A federal judge has dismissed a financially distressed Oregon farm’s petition for Chapter 11 bankruptcy, which protects companies against property foreclosure while they restructure debt.
During a April 20 court hearing, U.S. Bankruptcy Judge Thomas Renn said terminating bankruptcy proceedings for Carleton Farms of Klamath County is “wise” due to “unusual and extraordinary circumstances.”
The court hearing was initially intended to resolve a dispute over Carleton’s ability to use cash that serves as collateral for debt owed to its creditors.
The farm had also sought to recover real estate, machinery and other property that’s set to be sold off by a receiver.
However, attorneys for Carleton Farms withdrew those motions and asked to be taken off the case, citing a conflict of interest that cannot be disclosed under attorney-client privilege.
Keith Boyd, attorney for the farm, said a situation arose where they were informed the case could not go forward as a Chapter 11 reorganization.
“Debtor will consent to the dismissal of the case,” Boyd said.
Attorneys for Umpqua Bank, the farm’s largest creditor, and CFO Solutions, a receiver that’s taken control of the farm’s assets, agreed to the dismissal.
Prior to the court hearing, Umpqua Bank claimed the bankruptcy case should be dismissed because Carleton Farms wanted to undermine a receivership agreement to which it had previously consented.
Earlier this year, the farm had allowed a receiver, CFO Solutions, to take control of its assets after defaulting on about $17.5 million worth of loans to Umpqua Bank.
In its recently filed bankruptcy case, however, Carleton Farms wanted to compel the receiver to return nearly $4 million worth of assets that it claimed were necessary to continue agricultural operations.
The company also wanted permission from the bankruptcy court to use $510,000 to $870,000 of cash that serves as collateral to creditors.
Carleton Farms attributes its “severe economic difficulties” to the “aggressive” pursuit of cultivating organic potatoes and other crops, which have recently proven unprofitable due to lower prices.
At the time Carleton Farms agreed to the receivership, the company believed it could buy back the necessary equipment to continue farming but the money didn’t materialize, according to a court filing.
Unless the receiver turns over the equipment, the farm won’t be able to irrigate alfalfa hay, resulting in the loss of future cuttings, or prepare land for planting in the fall, the document said.
CFO Solutions, the receiver, objected to the farm’s request to use cash collateral and recover assets, arguing the company doesn’t have enough income to reorganize.
The receiver has already collected $1.5 million from the sale of the farm’s assets, according to a court filing.
5Carleton Farms filed for bankruptcy shortly before an auction was scheduled to sell of its equipment, which was called off “at great cost” to the receiver, Umpqua Bank and the auctioneer, the receiver said.
The request to return assets to Carleton Farms should be rejected because there’s evidence of “mismanagement,” including financial records in “disarray,” according to the objection.
“Based on the records that are available, Debtor has no demonstrated ability to manage a budget,” the document said.
The farm was a member of the Malin Potato Cooperative, a packing plant that closed in February, but “hundreds of tons” of Carleton potatoes processed at the facility “remain unaccounted for,” the receiver said.
Malin’s records indicate the packing facility owes Carleton $1.3 million but this debt does not show up at all in the farm’s books, according to the receiver’s objection.
“The records also indicate that Carleton Farms continued to process potatoes through Malin despite not being paid for several years,” the document said.