly before or shortly after that time.

Collins also said if there was a party who wouldn’t agree to a timetable he should be given that information and he would consider the objection.

“If there’s a holdout it better be a good reason, but I’d probably go ahead and push it forward anyway,” he said.

“The bottom line on this is, I want to get this thing moving along, and when you get information flowing back and forth, hopefully 30 days gives everyone the information they want,” Collins said.