SIOUX FALLS, S.D. (AP) — A federal trustee asked a judge Tuesday to convert a troubled South Dakota beef processing plant's bankruptcy to a Chapter 7 liquidation.
Assistant U.S. trustee James Snyder said in a petition that he believes that Northern Beef Packers, which filed for Chapter 11 bankruptcy protection last month, is "administratively insolvent" based on company reports and statements.
"Based on currently available information, it appears the plant represents the only asset by which Debtor may generate funds to pay creditors," Snyder wrote.
Northern Beef, based in Aberdeen, had been trying to obtain post-petition financing so it could proceed with hiring an investment banking firm to pursue a sale of the plant.
Snyder said Northern Beef withdrew its financing plan and has not filed a replacement motion. The change from Chapter 11 protection is necessary to protect the interests of creditors and the estate and to prevent further delay and default, he said.
Land for the $109 million Aberdeen plant was first secured in 2006, but the company wasn't able to slaughter its first animal until late in 2012 and has since struggled to reach anywhere near its production target of 1,500 head per day.
Now, with $138.8 million in liabilities and just $79.3 million in assets, according to court documents, the plant has laid off most of its employees and halted production.
South Dakota Gov. Dennis Daugaard, who has said he thinks another packing company will be interested in the property, expressed hope Northern Beef can find a buyer.
"I continue to hope that, through this process, a purchaser will be identified that will successfully operate this plant," Daugaard said in an emailed statement.
Adam Altman, Aberdeen's city attorney, said officials are monitoring the case but haven't yet formulated an opinion on the Chapter 7 petition.
"We're continuing to look at it and look at all the options, both for the city of Aberdeen and the community as a whole," he told The Associated Press on Tuesday.
Northern Beef executives since May have been working with investment banking firm Lincoln International to find either a buyer or additional investors to help Northern Beef purchase enough cattle to turn a profit. The banking firm recommended a sale, but Northern Beef withdrew its request to obtain secured credit after it was initially rejected by a federal judge.
Northern Beef Packers was at one time locally owned, but now is 41 percent owned by businessman Oshik Song. The rest of the ownership lies with 69 other Korean investors who each gave at least $500,000 under the federal EB-5 program that encourages foreign investment in exchange for qualifications to secure permanent residency.
Northern Beef Packers was pitched in 2006 in response to then Gov. Mike Rounds' South Dakota Certified Beef initiative. Rounds hoped to get the state's ranchers premium prices by allowing consumers to track animals from birth, through a feedlot and to a meatpacking plant.
But the plant faced a series of delays that included financial problems, lawsuits and flooding.