Simply Essentials bankruptcy looks to be handled in Iowa U.S. court

By Bob Steenson, bsteenson@charlescitypress.com

The Simply Essentials bankruptcy case will be handled in Iowa, not California, after an agreement was reached between the various parties and set into place by a judge’s order on Thursday. However, what type of bankruptcy case it will be is yet to be determined.

Thad Collins, bankruptcy judge for the U.S. Bankruptcy Court in the Northern District of Iowa, issued an order after a brief hearing Thursday morning, extending a stay (halt) that he had issued two weeks ago on all proceedings, and giving Simply Essentials two courses of action.

Des Moines attorney Terry Gibson, representing Simply Essentials, said during the telephone hearing that the company wants until next Friday, Sept. 18, to consent to an order that would transfer all bankruptcy proceedings to Iowa, combining actions filed in California and in Iowa into one Chapter 11 case.

If Simply Essentials does not make that move by Sept. 18, it would then move to dismiss the California case and allow for the case to proceed as a Chapter 7 bankruptcy in Iowa.

The reason for the extension to next Friday, Gibson said, is because the company is trying to avoid having to repay more than $30 million in tax credits that were issued to help Simply Essentials start the business in Charles City three years ago.

“The debtor continues to have negotiations with various third parties concerning that New Market Tax Credit and how some or all of that claim can be avoided for the estate,” Gibson said.

“It needs another week to conclude those discussions so it can make a determination as to whether or not it needs to proceed as a Chapter 11 debtor in possession, or can concede to the entry of an order for relief and allow the case to proceed under Chapter 7.”

A group of creditors of the now-closed Charles City chicken processing plant had filed a petition in U.S. Bankruptcy Court for the Northern District of Iowa in March to force an involuntary Chapter 7 bankruptcy on the company.

But then in August, Simply Essentials had initiated a voluntary Chapter 11 bankruptcy case in California.

Under a Chapter 11 debtor in possession case, the debtor continues to hold property that the creditors may have claim to, ostensibly so it can continue operating the business, while the debts are restructured so they can be paid under more favorable terms. Chapter 11 is often referred to as restructuring bankruptcy.

Under a Chapter 7 bankruptcy, a trustee sells all the assets of the debtor to pay the creditors as much as possible. Chapter 7 is often referred to as liquidation bankruptcy.

A flurry of legal filings in both states led up to a hearing in the Iowa-based bankruptcy court on Aug. 27, where the involuntary case petitioners argued the case should be heard in Iowa, because that is where the plant and all assets of the company are located, and where most of the creditors reside, and Simply Essentials argued it should be held in California, because that is where the parent company, Pitman Family Farms, and all the company records are located, and there are potential creditors all over the country, including in California.

Judge Collins stayed all action in both states and set the hearing for Thursday to possibly decide the venue and numerous other issues that had been raised.

But prior to that meeting the agreement had been reached among the parties for the additional extension and the options for Simply Essentials.

“We’re seeking to avoid the administrative cost of fighting a war on two fronts and trying to get our attention directed toward the need to administer the assets of the estate, either under a Chapter 7 case or a Chapter 11 case with the debtor continuing as a debtor in possession,” Gibson said during the hearing Thursday.

“I think we have resolution, Judge,” he added.

Collins filed an order Thursday afternoon extending the stay for another week and setting down the options Simply Essentials had proposed to be determined by next Friday.

It ordered that Simply Essentials can file only one of two motions in California: “Motion to transfer venue to the United States Bankruptcy Court for the Northern District of Iowa; or, a motion to dismiss, with the deadline for filing both motions being set for Friday, Sept. 18, 2020.”

It also ordered that the stay of action in the California case would not preclude the judge in that case from granting either of the motions available to Simply Essentials.