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Production Lenders appeal key orders in the Express Grain bankruptcy

Thursday, March 3, 2022, 2:43 pm News Flash Archive

The Bank of Commerce and First South Farm Credit, ACA have appealed two key orders in the Express Grain bankruptcy case.

Today, the bankruptcy court certified the two appeals, meaning that the Fifth Circuit Court of Appeals can now decide whether to take them up for consideration.

The two key orders under appeal involve the use of the pre-petition grain for sale or further manufacturing, and the refusal to appoint a trustee to liquidate EG assets.

The two orders certifying the appeals may be seen here:

Order granting certification of appeal of 'Use of Cash Collateral' order

Order granting certification of appeal of 'Employment of CR3 and denying appointment of a trustee' order

The Bank of Commerce and First South Farm Credit are two of the "Production Lenders" who provided crop loans to many of the farmers who were never paid for their grain by EG. EG owes around $41 million to farmers who delivered their grain to EG but were never paid for it.

The Production Lenders claim a security interest in the farmers' crops, and that the Lenders are owed the money they loaned the farmers from the grain that EG received from the farmers.

Therefore, the Production Lenders have constantly opposed the court's granting EG permission to crush and process the grain, without the farmers, and therefore the Production Lenders, first being paid.

The Production Lenders have argued that the bankruptcy code requires that the grain be sold and the creditors paid. The court claimed that it has the discretion to allow EG to continue operations, on the theory that doing so will generate more cash than an immediate sale of the grain.

The Production Lenders have also objected to the court approving the hiring of CR3 to manage EG, instead of appointing a trustee to liquidate the assets and pay the creditors. They argue that employing CR3 is a waste of precious assets, and that appointing a trustee would better conserve cash and settle the bankruptcy estate more quickly and efficiently.

UMB Bank, StoneX, and Macquarie have opposed the Production Lenders appeals, and sided with the bankruptcy court's rulings.

The statement of the issues to be appealed by the Production Lenders reads:

I. In all cases where the quantity of a specific type of grain held by a debtor operating a grain storage facility exceeds ten thousand bushels, do the provisions of 11 U.S.C. Section 557(i) require the trustee to sell the grain in the debtor's possession to a third party and then determine the disposition of the proceeds in accordance with the expedited procedures of 11 U.S.C. Section 557(i)?

II. Whether the Bankruptcy Court erred as a matter of law and/or abused its discretion in holding that the disposition procedure of 11 U.S.C. Section 557(i) shall go into effect at any time deemed appropriate by the Court by way of 11 U.S.C. Section 557(c)(2), so long as such a procedure is completed before the expiration of the 120-day timeframe contemplated by 11 U.S.C.Section 557(c)(1), even where the Court has allowed the entirety of the grain to be used by the debtor in its operations such that the decision to sell the grain as contemplated under 11 U.S.C. Section 557(i) is rendered meaningless?

In today's order, the bankruptcy court wrote:

Substantively, the Court agrees with the Production Lenders that the Opinion and Order involves questions of law concerning the implementation of 11 U.S.C. Section 557(i) that have not been addressed by the Fifth Circuit or the Supreme Court of the United States. The Court only wishes that there existed some controlling decision by higher courts in which it could have utilized in making its decision.

Therefore, the bankruptcy court certified the appeals to the Fifth Circuit.

It remains unclear just what impact these appeals will have in the case, since the final Section 557 determination hearing is supposed to be concluded by April 7, 2022.

John Pittman Hey
The Taxpayers Channel

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