A federal judge has agreed to confirm the former NORPAC cooperative’s bankruptcy plan, which will guide the disbursal of its remaining funds to unsecured creditors.
U.S. Bankruptcy Judge Peter McKittrick said the plan satisfies the necessary legal requirements as long as some modifications are made to language that absolves certain parties from liability.
Though NORPAC’s bankruptcy has been a hardship for unsecured creditors and farmers who won’t be repaid all they’re owed, the plan is nonetheless “the best result that could have been achieved,” he said.
“This case could have disintegrated into a complete and total meltdown,” McKittrick said.
McKittrick said the NORPAC case is “exemplary” of how Chapter 11 debt structuring can work, since creditors would likely have to wait “literally years” for repayment under a Chapter 7 liquidation.
“Hopefully it will lead a path forward for growers to continue to have a market for their product and to recover at least something from their previous sales to NORPAC,” he said.
Unsecured creditors, who are owed money by NORPAC but lack collateral for those debts, overwhelmingly voted in favor of the food processor’s bankruptcy plan.
All 198 of the unsecured creditors who are owed less than $10,000 — who’d recover half their money under the plan — voted in favor of its approval.
The 44 unsecured creditors who are owed larger sums voted by a 95% margin to confirm the plan. They stand to recover up to 35% of their money.
Creditors with smaller claims are treated differently under the plan because it wouldn’t have been financially worthwhile for NORPAC to negotiate and potentially litigate those more numerous cases.
Secured creditors, who were fully repaid after NORPAC sold its assets, weren’t entitled to vote on the plan. Nor were the cooperative’s farmer-owners, who will receive nothing under its terms.
The priority for repaying the claims of cooperative members is subordinate to all other creditors, and since unsecured creditors won’t be fully repaid, no money will be available to farmer-owners.
NORPAC expects to have about $28 million in cash available for disbursal under the plan and may recover several million dollars more if it files lawsuits against its former officers and directors, as well as a software company. The plan raises such litigation as a possibility.
Collectively, the cooperative owes unsecured creditors about $68 million while farmer-members have filed claims for $11 million they’re owed in retained earnings, which represent their equity in NORPAC that would be lost under the plan.
However, it’s unclear that all farmers with equity in the cooperative filed claims in the bankruptcy process, so the amount could be greater.
Growers had also sought more than $16 million for crops delivered to NORPAC in 2019, though they later reached a settlement deal under which they received $4.5 million of the amount owed.
With the bankruptcy plan approved by a federal judge, the distribution of funds and potential litigation will now be handled by a “plan agent,” which in this case is Sierra Constellation Partners.
The business consulting company has been helping NORPAC with its restructuring process since before the cooperative filed for bankruptcy last year.
The plan’s confirmation marks a key milestone for a bankruptcy process that’s been rife with surprises and reversals.
When NORPAC announced the bankruptcy in August 2019, the cooperative intended to sell three processing facilities in Oregon and one in Washington, along with its other assets, to agricultural entrepreneur Frank Tiegs’ Oregon Potato Co. for $155.5 million.
However, Tiegs pulled out of the deal at the last minute — citing a “turd in the skillet” of hidden environmental and regulatory problems — which NORPAC claimed was a bad faith attempt to drive down the price.
Tiegs didn’t bow out entirely, though, and ended up in a bidding war with the Simplot agribusiness company for NORPAC’s Quincy, Wash., facility, as well as its intellectual property rights, inventory and other assets.
He ultimately prevailed at auction and spent about $109 billion on that purchase, most of which was used to repay CoBank, the cooperative’s largest secured creditor. The cooperative also sold its name, which is why it’s now formally known as North Pacific Canners & Packers.
Another dispute between Tiegs and NORPAC arose when he filed a lawsuit accusing the cooperative of overcharging him by $7 million for bulk crop inventory. That litigation was settled when NORPAC agreed to pay $2 million and waive any legal claims against Tiegs for backing out of the first deal.
The remainder of NORPAC’s assets were sold to the Lineage Logistics cold storage company for $49 million, but that firm then immediately sold the Oregon processing plants in Brooks and Stayton to Tiegs for $17 million while keeping the facility in Salem.
NORPAC’s bankruptcy process was riddled with other disputes, with the cooperative litigating with farmers and seed companies that demanded repayment for past deliveries.
Unsecured creditors also threatened to go after farmers in court to “claw back” payments for past crop deliveries they argued were improper.
A former executive at NORPAC alleged the cooperative shortchanged him by refusing to pay a $100,000 bonus while others received theirs. Court documents revealed this same executive acted as a “whistleblower” who convinced Tiegs to abandon the original purchase agreement.
These legal entanglements worried U.S. Bankruptcy Judge Peter McKittrick, who in June warned that the bankruptcy process had “too many cooks in the kitchen” who were turning it into a “big pile of litigation.”
“We’re going to be fighting over an administratively insolvent estate if we’re not careful,” McKittrick said, referring to the mounting fees from attorneys and financial experts.
Since then, NORPAC was able to reach a global settlement resolving claims between the cooperative, farmers and unsecured creditors. The cooperative also settled claims filed by seed companies, while the former executive dropped his $100,000 bonus claim.
By resolving these legal disputes, NORPAC’s attorneys cleared the major obstacles to the bankruptcy plan that its remaining creditors have now endorsed.