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UMB Bank: insider contacted us about suspicious Express Grain filings

Friday, January 7, 2022, 2:25 pm News Flash Archive

Thursday, January 6, UMB Bank disclosed the fact that a "corporate representative" first contacted the bank on September 22, 2021 to express concerns about "inaccuracies with respect to the Debtors' [Express Grain's] warehouse receipts."

UMB's filing concerned the ongoing dispute as to whether to allow Express Grain to continue to sell or use pre-petition inventory in its crushing operation, some of which is part of the collateral that backs EG's $70 million debt to UMB Bank.

The amount of EG's rotating financing note loaned by UMB Bank depended upon the value of the commodities owned by EG from month to month, and required the filing of monthly financial statements by EG to UMB Bank.

But in explaining the facts that led up to the bankruptcy, UMB Bank told the court yesterday:

On Wednesday, September 22, 2021, UMB was contacted by a corporate representative of the Business Debtors. Such individual informed UMB they could not sign-off on the Borrowing Base and company prepared financial statements because of inaccuracies with respect to the Debtors' warehouse receipts.

UMB immediately began investigating the issue. Based upon its investigation after speaking with the representative, UMB suspected that the Debtors had substantially understated the amount of warehouse receipts it had issued in the approximate amount of 3,330,000 bu. of soybeans at $12.86/bu., or approximately $43 million.

The concern here was that allegedly, EG was claiming to own more grain inventory than it actually owned, including millions of bushels of beans that EG had already sold to large grain purchasers and issued "warehouse receipts" to them for, but which EG was still claiming as its own inventory. If true, that would mean that EG did not actually own a large part (around $43 million worth) of the collateral inventory that it was reporting to UMB Bank.

UMB Bank continued:

From Wednesday, September 22, 2021 through Friday, September 24, 2021, UMB inquired of John Coleman with respect to the outstanding warehouse receipts. Mr. Coleman largely confirmed UMB's suspicions. In light of the discovery, UMB immediately declared a default under its loan documents and began exercising its remedies including seeking immediate court intervention."

On Tuesday, September 28, 2021, UMB petitioned the Chancery Court for the appointment of a receiver to bring the Debtors under immediate court supervision. Before the Chancery Court could hear UMB's petition, however, on September 29, 2021, the Debtors filed for Chapter 11 bankruptcy bringing them under immediate court supervision with the corresponding transparency that is demanded of corporate debtors.

UMB Bank went on to explain the reasoning for the approach it has taken during the Bankruptcy case:

While exasperated with the apparent pre-petition misrepresentations made to it, UMB has attempted not to give in to its visceral reaction to such acts. Rather, UMB has strived to act in a reasonable and pragmatic way, including by insisting upon the appointment of an independent chief restructuring officer in order to bring the necessary expertise and transparency to these troubled companies.

Unfortunately, UMB's pragmatic approach has been misinterpreted as something more sinister. Indeed, UMB has been the target of half-truths, conspiracy theories, and outright falsehoods. Notwithstanding being maligned at every turn, UMB engaged in good faith negotiations with the Debtors (under the direction of the CRO) in order to provide the necessary liquidity to navigate a sale process and in order to allow the Debtors to purchase grain from farmers on a less cumbersome basis than is currently in place....

The UMB Bank filing to the court may be seen here: UMB Bank Supplement to Partial Objection

UMB Bank also observed that due to "substantial resistance" from many parties, the proposal to allow EG to borrow an additional $30 million from UMB Bank to finance operations and the new purchase of beans from farmers, has been put on the back burner "to allow the parties to further negotiate and assess the ongoing circumstances."

John Pittman Hey
The Taxpayers Channel

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