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Express Grain Liquidating Trustee threatens to sue Dr. Michael Coleman

Tuesday, July 25, 2023, 4:04 pm News Flash Archive

Things are heating up as the Express Grain liquidating trustee starts lining up possible litigation to claw back money to help pay administrative claims in the bankruptcy saga that most people thought was practically over.

Technically, the Express Grain company ceased to exist once the trustee took over on June 7, 2023, and all the assets and legal rights transferred over to the "Express Grain Liquidating Trust."

The owners' equity in EG also vanished at that time.

But just before that happened, Dr. Michael Coleman, who owned close to 99% of the Express Grain enterprise, filed an administrative expense claim against the bankrupt company for $2,779,869.

This seemed to come as a surprise to some, since Dr. Coleman is considered an "insider" to EG due to his ownership interest in the business. He has not been accused of any criminal wrong doing in the EG collapse.

According to Dr. Coleman's petition, he loaned that almost $2.8 million to EG after it had filed for bankruptcy, so that payroll could be made.

See our previous reporting here: Dr. Michael Coleman files $2.8 million expense claim against bankrupt Express Grain

As reported there, EG's bankruptcy attorney Craig Geno suggested that the Liquidating Trustee might want to object to Dr. Coleman's claim, and consider filing a counterclaim or suit claiming damages from Dr. Coleman.

And yesterday, the Liquidating Trustee, Heather Williams, filed her objection to Dr. Coleman's claim. Her objection is signed by Craig Geno. Williams has petitioned the court to allow the Liquidating Trust to hire Mr. Geno to serve as its legal counsel.

First, she denies Coleman's claim that the biodiesel operation was carrying on significant activity when EG filed for bankruptcy, and thus needed liquidity to pay bills and make payroll.

The trustee continues:

. . . the deposit of monies into the Debtor's [EG's] account was not authorized or approved by the Bankruptcy Court, and until now, it was never requested to be approved by the Bankruptcy Court.

Further . . . the Liquidating Trustee alleges, on information and belief, that the only reason Dr. Coleman made the loan was the representation he received that he would be immediately repaid from the sale proceeds from the sale of a "train" of grain that had been shipped and for which the Debtor was expecting payment. This would have been, of course, an avoidable post-petition transfer and the funds were stopped in transit and were never paid to Dr. Coleman.

The trustee admits that Dr. Coleman deposited the indicated $2.8 million in EG's bank account, but:

[the trustee] denies that the transaction was a "loan".

The trustee continues to raise further objections to Dr. Coleman's claim:

Dr. Coleman acted as a volunteer in connection with the deposit of funds into the Debtor's account, and, without obtaining Court approval for the advance, it is nothing more than a gift, an equity contribution or an unauthorized transaction.

The trustee next takes aim at Dr. Coleman directly:

Dr. Coleman was the majority equity security holder in the debtor and, at all material times, was an insider of the Debtor. Under Dr. Coleman's "watch" (whether direct or indirect), the Debtor committed significant and serious acts of fraud, defalcation, negligence, waste, intentional manipulation and falsification of audits, all of which caused tremendous losses to its creditor body and to farmers whom had sold and delivered grain to the Debtor but for which they did not receive payment.

While Dr. Coleman has contended he was an innocent party to the transactions described in the next preceding paragraph, and to those same or similar actions which have been fully documented throughout this Chapter 11 case (and which are incorporated here), he either knew, or in the exercise of any reasonable diligence and fulfillment of his duties and obligations, should have known, that these actions and inactions were being taken by the Debtor, yet he did nothing to investigate, review or stop them.

As noted, in the exercise of reasonable (or any for that matter) diligence in the fulfillment of his duties and obligations to the Debtor and its creditors, Dr. Coleman would/should have discovered these actions and inactions which caused millions of dollars of losses to be incurred by innocent third parties, creditors and sellers of grain to the Debtor's grain facilities.

Therefore, the liquidating trustee asserts that she will have to file an "adversary proceeding," which is a separate but related lawsuit, against Dr. Coleman:

. . . to recover damages for his roles in the actions and inactions described in these Affirmative Responses. That adversary proceeding can then be consolidated with this contested matter for discovery, motion practice and trial.

The liquidating trustee requests that the court dismiss Dr. Coleman's motion to approve his administrative claim, and allow her to file Express Grain Liquidating Trust's separate lawsuit against Dr. Coleman for damages.

This filing by the liquidating trustee is the most pointed so far in the entire bankruptcy saga, that seeks to pin any mismanagement or blame on Dr. Coleman himself. Previous filings have pointed the finger of blame at his son, John Coleman, who has been charged with several counts of fraud in state and federal court, and is awaiting trial. John Coleman has entered not guilty pleas to all those charges.

John Coleman himself cannot be sued, since he is under chapter 7 bankruptcy protection, and in any event is most likely judgment proof.

The trustee's response filing may be seen here: EG Liquidating Trustee reply to Dr. Michael Coleman's claim

It is unclear how long it will take for this new proceeding to commence, since the court has not yet taken up approval for the liquidating trustee to hire an attorney.

To read all our coverage of the Express Grain bankruptcy case, see here: Index of Express Grain articles

John Pittman Hey
The Taxpayers Channel

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