Court quashes bid to force struggling meat processor out of creditor protection

Wednesday, April 30, 2014

by JIM ALGIE

Ontario Superior Court Justice D. M. Brown has rejected a bid from hog farmers owed millions by financially-strapped Quality Meat Packers Limited that would have forced the company out of court protection.

Lawyers for Synergy Swine Inc. of Molesworth, Ont., supported by the Ontario Pork Producers Marketing Board and two other hog farming creditors, sought an early end to 30 days of court protection for Quality as the company and its related company, Toronto Abattoirs Limited, prepare a plan to refinance and continue operations.

Synergy’s motion cited “bad faith” by the company in days immediately before its April 3 application for court protection, Justice Brown said in reasons issued April 11.

Within the week preceding its notice of intention to make proposals under terms of the Bankruptcy and Insolvency Act, the company accepted millions of dollars in market-ready hogs, the Synergy application said. Quality has no plan to pay those hog suppliers and is unlikely to be able to make an acceptable proposal to creditors within existing time limits, Judge Brown’s decision said of farmers’ claims.

The farm group’s application sought priority security available for agricultural product suppliers under S. 81.2 (1) of the Bankruptcy and Insolvency Act. The act provides such security for agricultural suppliers where a purchaser has become bankrupt or where a receiver has been appointed. The security claim is limited to products delivered within 15 days before either the bankruptcy or the appointment of a receiver.

At the time of Synergy’s application, however, Quality and Toronto Abattoirs had only filed notices of their intention to make proposals under terms of the bankruptcy law in a bid to continue in business, Brown’s decision says. The companies’ April 3 move to seek court protection does not trigger priority security for farmers caught up in the case, the judge ruled.

Meanwhile, the Ontario Pork Producers Marketing Board awaits expiry of the 30-day period for company proposals which began with Quality’s original notice, April 3, a board spokesperson said Tuesday. Quality and pork board representatives have negotiated a pre-paid, supply arrangement for hogs. However, marketing board communications director Mary Jane Quinn said in emailed questions and answers, Tuesday, that “no hogs have been shipping” to Quality since the agreement was signed, April 7. The board is “waiting for the 30-day notice period to expire from their original filing date of April 3,” Quinn said when asked to describe current arrangements with Quality.

Justice Brown’s decision to maintain court protection pending the company’s proposal cited evidence that Quality Meats is “a debtor intent on trying to restructure not a debtor engaged in bad faith conduct.”

The judge referred specifically to a “forbearance agreement” with Quality’s “senior secured lender” Toronto-Dominion Bank. As of April 8, the company’s TD debt amounted to $4.8 million, down from $8 million as of the date of filing for court protection, the court decision says. As well, the company has sought understanding and agreements with numerous stakeholders including the United Food and Commercial Workers Union, hog suppliers and the Pork Board.

The judge also cited the opinion of a trustee appointed to oversee Quality’s proposal that there was no evidence the companies have acted in bad faith.

Trustee A. Farber & Partners Inc. issued a first report on the case, April 9. A copy of the trustee’s report appears on the trustee’s website, Faberfinancial.com. It estimates outstanding debt in the case as of April 3, 2014 at $13.014 million.

Synergy supply contracts with Quality provided for delivery of 104,000 hogs annually. Synergy did not receive payment of $901,626.83 owing on delivery of 3,500 hogs between March 26 and April 3, the court decision says.

The trustee’s April 9 report estimates outstanding debt to hog producers of about $8.671 million. The trustee estimated the realizable value of company inventory as of Apr. 11 at $2 million. BF