Adams Produce Company LLC filed a motion May 11 requesting the approval of a proposed settlement between the debtors, PNC Bank, PACA claimants and their employees. As part of the proposed settlement, Adams Produce will be authorized to obtain post-petition financing from PNC in the amount of $1.45 million, with the bank being granted a first priority security interest in all of the debtors' property except for the PACA trust assets.
According to the proposed settlement, the debtors' employees shall be paid $1 million through the debtor-in-possession loan proceeds, while the total amount of $250,000 shall be transferred to an account set up to pay the costs of administering the PACA trust and the PACA claims procedures and $200,000 will be used to pay certain costs of administration of these cases. The debtors filing anticipates that the settlement amounts paid to the employees pursuant to the proposal will pay the workers in full for their approximately three weeks worth of unpaid wages, and in part for their accrued vacation, holiday and personal time off, health and other employee benefits, payroll deductions and reimbursement expenses.
Pursuant to the proposed settlement, several parties will be released from liability, including a partial release of PNC by the debtors, a partial release of the debtors by the employees and the PACA claimants, a partial release of the PACA claimants by the debtors and a partial release of certain professionals by the PACA claimants, the employees and PNC.
The proposed settlement also establishes an Adams Produce PACA trust, to be administered by a trustee, pursuant to procedures for establishing the validity and payment of PACA claims.
According to Mr. Klinowski, the problem with this proposed settlement is that it is controlled by the single largest PACA creditor and does not truly reflect the voice of the PACA trust beneficiaries as a whole.
"Moreover, the proposed settlement appears to release certain parties from liability under PACA prior to the installation and completion of a PACA claims procedure designed to place a real dollar figure on damages to the PACA trust beneficiaries," Mr. Klinowski said.
According to Mr. Klinowski, this leaves many questions (i.e. who will be responsible for any shortfall in the Debtor’s ability to fully pay all the PACA trust claims) and provides no guarantees of full payment to the PACA trust beneficiaries. He explained that although the proposal may partially repay employees, it will all but deplete the $1.4 million in post-petition financing with arguably no real benefit to remaining creditors, including the PACA trust creditors.
"More alarmingly, what the proposal does do is insulate the bank and others from potentially millions in liability and in the short-term authorize the use of PACA trust assets to pay the Debtor’s non-PACA trust obligations," Mr. Klinowski said.
In opposition to the Debtor’s Motion to Approve Settlement, certain PACA trust beneficiaries recently filed an Adversary Proceeding that seeks the turn-over of the PACA trust assets and the disgorgement of millions of dollars of PACA trust assets allegedly received by various third parties, which is the exact liability the settlement proposal sought to avoid through a deal with the largest PACA trust creditor. Furthermore, because the issues presented deal with PACA, not bankruptcy law, the creditor group filing the Adversary Proceeding also filed a Motion to Withdraw the Reference requesting the U.S. District Court for the Northern District of Alabama adjudicate the federal PACA trust issues and other claims presented in the Adversary Proceeding instead of the Bankruptcy Court.
The opposition also seeks to stay the Bankruptcy Court's consideration of the opposed Motion to Approve Settlement to allow the U.S. District Court an opportunity to rule on the Motion to Withdraw the Reference.
According to the proposed settlement, the debtors' employees shall be paid $1 million through the debtor-in-possession loan proceeds, while the total amount of $250,000 shall be transferred to an account set up to pay the costs of administering the PACA trust and the PACA claims procedures and $200,000 will be used to pay certain costs of administration of these cases. The debtors filing anticipates that the settlement amounts paid to the employees pursuant to the proposal will pay the workers in full for their approximately three weeks worth of unpaid wages, and in part for their accrued vacation, holiday and personal time off, health and other employee benefits, payroll deductions and reimbursement expenses.
Pursuant to the proposed settlement, several parties will be released from liability, including a partial release of PNC by the debtors, a partial release of the debtors by the employees and the PACA claimants, a partial release of the PACA claimants by the debtors and a partial release of certain professionals by the PACA claimants, the employees and PNC.
The proposed settlement also establishes an Adams Produce PACA trust, to be administered by a trustee, pursuant to procedures for establishing the validity and payment of PACA claims.
According to Mr. Klinowski, the problem with this proposed settlement is that it is controlled by the single largest PACA creditor and does not truly reflect the voice of the PACA trust beneficiaries as a whole.
"Moreover, the proposed settlement appears to release certain parties from liability under PACA prior to the installation and completion of a PACA claims procedure designed to place a real dollar figure on damages to the PACA trust beneficiaries," Mr. Klinowski said.
According to Mr. Klinowski, this leaves many questions (i.e. who will be responsible for any shortfall in the Debtor’s ability to fully pay all the PACA trust claims) and provides no guarantees of full payment to the PACA trust beneficiaries. He explained that although the proposal may partially repay employees, it will all but deplete the $1.4 million in post-petition financing with arguably no real benefit to remaining creditors, including the PACA trust creditors.
"More alarmingly, what the proposal does do is insulate the bank and others from potentially millions in liability and in the short-term authorize the use of PACA trust assets to pay the Debtor’s non-PACA trust obligations," Mr. Klinowski said.
In opposition to the Debtor’s Motion to Approve Settlement, certain PACA trust beneficiaries recently filed an Adversary Proceeding that seeks the turn-over of the PACA trust assets and the disgorgement of millions of dollars of PACA trust assets allegedly received by various third parties, which is the exact liability the settlement proposal sought to avoid through a deal with the largest PACA trust creditor. Furthermore, because the issues presented deal with PACA, not bankruptcy law, the creditor group filing the Adversary Proceeding also filed a Motion to Withdraw the Reference requesting the U.S. District Court for the Northern District of Alabama adjudicate the federal PACA trust issues and other claims presented in the Adversary Proceeding instead of the Bankruptcy Court.
The opposition also seeks to stay the Bankruptcy Court's consideration of the opposed Motion to Approve Settlement to allow the U.S. District Court an opportunity to rule on the Motion to Withdraw the Reference.
For more information:
Randy Labuzinski
Jaffe PR
Tel: +1 773-405-7583
[email protected]