Nearly $80 million won’t be paid back in Northern Beef bankruptcy

Elisa Sand
Aberdeen News

Nearly $80 million that more than 100 investors, businesses, government entities and individuals claim they are owed won't be paid back in the Northern Beef Packers bankruptcy process.

In the latest bankruptcy notice to trustees and application for compensation filed Nov. 2, court documents reveal there's a little more than $1 million available to pay a long list of bills.

Aberdeen Attorney Forrest Allred, the bankruptcy trustee in the case, said the available funds will cover administration fees, wage claims and some back taxes.

A trustee in a bankruptcy case reviews claims and oversees finances.

Northern Beef Packers operated the beef processing plant on the south edge of town from 2012 until July 2013, when the company laid off its employees, filed for bankruptcy and closed. The plant was sold to White Oak Global Advisors at a bankruptcy auction in December 2013. Now called DemKota Ranch Beef, it has no ties or obligations to the bankruptcy proceedings.

Of the $1.08 million available for claim payments in the Northern Beef Packers bankruptcy case, $214,331 has already been spent, and another $329,403 in payments covering bankruptcy and attorney fees are now under consideration by the bankruptcy court.

That would leave $534,744.

Allred said that of the money already spent, $180,000 went to a settlement in a class action lawsuit to cover a portion of the lost wages of workers. He said that money has already been disbursed to the former employees.

But there are 60 additional individual wage claims that have yet to be resolved.

Allred said once wage claims are addressed, the remaining funds will be depleted by the tax claims. That will leave 111 unsecured claims that total more than $79 million unpaid. That total, though, has not been verified since there isn't enough money to cover it, Allred said.

Under state law, those unsecured claims are the last claims to be addressed in bankruptcy. The list includes $60.4 million from two groups of foreign investors who helped fund the plant through the EB-5 program; $8.18 million from the Ad Hoc Committee of EB-5 investors; $1.2 million to the South Dakota Development Corp., which lent money to Northern Beef Packers; $1.17 million to Hanul Law Firm, which helped recruit foreign investors; and $1.04 million to Oshik Song, who once owned about 40 percent of the plant.

The federal EB-5 program provides green cards to foreign investors who make qualified contributions to economic development projects in the U.S. For Northern Beef Packers, the minimum investment was $500,000. More than 100 foreign investors sank money into the plant via EB-5.

Court documents show overall wage claims total nearly $3.2 million. Of that, $2.7 million was part of the class action lawsuit.

Allred said what will be paid out for the remaining wage claims has yet to be determined. But he's confident all eligible claims will be covered by the remaining $534,744.

"The fact that they appear on the report doesn't mean it's correct," Allred said of the 60 individual wage claims. "Many are flat-out wrong.

"Some of the claimants will get all their wages, some will get some and some will get none because they're incorrect on whether they were owed anything at the time of the filing," he said.

The amount paid out for wage claims won't be anywhere close to $3.2 million, Allred said.

"It won't even be close to half a million," he said.

He said the wage claims are specifically for Northern Beef Packers former employees as opposed to companies or individuals hired by the plant to do work.

For instance, a professional services claim filed by an accountant is not considered a wage claim, Allred said. It would be an unsecured claim, for which there will be no money.

Once the wage claims are taken care of, there will be some money left to cover, in part, tax claims by the South Dakota Department of Revenue, the Unemployment Division of the South Dakota Department of Labor and the Internal Revenue Service, Allred said.

The Internal Revenue Service is seeking $929,709. The South Dakota Department of Revenue has two claims totaling $871,287. The South Dakota Department of Labor claim is $30,636.

There's not enough money to pay the full $1.8 million, Allred said, so each agency will get a portion of what's owed. For example, if there's $100,000 remaining when the wage claims are paid, the IRS would receive $50,700 because its claim is 50.7 percent of the tax claims.

"We're hoping to distribute the remaining money in 2018," Allred said.

Also on the list of unsecured claims that won't be paid is the city of Aberdeen at $250,269, other government agencies and many businesses, some of which are local.

City Attorney Ron Wager said Aberdeen's claim is for unpaid water and wastewater services.

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The former Northern Beef Packers plant is seen in this 2011 file photo. American News file photo by John Davis

Funds available for claims: $1,078,479

Claims paid: $214,331

Proposed claim payments: $329,403

Balance left for claims: $534,744

Remaining priority claims

Wages: $3,192,906 (final payout will be less than $500,000)

Tax claims: $1,831,631

Unsecured claims: $79,723,444

Source: Bankruptcy court paperwork