FRIDLEY, Minn. — A major Minnesota-based organic grain processor’s bankruptcy reorganization filing on July 8, 2021, has shocked farmer-suppliers from Canada to the U.S. South, and left them wondering who will get paid and who will pick up the pieces.
The Minnesota Department of Agriculture on July 21, 2021, held an online meeting with creditors and others to describe how Pipeline Foods LLC’s federal bankruptcy in Delaware might mesh with state laws for payment for grain.
Minnesota Agriculture Commissioner Thom Peterson assured the dozens on the video call that the department saw the bankruptcy as a “serious issue that we’re looking at all angles on.” Nick Milanowski, supervisor for the department’s fruit, vegetable and grain programs, urged people to file now against the company’s $500,000 bond, which might partially compensate producers. Milanowski and Minnesota Assistant Attorney General Oliver Larson told farmers they should also consider filing claims against the bond, and in the federal bankruptcy, but noted that unsecured creditors get paid last.
Olson said, unfortunately, money through either process is unlikely to make producers whole, and could take months or years.
‘Come to Delaware’
Pipeline Foods LLC of 6499 University Ave NE, Fridley, Minn., was formed in 2017. It filed for Chapter 11 reorganization in Delaware, where it was incorporated. Pipeline estimated funds “will be available for distribution to unsecured creditors.” They estimated 200 to 999 creditors. They estimated $100 million to $500 million of both assets and debts.
The bankruptcy filing lists just 20 top creditors the company estimates it owes a total of $20.7 million. U.S. creditors on the list are from Minnesota, North Dakota, Wisconsin, Nebraska, Ohio, Indiana and Michigan, as well as companies in the countries of Dubai, India and China.
Topping the list is Simmons Feed & Supply LLC, of Salem Ohio, $5.2 million in customer advances; Agri Exim DMCC, of Dubai, $2.6 million, in trade debt; and Jim Wolf, Jeffers, Minn., with $2.2 million in what the company described as a “disputed” note payable.
Other Minnesota creditors and rounded amounts include Earl Pederson of Bejou, Minn., $1.5 million; Brushvale Seed Inc. of Breckenridge, Minn., $1 million.; Richland Grain LLC & State Bank, of New Richland, Minn., nearly $415,000; Brant Hemingway, Ellendale, Minn., $356,000.
North Dakota trucking firm Dahl Trucking of Langdon, N.D., is owed nearly $474,000; Kevin Motl and Farmers and Merchants State Bank of Blooming Prairie, Minn., $250,000; and LSM Commodities Ltd. of Saskatoon, Saskatchewan, $548,000.
One group, Organic Farmers of Michigan, is owed an estimated $872,000.
First, there is parent company Pipeline Holdings LLC (“Foods”) Then there are two wholly owned subsidiaries — Pipeline Foods ULC (“Pipeline Canada”) and Pipeline Foods II LLC (“Foods II”). Those three companies in turn “directly or indirectly own and/or control” two more affiliates — Pipeline Foods Real Estate Holding Co. LLC (“Pipeline Real Estate”) and Pipeline Foods Southern Cone S.R.L. (“Pipeline Argentina”).
The company has engaged the law firm of Saul Ewing Arnstein & Lehr LLP as “general and special bankruptcy counsel for the company.” They also hired law firm Bryan Cave Leighton Paisner LLP, as counsel for the board.
In the bankruptcy documents, the company on April 14, 2021, signed a letter of agreement between the Pipeline parent company and an entity called SierraConstellation Partners LLC. They agreed a man named Winston Mar would become “chief restructuring officer.” They also hired the firm “Stretto” to help with the bankruptcy. Stretto is hosting a website where people can get bankruptcy updates without going through the court system, at https://cases.stretto.com/Pipelinefoods, or by calling 855-288-5577.
Board of managers
Court documents list a “board of managers” including Eric Jackson, and Bradly Dietz, listed as an independent manager. Craig Tashjian is listed as managing partner and chief investment officer of AMERRA, a New York City venture capital company he co-founded in 2009. Tashjian claims 30 years of investing in food, agriculture and natural resources, with “expertise covering global agriculture, aquaculture, natural resources and trade finance markets.” He managed the “Societe Generales Natural Resources” business line and was “Global Head of Commodities at Standard Chartered Bank,” managing multinational commodities finance teams.
Tashjian is on the boards of Avramar S.A. (Greece), Aquaship A.S., Biomega AS (Norway), Ciclon Trading Corp. (U.S.), F&S Agrisolutions Industria de Biocombustiveis Ltd.a. (Brazil), Pipeline Foods (USA) and Rio Amambai Agroenergia S.A. (Brazil)
Anthony “Tony” Sepich, the company’s president and CEO, in a statement at the bankruptcy filing, said the COVID-19 issues at a time the company had taken on secured debt obligations and acquisitions had caused “significant financial distress.” He looked ahead to a “potential sale of the business, portions of the business, and certain of its assets.”
The company in the past few years has made a big move in the organic business, purchasing elevators and facilities, and focusing on the non-GMO and “regenerative” food and feed markets, according to trade journals.
In 2019, the company acquired ancient grains and specialty products from Organic Ventures, and the specialty and organic soy and corn business from SunOpta Inc.
Sepich said the company will ask the court to approve paying employees “without interruption” and to sell grain inventories to use as “cash collateral.”
The company imported some of its production. The company was known in the organic trade groups for its efforts to ensure that products labeled “organic” had been certified properly and were not counterfeit or fake organics.
Fighter of ‘fakes’
Fast-expanding Pipeline Foods had a reputation of fighting fake organics. As recently as June 30, 2021, the Organic Trade Association mentioned Pipeline’s support of the trade organization’s “ground-breaking fraud prevention program” — Organic Fraud Prevention Solutions.
The OTA includes 9,500 members in North America. It includes organic growers, shippers, processors, certifiers, farmers associations, distributors, importers, exporters, consultants, retailers and others.
The OTA is readying for the U.S. Department of Agriculture's upcoming rules to strengthen oversight of organic imports and the organic supply chain. The rules are coming in the spring of 2022. The OTA said 40 organic businesses were enrolled in its program, and 125 were in the process of enrolling. It involves “supplier verification” and adherence to a comprehensive Organic Fraud Prevention Guide.
“In addition to the 40 organic businesses enrolled in the fraud-fighting program, two businesses — Pipeline Foods and Naturepedic Organic Mattresses — have completed the nine-step enrollment process, and submitted their organic fraud prevention plan to their certifier,” the OTA said.
Gwendolyn Wyard, the OTA’s vice president of regulatory affairs, said the program was designed to help companies comply with USDA’s “Strengthening Organic Enforcement” final rule, slated for the spring of 2022. The USDA program was developed with the Michigan State University Food Fraud Initiative, which involves an academy and online courses, on how to carry out an organic fraud vulnerability assessment and fraud prevention plan.
Some farmers with unpaid bills privately told Agweek they were shocked by the demise. In online chat groups, some alluded to recent slow payments and concerns.
On July 12, 2021, CEO Sepich wrote a letter to “Dear Valued Customer/Grower/Vendor/Supplier,” announcing the filing. He said he expected the “pre-petition lender” to consent to the use of cash collateral.
“Unfortunately, federal law does not allow us to make payments on accounts of claims for goods and services that arose prior to the Chapter 11 filing," he wrote. “We regret the hardship this may present you and we hope we can work through issues together without disruption.”
One farmer said his operation was established and would survive a large loss. Another, with 150 acres, said he’d try to survive, too, but was owed more than $80,000.