Unsecured creditors of Regina seed marketing firm FarmPure Seeds may get about six cents on the dollar out of a deal with the company’s proposed new owner.
Ontario turfgrass and forage seed firm Pickseed announced a deal in June to buy FarmPure’s forage and turf seed business and assets at Nipawin, Sask., about 140 km east of Prince Albert.
FarmPure Seeds’ trustee, the Saskatoon office of Meyers Norris Penny (MNP), filed a proposal Oct. 2 to the company’s unsecured creditors, a preliminary list of which includes 490 names of seed growers, seed companies, media outlets and others who in total may be owed as much as $7.9 million.
The proposal, which will go to a meeting of creditors on the morning of Oct. 23 at the Hilton Garden Inn in Saskatoon, calls for Pickseed to pay $450,000 to settle unsecured claims. Creditors will have to contact the trustee and provide proof of their claims before they’re eligible to vote on the proposal.
“In our view, there would be no funds available to unsecured creditors in a bankruptcy, and we therefore strongly recommend creditors vote in favour of the proposal,” trustee Naida Kornuta wrote in the letter to creditors, which is available on MNP’s FarmPure web page.
Pickseed discovered the depth of FarmPure Seeds’ indebtedness during the due diligence process for its planned purchase of the forage and grass business, Kornuta said in an interview Wednesday.
The proposal, she wrote, will allow FarmPure Seeds to be sold as “a going concern with the potential to maintain operations in Nipawin as a viable operation which employs 11 individuals and provides a needed facility to forage growers within the community and the province.”
FarmPure Seeds’ former secured creditors, the Royal Bank and Farm Credit Canada, have cut a separate deal with Pickseed that is expected to cover only about 85 per cent of the $4.1 million FarmPure owed them.
Pickseed, which bought out RBC’s and FCC’s secured position and becomes FarmPure’s only secured creditor, said it would not try to claim any of its own unsecured portion.
Pickseed plans to do business in Nipawin with many of these unsecured creditors and would prefer to at least get some of what those farmers and businesses are owed back into their hands, Kornuta said.
The Pickseed proposal must be accepted by a majority of creditors representing at least 66 per cent of the total value of proofs of claim filed with MNP, Kornuta wrote. If it’s not accepted, Pickseed would then act on its security and FarmPure Seeds “immediately becomes bankrupt.”
The Nipawin facility, which would be Pickseed’s first facility in the province, came into FarmPure’s hands when it bought Svalof Weibull’s SW Seeds division in 2006.
FarmPure’s business model involves buying seed varieties under license from agencies such as Agriculture and Agri-Food Canada, the University of Saskatchewan’s Crop Development Centre, the University of Manitoba and the University of North Dakota, then propagating and distributing seed through its retail network.
According to Kornuta’s letter, the company’s complement of staff has dwindled from about 100 employees down to the 11 who now operate the Nipawin plant. FarmPure Seeds has since auctioned off a canola processing plant it owned at Laurier, Man., and has put its forage seed distribution facility at Brandon, Man., up for sale.
FarmPure Seeds’ financial difficulties “are apparently the result of, among other things, rapid expansion without adequate market analysis and without the necessary managerial support and expertise to successfully manage a corporation with this diverse and complex an operation,” she wrote.
Based on MNP’s talks with the company’s board, advisors and lawyers, “it is apparent the board relied on their chief financial officer and other staff to operate an expanding corporation and it appears insufficient controls were in place to recognize financial difficulty in a timely fashion,” Kornuta wrote.
FarmPure Seeds, a member of Regina’s FarmPure Family of Companies, formed in the 1990s through the merger of Value Added Seeds and Performance Seeds into Quality Assured Seeds, owned by about 200 pedigreed seed growers. Their company was renamed FarmPure Seeds in 2005.
FarmPure, looking to develop “profitable and sustainable value chains” for its stakeholders, formed a number of companies in its family including FarmPure Foods, FarmPure Beverages, FarmPure Genetics and FarmPure Financial, while continuing to operate FarmPure Seeds. The foods, genetics and seeds businesses, each with separate boards, are the only companies still operating, Kornuta said.
Kornuta, in her letter to creditors, said FarmPure Seeds, in its draft financial statements for the period ending Oct. 31, 2007, noted having made “significant intercompany advances” to its parent firm for investment in “affiliated companies” in the development stage.
In that statement “it was also identified that the corporation needed additional financing or recovery of intercompany loans in order to meet financial obligations.”
Furthermore, she wrote, the loans to the parent and affiliates are considered “uncollectible.” The affiliated companies, she wrote, “had not developed sufficient sources of operating cash flow to indicate that they would be in a position to repay the amounts owing” to FarmPure Seeds.