Court dismisses petition for Charles City Pure Prairie Poultry involuntary bankruptcy

By Bob Steenson, bsteenson@charlescitypress.com

The U.S. Bankruptcy Court for the Northern District of Iowa has dismissed an effort to force involuntary Chapter 7 bankruptcy on Pure Prairie Poultry Inc., ruling that the company is a “farmer” under federal bankruptcy law, and thus ineligible for involuntary bankruptcy.

The ruling, issued earlier this month, ends months of one legal battle between the company, its creditors and financial institutions.

Judge Thad J. Collins found that Pure Prairie Poultry qualifies as a farmer under federal bankruptcy law.

“The evidence presented clearly establishes that more than 80% of Pure Prairie Poultry’s income derived from its poultry operations,” Collins wrote in his ruling. “The debtor meets the statutory definition of a farmer and is protected from involuntary bankruptcy proceedings.”

Collins noted in his ruling that while creditors had valid concerns about unpaid debts, “forcing a company that qualifies as a farmer into involuntary bankruptcy is simply not a legal option under federal law.”

The court did grant limited relief from an automatic stay, a legal provision that halts most collection and enforcement actions against a debtor once bankruptcy proceedings begin. This allowed secured creditors to address operational concerns, including a potentially dangerous ammonia leak at the company’s processing plant.

On Nov. 7, 2024, four creditors – Tri-State Poultry LLC, Ekelr LLC, Larry Falk and Lee Frie – filed an involuntary Chapter 7 bankruptcy petition against Pure Prairie Poultry in the federal court.

They alleged the company failed to pay debts and was financially insolvent. The petitioning creditors’ claims totaled about $2.64 million, consisting primarily of unpaid obligations to poultry growers and service providers.

In response, Pure Prairie’s board of directors, Community Bank & Trust (CBT), independent growers, and major secured lender Michael Helgeson, a former poultry industry executive, all filed motions to dismiss the case, arguing that the company was ineligible for involuntary bankruptcy and that a Minnesota state-level receivership process was already underway.

Pure Prairie Poultry’s total debt exceeded $113 million, according to court documents, including secured claims by CBT and Helgeson totaling more than $56 million, and unsecured debts estimated at $58 million.

A hearing on motions to dismiss the forced bankruptcy petition was held on Dec. 13, 2024, and the court took the matter under advisement.

Pure Prairie Poultry’s financial difficulties stem from an unsuccessful attempt to revive a poultry processing plant in Charles City, according to a statement by Chief Financial Officer George Peichel.

The company acquired the shuttered Simply Essentials plant in December 2021 with plans to restore it to full operation. However, according to a statement by Peichel, the company faced significant obstacles, including unanticipated equipment failures, labor shortages and volatile market conditions.

One of the most significant financial setbacks was the delayed funding of a nearly $39 million federal loan through the USDA’s Food Supply Chain Guaranteed Loan Program, Peichel stated.

The loan was expected to provide working capital and support facility upgrades but was not delivered in time to prevent cash flow shortages. In the meantime, Pure Prairie incurred substantial costs in efforts to ramp up production, including investments in rehiring staff, supplier contracts and facility improvements, the statement said.

The company also struggled with declining poultry prices, Peichel said.

Between October 2022 and late 2023, poultry prices dropped significantly, impacting revenue projections. This downturn coincided with increased costs for feed, transportation and compliance with food safety regulations, Peichel wrote in his declaration.

The financial pressure ultimately led to Pure Prairie Poultry filing for Chapter 11 bankruptcy on Sept. 20, 2024, in the U.S. Bankruptcy Court for the District of Minnesota, the state where the company was incorporated.

Peichel estimated that the company would incur more than $10.8 million in negative cash flow in the first six weeks of a Chapter 11 restructuring. However, less than a week later, the company filed for an emergency order to dismiss the bankruptcy, stating that creditors refused to allow it to get the emergency funding it would need to continue operations under court supervision.

Following the failed Chapter 11 case, Pure Prairie closed its doors, and transferred its assets to Lighthouse Management Group under Minnesota’s Assignment for the Benefit of Creditors (ABC) process, a state-level alternative to bankruptcy.

The ABC process allowed the company to attempt an orderly liquidation of its assets while minimizing legal costs.

In addition to financial hardships, Pure Prairie Poultry’s abrupt shutdown created a significant animal welfare crisis. When the company ceased operations, it abandoned millions of chickens at grower barns across Iowa, Minnesota and Wisconsin. The growers, left without payments or processing options, could not afford to care for the birds, leading to overcrowding and deteriorating conditions.

The Iowa Department of Agriculture and Land Stewardship was forced to step in to manage the emergency in Iowa. The state agency coordinated efforts to humanely dispose of the abandoned poultry, and in January it issued a statement that it had spent more than $2.3 million dealing with the situation.

While awaiting the court’s decision on the motion to dismiss the involuntary bankruptcy petition, CBT had requested an emergency status conference on Jan. 17, citing an ammonia leak at the poultry plant.

A compressor seal failure in the plant’s refrigerator system had caused ammonia to slowly flood the compressor room, creating hazardous conditions and increasing the risk of a catastrophic release of the large amount of ammonia in the system, court records state,

Due to the bankruptcy stay, Lighthouse Management and other involved parties were uncertain about their authority to take corrective action. The court subsequently authorized a protective advance to fund the emergency repairs and ensure the safety of the facility.

With the bankruptcy case dismissed, creditors must now resolve claims through the Minnesota receivership process. The company’s assets remain under Lighthouse Management’s control, and it remains unclear whether the processing plant will be sold or reopened under new ownership.

Charles City officials, including Mayor Dean Andrews, have stated that a couple of companies have shown initial interest in purchasing and reopening the plant, but no serious offers have come forward. Andrews and others have said they would rather the plant not be a kill plant, but they have been told that was how the facility was designed and it was unlikely it could function without that part of the chicken processing process.