Tuesday, August 23, 2022

Express Grain Case Takes a Nasty Turn

 This post is reprinted with the permission of The Taxpayers Channel in Greenwood. 

In court filings last week, bankrupt Express Grain put hundreds of individuals and businesses, including farmers owed money for their grain, on notice that it will be suing some of them to claw back money that EG paid them prior to filing bankruptcy for services and products sold to EG.

And the first victim of this claw back scheme has already fallen, a cautionary tale of the danger to innocent bystanders who were caught up in the collapse of a business like Express Grain.

Borton LC is a nation-wide heavy construction company that builds concrete structures, silos, and tanks, among other things. In mid-2020, Borton contracted with Express Grain to build structures at the Greenwood oil mill.

When EG filed for bankruptcy on September 29, 2021, it owed Borton $141,904.22. But nobody told Borton about the bankruptcy, so it continued to fulfil its construction contract. Borton claims that CR3 instructed it to carry on, assuring it would be paid.

But in November 2021, Borton canceled the contract when it discovered that it would not be paid.

Borton filed a claim against EG for the $141,904.22 that was owed before bankruptcy, and filed an "administrative expense" claim for the $246,418.91 that it was owed for work done after September 29.

To read our previous reporting on this matter, see here: Express Grain bankruptcy creditors scramble desperately to be paid, but to no avail

In all, Borton claims that Express Grain owes it $388,323.13.

But Borton has thrown in the towel, and agreed to pay $75,000 to Express Grain to make the whole nightmare go away. That means that Borton will suffer a total loss of $463,323.13.

That's because EG threatened to "claw bank" part of the money that had already been paid to Borton prior to the EG bankruptcy filing.

Under the bankruptcy code's Chapter 5 "claw back" provisions, bankrupt debtors like EG are allowed, in certain cases, to force businesses that were paid during the 90 days prior to filing bankruptcy to return part or all of the money they received.

In Borton's case, it was paid $462,836.02 on August 16, 2021 by EG for work already done on the construction project. That money falls within the 90 day window in which claw backs can be taken by EG.

To read the sordid details of this settlement that Borton has reached with EG, see here: Motion to Settle Disputed Claims with Borton LC and Exhibits to Motion to Settle

EG owes around $218 million to farmers, banks, finance companies, and vendors, but it liquidated for somewhere around $85 million. Farmers are owed $48 million for grain they delivered to EG but were never paid for. Most of the farmers and other unsecured creditors will never see a penny of what they are owed.

But EG promises that this claw back from Borton is just the beginning of what it plans to do to other businesses and farmers that did business with EG. In its financial disclosure and liquidation plan filed last week, EG provides a long list of other potential targets of this claw bank scenario. To see EG's filings in this regard, view here: 

Express Grain Disclosure Statement

Express Grain Plan of Liquidation

According to the plan of liquidation, all of EG's remaining assets, which mostly consist of cash being held in escrow for the payment of claims, will be handed over to a new entity called "Express Grain Liquidating Trust." EG has asked the court to appoint a CR3 employee, Heather Williams, to head up the liquidating trust.

The liquidation activities will chiefly consist of suing people that EG had paid for legitimate services and products to "claw bank" some of that money. That money will then be used to pay legal costs, attorney fees, CR3, and others, and if there is any money left over, creditors. Or, as EG puts it:

The concept of the Plan is simple: the Debtor will go about the business of litigating and collecting all of the claims and causes of action that are owed to it, pursuant to the appointment of a liquidating trustee, which the Debtor suggests should be Heather Williams, a duly-qualified and experienced employee of CR3. Ms. Williams is already familiar with the Debtor's business, its operations during the latter phase of active manufacturing operations, the 557 procedures, the 9019 motion and the Settlement Order. Ms. Williams will actually be the plaintiff and "holder" of title to assets of the Debtor once she is appointed, assuming the Court sees fit to do so.

In addition, EG will be suing some farmers who did not fulfill their contracts to deliver grain to EG after it filed for bankruptcy. Some of those contracts were settled through the 557 Grain Settlement Agreement for the Settling farmers and the Disclaiming farmers, but as to any remaining grain contracts that EG assumed:

As to farmers not responding to the motions to assume executory contracts, the Debtor will pursue those, post-confirmation. 

EG is also considering suing Dr. Michael Coleman:

The Debtor may have a directors and officers violation of fiduciary and related duty claim against its majority shareholder and officer, Dr. Michael Coleman. The Debtor continues to evaluate that claim and reserves the right to pursue it for the benefit of unsecured creditors, post-confirmation.

Curiously, EG didn't bother to sue its president, John Coleman, or file any claims against him in his own personal bankruptcy, even though it was determined by the Mississippi Department of Agriculture and Commerce that he submitted forged audit reports to MDAC to renew EG's grain licenses, and even though he put around $180,000 of personal charges on EG's company credit card.

As for the claw backs, EG uses strong language in its disclosure and plan to warn potential victims:

As to creditors named in Exhibit "B": you are put on notice that the Debtor specifically names you as a potential target defendant and the recipient of an avoidable transfer. These claims will be evaluated during the Disclosure Statement/Plan process, some claims may be prosecuted during that process and some claims may be prosecuted thereafter. If you desire to express any defense you believe you may have to those claims that are listed in Exhibit "B" you are free to do so (but not required) in the interim Disclosure Statement/Plan process.

Under Chapter 5 provisions, an "avoidable transfer" is a payment made during the 90 day period prior to the bankruptcy filing that may have been a "preferential payment" of certain creditors over other creditors.

The list of such potential preferential payments, which includes hundreds of farmers and businesses, was filed with the court, and may be seen here, starting at page 3: Exhibit B - list of claw back prospects

To be sure, the farmers who either settled or disclaimed their interest in the grain held by EG have all been promised immunity from such claw backs, but that leaves unprotected farmers who had already been paid or did not participate in the 557 Grain Settlement.

The list includes all the other businesses and individuals that were paid for their products and services during the 90 day period, excluding EG employees.

As can be seen, some of the payments were quite large:

   $175,192.77 - Bunge 
$1,179,590.12 - Cargill 
   $128,894.50 - Compuweigh 
     $47,354.33 - Delta Farm Auto 
   $277,412.50 - Essmueller Company 
   $174,594.02 - Greenville Metal Works 
   $292,411.64 - Greenwood Utilities 
   $333,243.26 - Gresham McPherson Oil 
$1,073,927.01 - Maples Gas Company 
   $352,665.41 - Mid-Delta Equipment 
   $108,000.00 - Pathway Insurance 
   $149,069.88 - Phillips 66 
   $269,753.90 - Schneider Industries 
   $109,781.07 - Scott Petroleum 
     $78,069.97 - Southern Industrial Supply 
   $491,018.64 - Turner Industries 
$3,496,715.10 - UMB Bank 
   $105,371.76 - United Rentals 
   $171,688.70 - USI Insurance Services 
   $109,781.20 - Warrior

There is no suggestion that any of these companies did anything wrong at all, as wrongdoing is not required for claw backs to be forced upon them.

Inclusion on the list filed by EG also does not guarantee that all the businesses and farmers will be sued for claw backs. The farmers who participated in the 557 Grain Settlement either as "settlers" or "disclaimers" are supposed to be released from all Chapter 5 claw backs, and unfulfilled executory contracts as well.

Additionally, the smaller claims may not be pursued, since the legal costs associated with filing suit, etc., may outweigh the benefit to be gained by EG.

Finally, Chapter 5 provides several defenses that claw back victims can raise to defeat EG's claims, if they are ever filed. For example, payments made "in the ordinary course of business" are supposed to be exempt from claw backs.

The liquidation plan, if and when it is executed, will result in the dissolution of Express Grain as a corporate entity, and all ownership and equity interests by the members, including John Coleman and Michael Coleman, will be extinguished.

The plan must be approved by the creditors, and by the bankruptcy court. But meanwhile, the filing of claw back lawsuits by EG can begin immediately.

The liquidating trustee will pay off the creditors' claims to the extent there is cash available, of which there is very little.

In fact, the highest priority claims, which are paid first, are "Administrative Claims," which include the attorney fees owed to the bankruptcy attorney Craig Geno, along with professional service fees owed to CR3 and other accountants and professionals, and large ongoing payments due to the United States Bankruptcy Trustee. But sadly, according to EG's filings:

Currently, there is not enough cash to pay for the administrative expense claims in full. Payment in full of those claims, especially when considering that substantial cash held by counsel for the Debtor has been carved out and earmarked only for payment of certain claims, and that there are likely a number of administrative expense claims which have not yet been filed and which are not yet known, is not yet firm or a sure thing. Accordingly, the Debtor must provide that allowed administrative expense claims will not necessarily be paid in full, in cash, at confirmation, but will be paid as and when cash is available to pay them.

It all goes downhill from there. UMB Bank is still owed an undisclosed amount of money for its secured claims, and then comes the "Unsecured Convenience Creditors," who are owed less than $2,500 each:

Unsecured claims totaling less than $2,500 will be paid in full, in cash, upon the Effective Date at the rate of 15% of the allowed amount of those claims. The 15% payment will be in full satisfaction of those claims.

These small creditors will receive 15 cents on the dollar for their claims.

Only after all these creditor classes have been paid, will any money go to general unsecured creditors. They are owed somewhere around $55 million in total.


27 comments:

Anonymous said...

Somebody is making a lot of money off of this Bullsh*t. Who is it? I smell a lawyer in the midst of this.

Anonymous said...

Wouldn't it be great if some of the potential claw-back victims file bankruptcy?

Anonymous said...

This clause in the Bankruptcy statutes is fucking madness.

Anonymous said...

Again, why are the Colemans not in jail?

Anonymous said...

Them and their attorney pulling this technical BS all need to eat a bullet. I'll never look at Craig Geno the same again. Go F**K yourselves, you and the Colemans.

Their has to have been a deal struck somewhere knowing they were going to pull this crap.

Anonymous said...

Looking through that list, John Coleman paid Mississippi Reproductive Medicine $12,250 out of the business Amazon Visa? That is the IVF amount owed to the doctor for an IVF procedure. WOW! And that was on 9-11-21, they filed for bankruptcy on 9-29-21.

Anonymous said...

The Coleman's are not supping and sleeping in prison because they stole enough to buy high end bankruptcy legal protection. How much one steals may be more important than the fraud perpetrated.

Shakespeare advised: "First, kill all the lawyers". Trial Lawyers Assoc likely the ones responsible for Claw Back provision?

Anonymous said...

The bankruptcy code was created by an avowed socialist. Just another way to redistribute

Anonymous said...

12:33 is spot on. How can some, if not many, of the actions taken by officers of Express Grain leading up to this debacle NOT be criminal violations?

Anonymous said...

To be fair, this isn't exactly a surprise. Everyone involved in this case has known since the beginning that there are significant chapter 5 avoidance actions. That was even one of the deal points in the settlement with the farmers. Settling farmers got releases of avoidance actions so they wouldn't have to worry about clawbacks.

Anonymous said...

I'm sure you are proud of this post, with the length, big words, all of the formatting and different fonts, ect.....but did you over look possibly that the fabricator ignored the automatic stay, in violation of Federal law? It seems like you lead off with that in the initial paragraph, but didn't understand the implication.

Anonymous said...

The Colemans are such crooks. Nothing but thieves.

Anonymous said...

Our entire agricultural “industry” is one giant welfare program. More communist than Chinese agriculture.
Not surprised that so many white collar crooks get in on the government tit action.

Anonymous said...

There's not a grain of fairness in that claw-back clause.

Milburn Drysdale said...

There is a legitimate reason for clawback clause, but I doubt many of these payments, if any, meet the intent or purpose that was intended.

Do business with dogs and you might get fleas said...

You might think you are a wheel in the Delta but then you find out that you are a bug under the train wheel.

Anonymous said...

Damn…as a contractor, how are we supposed know things like this???? People get legs broke over crap like this

Anonymous said...

If I were one of these Coleman’s, dang I’d go into witness protection mode! I wouldn’t dare stay close to Mississippi. I’d change my name!

The Coleman’s have steel balls or just plain ignorant to the fact there’s a lot of distraught clients out there!

Anonymous said...

My interest drops off before 30 paragraphs since completing my thesis 40 years ago

Anonymous said...

Attn 6:18 there is no excuse for arrogant ignorance !!!

Anonymous said...

@6:04. The Colemans have paid bodyguards. Because they have plenty of money stolen from tons of people. High on the hog! They are living high on the hog! They can pay for protection.

Anonymous said...

I was in college in the 70’s with guys from Greenwood, they could not have been nicer, but I knew not to defraud them. Their thought process was, I will not do anything to hurt you, unless you start it. Pay back is tough.

Anonymous said...

Google 'John Coleman' and you'll find his LinkedIn profile, complete with profile photo showing him as a surprisingly young fellow, relaxing at the beach with a smug grin.

It is not known if said beach is in the U.S., or overseas.

Overseas is the wiser choice once all these businesses get this news.

Anonymous said...

Ordinary course of business will apply to most of these but doesn’t stop from having to pay to defend.

Anonymous said...

Greenwood is Dixie Mafia country. Lots of those million dollar houses in Carroll County have some interesting people hiding behind the LLC's.

Anonymous said...

...except Greenwood is not in Carroll County.

Anonymous said...

11:51 PM Many of the big players in this movie actually live in Carroll County



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