Bankruptcy court approves turnkey sale or auction of Simply Essentials’ assets

By Bob Steenson, bsteenson@charlescitypress.com

Selected broker and auction companies have about 60 to 100 days to sell the Simply Essentials property in Charles City in its entirety, or else individual assets of the company will be sold at auction, according to action approved recently by a federal court.

The chicken processing plant — which closed in August 2019, laying off more than 500 workers — is in Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Iowa.

On March 19, the trustee appointed in the case, Mason City attorney Larry Eide, applied for permission from the court to hire the companies. The judge approved the application the same day and certificates of notice of the court’s approval were sent out last week.

“It is contemplated that brokers will market the property as a whole and as a turnkey operation for a period of time, anticipated to be approximately 60 days,” Eide wrote in his application to the bankruptcy court.

The court approved hiring Heritage Global Partners Inc. of San Diego and Harry Davies LLC of Pittsburgh as the brokers/auctioneers.

The actual contract signed by Eide and representatives of the two companies says the turnkey sale can continue for as long as 100 days, but Eide can shorten or lengthen that period “based on the level of activity reported by the auctioneer.”

“In the event that a buyer is not then located, or in the event that the buyer does not desire to purchase all of the property, brokers will conduct an auction of the property,” Eide’s approved application says.

The motion lists these parts, which can be sold as part of the whole business or individually if necessary:

• Real estate located at 901 N. Main St. in Charles City — the processing plant and office.

• Real estate located at 300 Lawler St., Charles City — the parking lot and live shed.

• Machinery and equipment located at the real estate, consisting principally of specialized processing equipment.

• Office equipment, furniture and fixtures located at the real estate.

• Supplies and packaging materials.

• Any trademarks, website domain, and other intellectual property, but not including accounts receivable, notes receivable, other rights to the collection of money, and causes of action.

The notice said that all rolling stock — vehicles, trailers, etc. — of the debtor which was not secured as of the commencement of the bankruptcy case is not part of the assets to be sold.

Last week, at the Charles City Area Development Corp. board meeting, Executive Director Tim Fox mentioned the action regarding Simply Essentials and said he thinks the action is “a good sign,” and he needs to get in touch with people who are potentially interested in purchasing the 9.7 acres of property at the Lawler Street site.

Area Development Corp. board President Kurt Herbrechtsmeyer commented, “That’s good news. That’s movement. Sounds like it will be marketed and sold in some respect at least, whether it’s an auction or whether it’s negotiated.”

On the Heritage Global Partners website, hgpauction.com, the company lists the property as “a state-of-the-art air-chilled poultry processing operation,” including a facility of about 85,000 square feet, sitting on 3.1 acres located at 901 N. Main St.

It lists equipment for a “140-bird-per-minute C02 stun, kill, scald, pick line as well as state-of-the-art packaging and related processing equipment.”

The court order says Heritage Global Partners and Harry Davies LLC have been involved in efforts to sell the property for Simply Essentials and for the parent company, Pitman Family Farms of California, prior to the bankruptcy.

“Broker had discussions with the debtor (Simply Essentials) and the debtor’s owners, and sought a buyer of the property of the debtor, prior to the commencement of this case. Broker no longer has any such relationship with the debtor or the debtor’s owners,” the bankruptcy court order says.

“Broker has a provisional agreement with secured creditor Farmer Mac to sell the property to which FarmerMac is secured in the event that Farmer Mac submits a credit bid and acquires the property,” the court order says.

The bankruptcy court order agrees that the brokers will receive a 5% commission on the gross sale price of the property for a turnkey sale, unless the property is sold to Pitman Family Farms or the Minnesota Growers Group, in which case the commission will be reduced to 3%.

A group of creditors who say Simply Essentials owes them more than $800,000 filed a petition a year ago, in March 2020, to force involuntary Chapter 7 bankruptcy on the closed Charles City chicken processing plant. These creditors are people or companies that provided space to raise chickens that Simply Essentials would then process.

Simply Essentials then filed for Chapter 11 bankruptcy in California, the home of parent company Pitman Family Farms. After several months of legal action in the courts in Iowa and California, Simply Essentials agreed to handle the case in Iowa.

Documents filed in the bankruptcy court show Simply Essentials lists $29.47 million in assets, made up primarily of machinery and equipment at the Charles City plant with a book value of $22.91 million; $4.5 million in real estate for the processing plant, parking lot and live shed; and almost $658,000 in various vehicles, including trailers and semis.

Under potential creditors, Simply Essentials lists a total of $18.13 million owed to secured creditors and $132.21 million in unsecured creditors, including unknown amounts for a long list of former chicken suppliers, for total liabilities of $150.34 million.

Included in the secured creditor total is a $13.22 million first mortgage owed to Farmer Mac, and a $4.92 million second mortgage owed to parent company Pitman Family Farms.

Farmer Mac also holds a lien against machinery and equipment in the plant, but a dollar value is not listed.

Under the unsecured creditor list, the largest amounts are $34 million in New Market Tax Credits; $94.86 million for “loans, advances and guarantees” to Pitman Farms; $800,056 for “additional advances” to Pitman Farms; $2.11 million to Prairie’s Best Farms in Fairfax, Minnesota; and $424,237 to Western Grain & Milling in Sangor, California.

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.

The Community Vitality Center at Iowa State University helped Iowa Community Capital provide funding to Simply Essentials to upgrade operations and create 500 jobs.