By Robin Fornoff
CMI PROJECTS EDITOR
The defunct Sunland Inc. plant is headed to the auction block Thursday in what creditors hope will turn into a bidding war for the bankrupt Portales peanut processing plant.
The reserve for all bidders in this case is $18.5 million — the amount California-based Ready Roast Nut Co. offered earlier this year.
The sale seemed imminent with bankruptcy trustee Clarke Coll backing Ready Roast’s offer. But in recent weeks another potential buyer has emerged — Hampton Farms — claiming contingencies in the proposed sale to Ready Roast could wind up giving them Sunland’s assets for significantly less than $18.5 million.
To settle the issue, U.S. Bankruptcy Judge David Thuma issued an order Tuesday authorizing the auction.
Sunland attorneys had valued the company’s total assets at $50 million when it sought bankruptcy protection last fall. It owes its three major secured creditors about $14 million. There are, however, hundreds of unsecured creditors — many, local companies and individuals — waiting to divide up what — if anything — is left.
Hampton is a North Carolina company that bills itself as the leading peanut roaster in the country. It has roasting and peanut butter processing plants in North Carolina and Virginia and has been operating in Portales for the past 11 years, according to court records.
Hampton’s objection filed Feb. 24 claims a closer look at Ready Roast’s offer reveals flaws. The offer is $11.5 million for Sunland’s assets plus another $7 million for inventory.
Attorneys for Hampton pointed out a paragraph in Ready Roast’s offer saying if “the total value of the Inventory is less than $7 million, then the Inventory Purchase Price shall be reduced dollar for dollar for such amount below $7 million.”
Hampton’s lawyers argued that caveat has the potential to be a big one. Sunland’s inventory is largely raw peanuts and some peanut butter processed before it closed its doors and filed for Chapter 7 bankruptcy on Oct. 9.
“All the inventory could have been contaminated or infested since it has not been held in cold storage either prior to or after the filing of the (bankruptcy) petition,” Hampton said in its written objection.
Lawyers argued the inventory appears to be based on schedules compiled by Sunland at the time of filing for bankruptcy “and the Inventory has apparently not been independently verified by a qualified third party.”
Hampton’s lawyers argued that without an independent verification or a modification allowing the same caveat negotiated with Ready Roast, it and other potential buyers were at a financial disadvantage and unable to bid.
Thuma’s order to proceed with the auction notes most sides have worked out a modification. The judge said Hampton submitted a bid on March 5, although the amount isn’t disclosed and Hampton’s attorney Victor Carlin didn’t immediately return telephone calls.
Sunland attorney William Arland also didn’t respond to calls for comments.
Secured creditors assured of first shot at the sale’s proceeds include CoBank of Denver, Production Credit Association of Southern New Mexico and Costco Wholesale.
Costco fronted Sunland $20 million between December 2012 and February 2013 to meet product demand and help the troubled peanut processor stay afloat. Sunland, shut down by the FDA after being directly linked to a nationwide salmonella poisoning, was strapped for cash after rebuilding its peanut butter processing plant.
Auction bidders are required to post a $500,000 bond and bidding will be in $50,000 increments, according to court records. The judge has scheduled a hearing the day after the auction to accept or reject the best bid and seal the sale of Sunland.