Tuesday, March 15, 2022, 7:55 pm
News Flash Archive
Sunday and Monday of this week, over 270 objections were filed in the Express Grain bankruptcy case against competing claims to the missing soybeans at the heart of the collapse.
These objections are required by the court so that all the parties can prepare for the upcoming 557 Final Determination Hearing at the end of the month.
At that hearing, scheduled to last a full week, the court will be required to disentangle the claims of UMB Bank, which claims to hold a security interest in all the assets of Express Grain as collateral for the $70 million the bank loaned EG, against the farmers who were never paid for the grain that they delivered to the tune of at least $41 million.
But there are others involved as well. StoneX and Macquarie purchased around $45 million of soybeans between them, some of which beans, it turned out, didn't even exist.
Finally, there are the "Production Lenders," such as Bank of Commerce and Southern AgCredit, who loaned the farmers money to produce their crops, and then were never paid, because the farmers themselves were never paid.
Generally, the Production Lenders and the Farmers have not objected to each other's claims against the soybeans.
Additionally, UMB Bank, StoneX, and Macquarie have worked together and not opposed each other's claims to the beans.
But the farmers have objected that UMB Bank has no collateral interest in the beans, and that the warehouse receipts that UMB, StoneX, and Macquarie hold are illegal and therefore worthless.
Some have even claimed that EG never had ownership of the soybeans, since its warehouse licenses were voided from the beginning due to fraud by EG. Under this theory, it was illegal for EG to purchase and hold the soybeans, and thus EG cannot claim any interest in the soybeans.
Some of the objections are based upon disagreements between the Farmers Questionnaires, the claims filed by the farmers or their attorneys, and the Grain Report and 557 Report which lists the farmers' purchases that were never paid for as far as EG's records reflect.
At least one Production Lender appears to have filed claims of holding liens against farmers' grain that the farmers did not deliver to EG, or that EG paid for in full.
But the two most interesting claims were filed by attorneys for multiple farmers. One of them, Jim F. Spencer, Jr., objected that EG could not claim an interest in any of the grain or its products. He argued:
Farm Group I objects to the Assertion of Interest filed by EGT (Dkt. #1873) and specifically objects to any assertion that the soybeans, corn, soybean meal, soybean oil, and/or proceeds from the sale of any of these products belong to anyone other than the farmers who delivered the grain. The grain at issue never belonged to EGT. A constructive trust arose as a matter of law in favor of the producers/farmers based on the fraud of EGT in soliciting producers/farmers to sell grain to it in 2021 and fraud committed by EGT in obtaining its licenses to operate a grain warehouse in 2021, which licenses were revoked and held to be void ab initio by the Mississippi Department of Agriculture and Commerce by order dated February 10, 2022.
In addition, Mr. Spencer argued that the farmers have a "reclamation claim" under the law, and that therefore:
Pursuant to this provision, title to the grain never passed to EGT and the farmers are entitled to the proceeds generated by EGT through the use of the farmers' grain.
The farmers' objection can be seen here: Objection to Express Grain's assertion of interest
But the most interesting objection filed by the farmers is their attack against the validity of the warehouse receipts which UMB Bank, Macquarie, and StoneX obtained when they purchased over 4 million bushels of soybeans.
The Taxpayers Channel reported on March 7th that it appeared that EG had sold soybeans that did not even exist, and that at the time of the bankruptcy filing, there were more outstanding warehouse receipts than there were soybeans in all their warehouses.
This fact was discovered by comparing the 557 Report and the final closing inventory figures provided by EG. At the time of filing, there were 1.55 million more bushels of soybeans "owned" by warehouse receipt holders (UMB Bank, Macquarie, and Stonex) than there were actual soybeans in the possession of EG.
See our reporting on this matter here: Express Grain sold soybeans it didn't possess, records show
But yesterday the farmers filed objections that fleshed out this fact, using records that are not publicly available, but are part of the internal discovery materials provided to all the attorneys representing parties in the bankruptcy.
The farmers' attorney Jim Spencer used inventory figures for the Sidon and Minter City warehouses to show that, repeatedly, EG sold soybeans that simply did not exist. His objections walk through the facts and figures available to the litigants.
On September 28, 2021, there were a total of 1,484,510 bushels of beans on site at Sidon (Amended Grain Report at page 3, Dkt. #1693), but there were warehouse receipts outstanding for 3,435,000 bushels of beans at Sidon (557 Report Supplement at page 2, Dkt. #1204-1). Thus, there was more than one receipt issued for the same lot of soybeans in violation of Miss. Code Ann. Section 75-44-61 (Rev. 1996). As such, there were not enough beans on site to
cover the outstanding warehouse receipts issued by the Business Debtors.
Spencer filed objections against UMB Bank, StoneX, and Macquarie's claims to interests in these soybeans. One example of Mr. Spencer's objections may be seen here: Objection to Macquarie's Assertion of Interest
Mr. Spencer then argued:
Not only does Macquarie not have a valid ownership claim in grain stored at
Sidon on September 29, 2021, but it also does not have a perfected security interest in that grain.
Macquarie's Grain Storage Agreement (Dkt. #1429-1) granted a security interest in "Stored Grain." The agreement defines "Stored Grain" as "Grain stored by Macquarie at an Approved Warehouse pursuant to the terms of this Agreement."
Macquarie's warehouse receipts specifically pertained to grain held by the
Business Debtors [EG] at Sidon. At the time the warehouse receipts were issued, there was not enough grain on site at Sidon to cover Macquarie's warehouse receipts and the warehouse receipts issued to others. As such, there was no "Stored Grain" to which Macquarie's security interest could attach.
It will be very interesting to see how the court disentangles this extremely complicated and confused situation.
To read all our coverage of the Express Grain bankruptcy case, see here: Index of Express Grain articles
John Pittman Hey
The Taxpayers Channel
News Flash Archive