Closing arguments get extension in beef plant lien case

Farm Forum

A federal bankruptcy judge has extended the deadlines for two sides to submit written closing arguments in a dispute over how much, if anything, a beef plant on the south side of Aberdeen owes an out-of-business Huron contractor.

The new deadline is June 27, after which a bankruptcy judge overseeing the mechanic’s lien case will make a ruling.

According to court paperwork, an attorney for Scott Olson Digging, which was hired to do dirt work during early construction of what was then called Northern Beef Packers, requested the extension.

Northern Beef laid off most employees and filed bankruptcy last summer. In December, it was sold at a bankruptcy auction to White Oak Global Advisors. While not open, the plant is now called New Angus.

In simplest terms, here’s how the dispute breaks down. Olson Digging charged Northern Beef roughly $5 million for dirt work done in late 2006 and early 2007. The plant paid roughly $3 million for the work. In March 2008, the contractor filed a mechanic’s lien against Northern Beef. Later that month, the plant sued Olson Digging, claiming it had been overcharged.

White Oak, based in San Francisco, submitted the highest bid — of $39.5 million in credit and $4.8 million in cash — at the bankruptcy auction. It is the plant’s top creditor, having lent Northern Beef $35 million in 2012. It also set roughly $4.3 million in an escrow account during bankruptcy proceedings to move the sale along. That amount was enough to cover totals owed Brown County for delinquent property taxes and anything due to Olson Digging.

Last month, the two sides presented evidence at a trial in Pierre, but with the written closing arguments yet to be submitted, no ruling has been made as to the amount owed.

Judge Charles Nail, though, did set the priority of various liens involving the beef plant. That was the result of two groups of foreign investors wanting their claims to be moved up in the pecking order. Nail granted that request in part.

An Official Committee of Unsecured Creditors can be created in Chapter 11 bankruptcy cases to represent those who hold unsecured claims and negotiate on their behalf for payment. In Chapter 11 bankruptcy, a business is allowed to continue to operate or reorganize during proceedings.

According to documents in the case, White Oak claims Northern Beef owes it a total of $64.45 million. Also according to the paperwork, the unsecured creditor committee has a valid lien as allowed by White Oak. Nail ruled that White Oak and the committee are entitled to the first $45 million for Northern Beef as “senior debt” as stipulated in contract. Then, the foreign investors are to be paid. After that, the committee would get any remaining money.

In other words, when taking the credit bid into account, the $39.5 million credit bid, White Oak and the unsecured creditors are entitled to another $5.5 million. Then, federal EB-5 program investors would be repaid.

The liens involve two types of property — real and personal. Real property is, generally speaking, land and buildings. Personal property is anything else. Within each type of property, Nail established the following repayment priority:

Real property

• Brown County: Roughly $1.1 million for property taxes. The lien has already been paid off.

• Olson Digging: An undetermined amount for the mechanic’s lien.

Personal property

• Axis Capital Inc.: For a 2008 tractor.

• White Oak and the Official Committee of Unsecured Creditors: The first $45 million, including $39.5 million in credit from the bankruptcy auction bid, less any money potentially owed to RockTen CP LLC for purchase money security interest.

• Foreign investors: As much as $38.4 million SDIF Limited Partnership 6 and as much as $25.6 million for SDIF Limited Partnership 9.

• The Official Committee of Unsecured Creditors: Any remaining amount due.

Nail ruled that Farnam Street Financial, Harms Oil, Magid Glove & Safety Manufacturing, Twin City Hide, VAR Resources and Western Equipment Finance do not have valid liens.

SDIF Limited Partnership 6 and SDIF Limited Partnership 9 involve roughly $60 million in foreign investments made to the plant as part of the EB-5 program. The program allows green cards for investors and their family members who make at-risk investments of at least $500,000 to qualified economic development projects.

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