Workers at NORPAC Foods prepare onions for processing. Under a settlement deal, the cooperative will pay some compensation to member farms for crop deliveries.

About 100 farmer-members of the NORPAC cooperative would be paid $4.5 million for last year’s crop deliveries under a proposed settlement deal with the bankrupt food processor.

The cooperative has submitted the compromise agreement for approval to U.S. Bankruptcy Judge Peter McKittrick, who is scheduled to hear the matter on Sept. 11.

Earlier this year, the cooperative — now called North Pacific Canners & Packers after selling its name and intellectual property — filed a lawsuit against several growers who demanded payments for 2019 crops.

The complaint sought a declaration that 10 farmer-members weren’t entitled to any payment for last year’s crop deliveries because as cooperative owners they’re subordinate to all other creditors who are owed money by NORPAC.

The 10 farmer-members claimed to be owed $2.3 million for corn, bean, cauliflower and broccoli crops that were secured with agricultural liens, which would place them at the front of the line for repayment.

However, the lawsuit was considered a test case that would affect NORPAC’s other farmer-members with similar bankruptcy claims, which the cooperative estimated to be worth between $16 million and $18 million.

The farmer-members filed a countersuit arguing they were no longer barred from filing agricultural liens against NORPAC after it became a “debtor in possession” and “failed to operate as a cooperative” after filing for bankruptcy last year.

To further complicate matters, a committee representing unsecured creditors wanted to file a test lawsuit against the 10 farmer-members seeking repayment of $5.3 million they’d received in past crop payments, which would also have implications for NORPAC’s other growers.

Under the proposed settlement, the litigation between NORPAC, farmer-members and unsecured creditors will be dropped if growers who would receive 85% of the deal’s $4.5 million economic value opt-in to the agreement.

The settlement deal should be approved because the litigation involves “novel issues of Oregon law and the Bankruptcy Code, untested Oregon statutory provisions, a complex web of corporate documents and agreements, and detailed factual issues for each of the Named Defendants,” according to the cooperative.

For that reason, the “probability of success on the legal merits is unknown,” which favors a settlement deal, the cooperative said.

Unless an agreement is reached, it’s likely that NORPAC’s bankruptcy would be converted from a Chapter 11 debt restructuring to a Chapter 7 liquidation, “resulting in potentially several years’ delay in distribution to general unsecured creditors with a risk of lower distributions,” the cooperative said.

Though it’s possible not all former NORPAC growers will agree to the settlement, the deal would “take care of the vast majority of claims” and leave “far less risk” for the cooperative, the motion claims.

In its bankruptcy plan proposed earlier this year, the cooperative said it had about $40 million available for disbursal after selling off substantially all of its assets and compensating secured creditors with top priority for repayment.

That amount may be reduced due to recent settlements in which the cooperative has agreed to pay $2 million to agribusiness entrepreneur Frank Tiegs, who accused NORPAC of overcharging him for bulk inventory, as well as nearly $1.5 million to two seed companies.

The cooperative is also still involved in a lawsuit with Syngenta over $885,000 in seed payments.

I've been working at Capital Press since 2006 and I primarily cover legislative, regulatory and legal issues.

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