Beef plant files for Chapter 11 bankruptcy
Northern Beef Packers has struggled with construction delays, lack of financing, environmental fines and now faces its latest setback: Chapter 11 bankruptcy.
The plant, which began to slaughter cattle in October, has never been able to increase its production to anywhere near its projected capacity of 1,500 cattle a day.
While beef plant officials will not comment on the number of cattle slaughtered, several workers in the plant have said that there has not been any cattle slaughtered for about three weeks.
“It’s been quite awhile since they have slaughtered cattle,” said Herman Schumacher, a producer who has furnished the plant with cattle.
Without adequate cash coming in, Northern Beef has been racking up debt. The company owes money to 277 creditors locally, nationally and in South Korea. Northern Beef filed for bankruptcy protection Friday afternoon.
Chapter 11 gives a company protection from its creditors while it reorganizes, said Rory King, the attorney representing Northern Beef. A business can continue to operate, unlike under Chapter 7 bankruptcy, which involves liquidation of a company.
An Aug. 8 deadline has been set for the plant to file a statistical summary, a statement of financial affairs and other documents with the U.S. Bankruptcy Court for the District of South Dakota, according to court paperwork.
Ultimately, a plan for reorganization must address the resolution of unpaid bills. The creditors, Northern Beef and the court will all have some say in the restructuring of debt.
The plant’s most recent financial difficulties came to light April 25 when the company laid off 108 workers. Northern Beef CEO David Palmer said that the plant, south of Aberdeen, needed to raise about $20 million in working capital to buy and process cattle.
Northern Beef was not successful in raising all the additional funding it needed. Last week, employees were told that their paychecks would be delayed because of financial difficulties.
For the last several months, we have been working to secure a strategic equity investment to move our business into the next phase of production,” Palmer said through a news release Monday. “Due to the size and importance of this investment, the process is taking longer than what was originally expected. At the same time, the beef packing industry has been experiencing some of its worst processing margins in recent decades, causing expected start-up costs to be much
higher than anticipated. This has significantly reduced our cash position and is preventing us from meeting our current obligations.
The beef plant is working with secured lenders and interested parties to formulate a restructuring plan, Palmer said. Once approved by the court, the financing, along with cash generated from any ongoing business operations, will be used to pay operating expenses, he said.
Northern Beef officials declined to answer questions about the timeline for employee payment and production numbers when contacted by the American News. Contacted by phone Monday, Oshik Song, general partner of Northern Beef, said he preferred to let the written news release explain the situation because of his English speaking abilities. Song, a South Korean businessman who lives in Eden Prairie, Minn., is the beef plant’s biggest investor.
The debts racked up by the company affect many companies as well as the city of Aberdeen.
Northern Beef owes municipal utility bills of $182,263, according to a list of the 20 largest unsecured creditors included in the U.S. Bankruptcy Court documents. The bills are for unpaid water and wastewater treatment, said Lynn Lander, city manager. The city will require Northern Beef to provide a surety in order for the city to continue to provide service, he said. That surety must be set up within approximately 20 days, he said.
“We need to wait and see how this works itself out,” Mayor Mike Levsen said. “The word ‘bankruptcy’ scares people, but for businesses having difficulties, it is one option for them. Sometimes it is a step toward a good resolution. It could work out for the better or worse. We will have to see what happens.”
Follow @Business_AAN on Twitter.