Organic Meadow's unsecured creditors meet next week
Tuesday, August 11, 2015
by SUSAN MANN
Unsecured creditors of Organic Meadow will meet in Guelph next week to discuss the company’s proposal that, if approved, will see them each get about seven per cent of the money they are owed.
The proposal, filed with the trustee MNP Ltd. and the Office of the Superintendent of Bankruptcy both on July 29, says unsecured creditors will each get 50 per cent of the first $1,000 they are owed and then seven per cent of whatever is owing to them beyond the $1,000. There are more than 160 companies and individuals on the unsecured creditors’ list.
The proposal fund has $350,000 in it while the estimated claims of unsecured creditors based on the Organic Meadow July 23 statement of affairs is about $5 million, the MNP report accompanying the proposal says.
The 25-year-old, farmer-owned Organic Meadow Co-Operative Inc. has headquarters in Guelph. It’s in the dairy, egg, grains and processing vegetables businesses. The co-op, with more than 100 family farm members, owns all of the shares of Organic Meadow Inc., which in turn owns Organic Meadow Ltd.
Organic Meadow Inc. owns the property, dairy processing plant and equipment used by Organic Meadow Ltd. for its operations.
On April 2, Organic Meadow co-op and its two related companies, Organic Meadow Ltd. and Organic Meadow Inc. each filed a Notice of Intention to make a proposal under the Bankruptcy and Insolvency Act.
“The management of the company advises that the cause of its financial difficulties can mainly be attributed to the purchase and development of a dairy product processing plant and organic milk supply issues,” the MNP report says.
The proposal fund is being co-sponsored by Meadowfresh Dairy Corporation of British Columbia and Avrio Ventures General Partnership Ltd., one of the current secured lenders to Organic Meadow. MNP’s report says during the past three years Organic Meadow couldn’t find a strategic investor to re-capitalize and run the company’s operations more efficiently. Organic Meadow launched a fourth attempt to find a strategic investor in January that was ultimately successful.
There is now “an agreement with Meadowfresh to take out the RBC debt and to co-sponsor with Avrio the current proposals with the unsecured creditors and to restructure and recapitalize the company on emergence from the BIA (Bankruptcy and Insolvency Act) process into a long-term, viable entity,” the report says.
On July 7, RBC assigned its “right, title and interest in the company to Earth’s Own Food Company Inc., which in turn transferred this security to Meadowfresh Dairy Corporation,” the report says. Both Earth’s Own Food Company Inc. and Meadowfresh are listed as brands of Agrifoods International Cooperative Ltd. on its website. The Agrifoods co-op is owned by Saputo.
Organic Meadow owes Avrio about $9.8 million but for the purposes of the proposal the value of Avrio’s claim will be $7.3 million, the report says. The difference of about $2.5 million will be an unsecured claim in the Organic Meadow Ltd. proposal.
Organic Meadow CEO Don Rees couldn’t be reached for comment.
Dairy Farmers of Ontario general counsel and communications director Graham Lloyd says they received the proposal Tuesday and the organization’s executive and legal counsel specializing in bankruptcy matters will be reviewing it. Lloyd says he will attend the creditors’ meeting on Aug. 18.
DFO has hired specialized legal help to deal with the Organic Meadow situation. Lloyd says he doesn’t specialize in bankruptcy matters “and there are nuances involved in the process with which I am not familiar.”
Documents accompanying the proposal say DFO, an unsecured creditor, is owed $917,978.61. Lloyd says Organic Meadow supplied that number and it is unaudited and unverified.
“I am not certain of the numbers that are owed to us at this point in time,” he says, noting it is in the range of $850,000.
The money owed to DFO is for unpaid organic milk Organic Meadow received from the marketing board in March.
Lloyd says the DFO’s executive and legal counsel will determine next steps and go over whether the organization will propose changes to the proposal, give its stamp of approval or reject it.
In its report, MNP recommends unsecured creditors accept the proposal. If they do, the proposal then has to go to the court for approval. If either the creditors or court reject the proposal, Organic Meadow would be deemed bankrupt. If the company is bankrupt, “it appears there would be no funds available to distribute to unsecured creditors,” the report says.
A simple majority in the number of unsecured creditors voting and also representing two-thirds of the dollar value of the debt from the unsecured creditors voting is needed the proposal to be approved. Unsecured creditors must file proof of their claim with the trustee before the Aug. 18 meeting.
Lloyd doesn’t expect a formal vote at the Aug. 18 unsecured creditors’ meeting. “There may be a request for another meeting,” he notes.
No dairy farmers lost income because of Organic Meadow’s failure to pay DFO. The marketing board covered the farmers’ milk costs from its accounts receivable financial protection fund. On Oct. 31, 2014, the end of DFO’s last fiscal year, the fund had a balance of $5.8 million.
“The organization will lose money but we’ll draw on that fund,” he says.
Using the $850,000 figure, DFO will only get about $60,000 of its money back if the Organic Meadow proposal is accepted by unsecured creditors and the court.
Included in the unsecured creditors’ amounts is money owed to Organic Meadow-related creditors. Organic Meadow Ltd. owes Organic Meadow Inc. $2.7 million but “related creditors are not affected by this proposal and accordingly will not share in any distribution,” the trustee’s report says. BF