McM Inc. trustee manages calving, corn harvest
FARGO, N.D. — U.S. Bankruptcy Judge Shon Hastings on Monday said she intended to authorize Trustee Cheryl Bergian of Fargo to use the proceeds of some insurance and crop payments for McM Inc., of St. Thomas, N.D., to care for perishable assets in the huge farm bankruptcy.
Bergian is the court-appointed trustee in McM's Chapter 7 bankruptcy. Hastings said she'd release "cash collateral" funds to be used to care for beef cows until they calve in the next month, to harvest 2,200 acres of standing corn in northeast North Dakota and to care for 50,000 hundredweights of potatoes that had been expected to be used as seed for the 2017 crop. Another hearing on the topic is scheduled April 12.
McM Inc. was one of North Dakota's largest farms before it declared Chapter 7 liquidation bankruptcy on Feb. 5. The operation controlled 59,000 acres in 2011 and scaled back to 39,000 acres in 2016, with high-value crops on mostly rented land.
The company had nearly $50 million in debts and just over $10 million in assets at the time of filing. Its largest secured shareholder was the primary operating lender, BMO Harris Bank, with $43 million. The amount of unsecured assets is minimal compared to the unsecured debt, Bergian noted.
Bergian said the McM case is unusual for a Chapter 7 bankruptcy in that it involves "perishable" entities, like standing crops and cattle, rather than inventories to be sold in a retail bankruptcy or some other business.
"In those cases, all business stops, and you can just close the door," Bergian said. She likened the McM situation to a Chapter 7 involving a nursing home, where residents must be cared for before it can close.
Bergian is managing three main perishables: cattle, potatoes and corn.
* Cattle — McM Inc., has a herd of beef cows that are in the process of calving the 2017 crop. The company is paying one full-time employee and one part-time employee to care for the cattle.
Bergian said she needed funds to pay the two employees to care for the animals on Kenny Johnson's land near Inkster, N.D. She also has paid utilities. Johnson wants to be paid for the site, but the land is part of a larger lease, which includes farmland. Kyle Zack, a former McM Inc., farm manager, is working for Johnson, and supervising the two employees, who also worked for McM.
Johnson asked for $12,000 a month for use of enclosures where the cattle are being kept. Hastings said she expected to order funds from a $127,818 crop insurance payment to be used to care for the animals, but lawyers insisted they be allowed to file a lien to recover the costs when the cattle are sold. Only BMO Harris claims a secured interest in the cattle, although Northland Oil claims a supplier's lien.
(BMO Harris had filed a case in federal court in Minneapolis to establish a receivership over McM Inc. and Ron McMartin Jr. The case against the corporation was stayed with the Chapter 7, but the receivership case against Ron McMartin Jr., is being litigated in Minneapolis, Bergian said.)
* Potatoes — Some of the 55,000 hundredweights of seed potatoes are falling out of condition, Bergian said. One of the four bins did not have adequate temperature and humidity controls to keep the potatoes in optimum condition. Bergian tried in vain to hire companies to apply sprout inhibitor, but they declined out of concerns over how they'd be paid. The potatoes can no longer be sold as high-value seed potatoes and cosmetically don't compete in today's table-stock market, so one option may be to use them for cattle feed.
Separately, potatoes delivered to wash plants have commercial value. Nokota Packers on Feb. 12 sent a check for $46,600 for some of those potatoes.
* Corn — Bergian said she needed $181,000 to harvest and deliver corn to elevators. She had received $3.1 million from sales of potatoes and $1.6 million for crops other than potatoes and sugar beets, lawyers said. Bergian said Johnson had paid $20,000 to a corn harvester as a down payment to get the corn harvest started. Bergian asked Hastings to release another $25,375 to continue harvesting and said it might take $181,000 total.
Separately, secured creditors are jousting for priority among themselves.
For example, on March 29, Wilbur-Ellis Co. and T.F. Thompson & Sons Inc. filed a motion to conduct an examination to determine the "validity, extent and priority" of other liens. Other companies allege their own supplier's liens are "superior and paramount to the general crop lien of BMO Harris Bank," the primary lender, who claims $43 million in secured claims.
Wilbur-Ellis said that on Sept. 28, 2016, the company filed an ag supplier's lien for chemicals. It alleges MCM owes the company $682,173.12, plus accrued interest at 1.5 percent per month after Sept. 28, 2016. Wilbur Ellis claims interest in "all of McM's wheat, soybeans, beans, potatoes, sugar beets and corn crops." In a similar fashion, T.F. Thompson & Sons, which provided red Norland seed potatoes, filed a lien on Aug. 5, 2016, claiming $306,509.30 plus interest after that date.
The two plaintiff companies allege that several companies had filed liens against Johnson prior to the Chapter 7. Some of those companies subsequently made payments to the company but "set off" amounts the farm owed to them.
Court documents list one example as Kelley Bean Co. Inc., which on Sept. 28, 2016, filed a lien for dry edible bean seed starting March 23, 2016, claiming $353,934.67. Kelley Bean terminated the lien on Oct. 27, possibly "setting off" the amount from beans McM delivered to Kelly Bean in the fall of 2016, the plaintiffs said.
The two plaintiffs said Columbia Grain, Inc., on Aug. 19, 2016 filed a lien asserting a balance of $765,493.20 for fertilizer, but set off an equal amount against corn delivered, and terminated the lien on Nov. 8, 2016. The plaintiffs questions the set-offs.