Judge in farm bankruptcy orders unusual auction of Crystal Sugar payment
MOORHEAD, Minn. — Fallout from the bankruptcy of a sugar beet grower is resulting in an unusual auction beginning next week involving American Crystal Sugar Co.
More than $720,000 in "unit retains" — payments once owed by American Crystal of Moorhead to insolvent farmer William "Bill" Sczepanski of Stephen, Minn. — will be auctioned off to the highest bidder. Bidders don't have to be beet growers or members of the co-op.
The unprecedented auction process at www.steffesgroup.com is overseen by the Steffes Group, Inc., of West Fargo, N.D. The timed sale starts at 8 a.m. June 18. and runs through 10 a.m. June 27.
Erik Ahlgren, a Fergus Falls, Minn., lawyer is representing creditors in the Sczepanski case.
The amount raised by the auction is expected to be less than the $720,000 because there are risks and time delays involved. Ahlgren has calculated expected discounts, but declines to say what he thinks that might be.
In the sale, there are 11 blocks of shares each with originally scheduled payouts from 2019 to 2023.
Sczepanski went insolvent in early 2017, owing more than $7 million, including $4.4 million to GF Finance of Grand Forks, N.D., which separately filed bankruptcy, and $1.4 million to Farmers Elevator Company of Alvarado, Minn., which has since sold its elevator assets.
(Sczepanski has two sons who continue to farm separately. Sczepanski says he no longer farms but simply helps his sons.)
On April 9, 2018, District Judge Eric Schieferdecker at Warren, Minn., issued an order, agreeing to Ahlgren's request to sell the future payments that would have gone to Sczepanski entities from 2016 to 2023.
Without a court order, American Crystal historically only pays out unit retains to producers and their entities, except for a death. Ahlgren argued in court that Sczepanski's farm went through a business "death."
Questions and answers
Here are highlights from a question-and-answer information sheet provided by Ahlgren to potential bidders:
• What are unit retains? Beet cooperatives can retain a part of a beet payment as an interest-free loan. The retains "may" be returned to members if the board, "in its discretion" finds the retains "in excess of the amounts needed for operating the company's business and servicing its debts." Historically, Crystal pays out unit retains after seven years, with the oldest paid first.
• Are the payments guaranteed? No. They represent "equity" in the company. While they are historically repaid in seven years, the company "could determine that the funds are required to fund an internal investment project." Ahlgren says. Company officials have informed him there is no "current plan" to change the practice, but notes "there is no guarantee" on that.
• Can the buyer subsequently transfer the right to receive payments? No. Payments go to "the original grower" or an "approved transferee" determined by the co-op board. Ahlgren can expect the board to approve the assignee's sale because a court has ordered it, but doesn't necessarily expect the board to approve a subsequent transfer.
• What are the terms of the sale? The purchaser—not necessarily a beet producer— would receive the "unit retains redemption payment" and would take them free and clear of liens.
• What is the income tax treatment? The transferee is responsible for income taxes due from the receipt of the payments, as per advice from a tax professional.
For details about the sale of the unit retains, Ahlgren refers people to Daniel Mott, American Crystal general counsel, email@example.com, 612-492-7322, or to Ahlgren himself at firstname.lastname@example.org, 218-998-2775.