Simply Essentials sale hearing delayed until likely later this month

By Bob Steenson, bsteenson@charlescitypress.com

A hearing to consider approving the sale of the Simply Essentials facilities in Charles City, scheduled for Thursday afternoon, has been delayed until likely later this month, after several groups filed objections or reservations to the sale in federal bankruptcy court.

On Wednesday, Judge Thad Collins of the U.S. Bankruptcy Court for the Northern District of Iowa granted the motion to continue Thursday’s hearing, and said a new time and date will be set by a separate order to be filed later.

The trustee in the Simply Essentials Chapter 7 bankruptcy, in making the motion for a continuance, asked that it be rescheduled “to a date and time on or prior to Sept. 28.”

The trustee, Mason City attorney Larry Eide, had previously filed a motion asking the court to approve selling the Simply Essentials assets to The Best Dressed Chicken, a subsidiary of a Jamaican chicken processing company, for $9.5 million, after that company was the only bidder at an auction held Aug. 11.

The sale has been described as a “turnkey” sale, with the expectation that the new owner will reopen the plant to again process chickens in Charles City.

But last week, the original eight creditors who had petitioned for the initial bankruptcy action filed an objection to the sale to The Best Dressed Chicken. The creditors are businesses and persons that had been under contract with Simply Essentials to supply chickens to the company.

The group argued that an initial bid of $9.5 million from Pure Prairie Farms Inc., a new company that includes some of those original growers, had originally been accepted by the trustee before the auction and had not been withdrawn.

Since the latest bid by The Best Dressed Chicken was essentially the same as the bid that had originally been accepted, that original bid should be honored, the growers group argued.

The group also argued that the contract that would be offered to chicken growers by Pure Prairie Farms Inc. would be substantially more beneficial to those growers than the contracts they would be offered by The Best Dressed Chicken.

“The Best Dressed Chicken contract provides virtually no grower protections. The Pure Prairie contract pays growers for the barns whether they are full or empty, much like the custom feeding hog contracts this court is used to seeing in cases before it,” the original petitioners argued in their motion.

“The Best Dressed Chicken contract only pays growers a per-pound fee when the barns are used. It is common for the integrators, like The Best Dressed Chicken, to leave barns empty to punish growers or to keep its costs low,” the objection states.

The group of initial petitioners compared contracts provided by both companies “and the difference in payout to the growers under the Pure Prairie contract provides $3,350,000 more in guaranteed payments per year to the growers than The Best Dressed Chicken,” the motion said.

“The court can consider the benefit from the sale to affected creditors, the initial petitioning creditors as well as other growers, in determining whether to approve a sale,” the group said.

It gave the example of Wisconsin farmer Dale Lahn, one of the initial petitioning creditors.

Lahn built three chicken barns to custom feed chickens for Simply Essentials, but when the Charles City plant closed and stopped making payments to growers, Lahn was forced to default on his loans and his major creditor filed a foreclosure on its mortgage.

“Dale will lose his 28.45-acre poultry farm valued at $2,090,000, unless he is able to enter a contract to utilize his three poultry buildings with provisions like the contract offered by Pure Prairie Farms that is substantially more favorable than the contract proposed by The Best Dressed Chicken,” the motion states.

“The contract proposed by The Best Dressed Chicken will not pay enough to the growers to allow Dale to keep his farm,” the objection to the sale states.

“The other growers are facing financial strain due to the demise of the Simply Essentials plant in August of 2019. Sale to Pure Prairie Farms Inc. will be significantly better for the initial petitioning creditors as well as the other growers that formerly grew chickens for Simply Essentials,” the motion says.

A list of 17 additional Iowa and Minnesota persons and business identified as former growers for Simply Essentials was attached to the initial eight creditors’ motion as joining in the motion, bring the total number of former growers opposing the sale to 25.

Pure Prairie Farm Inc. also filed a motion joining the objection of the original petitioning creditors, echoing the arguments that its original $9.5 million bid should be accepted and that the contract offered to growers by The Best Dressed Chicken “is significantly less desirable than the contract proposed by Pure Prairie Farms Inc.”

Both the initial petitioners’ motion and the Pure Prairie Farm joinder asked the court to sell the Simply Essential assets to Pure Prairie Farm, “or reopen the bidding as the court determines in the best interests of the estate.”

Another objection was filed by ARKK Food Co., a company that had a marketing contract with Simply Essentials, raising questions about the price the assets were being sold for, potential New Market Tax Credit liabilities and other issues.

The motion to continue the hearing that had been set for Thursday afternoon to a later date was made by the bankruptcy trustee, Eide, who said he had “extensively communicated” with ARKK and others regarding the objections filed.

“The trustee, all objectors, and the high bidder, Wincorp on behalf of The Best Dressed Chicken, believe that additional time is required to address the objections,” Eide wrote in his motion for a continuance.

“The trustee has received consent to this motion from the objectors and the high bidder,” he wrote in asking that the new hearing date be set on or before Sept. 28.