Pure Prairie Poultry seeks immediate dismissal of Chapter 11 bankruptcy case

By Bob Steenson, bsteenson@charlescitypress.com

Less than a week after filing a voluntary petition to begin Chapter 11 bankruptcy reorganization, Pure Prairie Poultry has filed another motion for an emergency dismissal of that case because it has not been able to get interim funding approved to continue operations during the bankruptcy process.

An expedited hearing had been scheduled for Wednesday afternoon for a federal bankruptcy judge in Minneapolis to rule on a large number of motions that the Charles City chicken processing company had filed, to allow it to continue operating while it went through Chapter 11 with the goal of selling the business as a “going concern.”

Pure Poultry had filed the motions with the belief that its major creditors would not object to its use of “debtor in possession” financing (DIP) – a loan from Sandton Capitol for up to $15 million to support continued operations of the company.

The financing was contingent upon Sandton being granted senior secured status, meaning its claims would be above other creditors. This required existing creditors to voluntarily subordinate their claims to Sandton.

But on Wednesday, the morning of the scheduled hearing, Community Bank and Trust (CB&T) filed an objection to seven of Pure Prairie’s motions.

CB&T holds a loan for about $36.27 million, which is secured by the poultry company’s real estate, machinery and equipment and is guaranteed by the U.S. Department of Agriculture under the Food Supply Chain Guaranteed Loan Program.

CB&T said it cannot subordinate it’s lien position without getting approval from the USDA. It also said Pure Poultry has not adequately demonstrated sufficient assets to protect Community Bank and anticipates no positive revenue during the period.

Several other creditor businesses also filed objections before the Wednesday hearing to the actions sought by Pure Prairie.

An “emergency hearing” is now scheduled for 2 p.m. today (Friday, Sept. 27) in federal court in Minneapolis to hear Pure Prairie Poultry’s motion for an order dismissing the Chapter 11 case.

Without the DIP financing there is “no reasonable likelihood” that a plan for reorganization can be confirmed within the timeframe allowed in U.S. Bankruptcy Code, Pure Prairie Poultry wrote.

“There is no reasonable prospect of rehabilitation under Chapter 11, or under conversion to Chapter 7. Rather, Debtor is in immediate need of exit from bankruptcy for the reasons stated above,” the company’s motion states.

“Absent dismissal, Debtor will be unable to maintain its existing insurance, creating a substantial risk to itself, its creditors, and the general public,” it said.

“Further, absent immediate dismissal, Debtor may be forced to destroy as many as two million chickens as a result of its lack of financing and inability to operate. In sum, this bankruptcy case serves no purpose to Debtor or its creditors based on the unexpected inability to secure financing to carry out its reorganization efforts,” Pure Prairie’s Poultry’s motion says.

The bankruptcy court, under Judge Katherine Constantine, may grant the motion without a hearing if there are no objections to the action. As of Thursday evening no objections had been filed, but at the previous hearing that had been scheduled for Wednesday, the objections were filed that morning.

In announcing its voluntary petition last Friday to begin Chapter 11, Pure Prairie Poultry had said that it conducted an in-depth review of its options and determined “the prospects for financial viability as a standalone operation are limited,” and “the current ownership group is unable to make additional investments in the business.”

“Despite aggressive actions to improve the efficiency of the company’s operations, its prospects as a stand-alone business remain substantially in doubt,” the company said.

“We believe there are buyers out there and that the best path forward is to sell the company on a ‘going concern’ basis. This is good for our people, our partners, and our customers,” Pure Prairie Poultry had said, adding, “The company has received indications of interest in a going-concern sale and expects to solicit bids and soon reach a preliminary agreement.”