Hog farmers consider suit against Puratone

Farmers owed up to $150,000 | Maple Leaf Foods purchased Puratone but says it is not responsible for liabilities

Manitoba farmers who sold grain to Puratone before the hog production company entered creditor protection in September are considering a lawsuit because they haven’t been paid for their grain.

Maple Leaf Foods announced in late November that it would pay $42 million for Puratone of Niverville, Man., which produces 500,000 hogs annually.

A few producers have suggested that Maple Leaf should compensate farmers who delivered grain to Puratone and never received payment.

However, a Maple Leaf spokesperson said the company bought Puratone’s assets, which means it isn’t responsible for Puratone’s liabilities.

According to Canadian regulations, a corporation that buys the shares of another company usually assumes the liabilities of the purchased company.

However, Maple Leaf bought Puratone’s 50 hog barns, three feed mills and other assets, which means it isn’t on the hook for Puratone’s substantial debts.

A list of Puratone’s creditors, which is available online, shows the company owes $40.8 million to the Bank of Montreal, $40.2 million to Farm Credit Canada and $5 million to Manitoba Agricultural Services Corp. All three are secured creditors.

FCC declined comment for this story because the Puratone case is still unresolved.

Puratone owes an additional $32 million to scores of companies and individuals in Manitoba, including $122,000 to Manitoba Hydro and $142,000 to Landmark Feeds.

Puratone owes $30,000 to $150,000 each to dozens of Manitoba farmers who delivered grain to the company this year.

For instance, John Sigurdson of Riverton, Man., is out more than $60,000 after delivering grain to Puratone late this summer.

“As it stands right now … we are looking for a lawyer that works in bankruptcy and insolvency,” Sigurdson said. “As soon as your grain got there (Puratone), it was made into feed and away it went…. It’s basically theft to me.”

James Bezan, an MP who represents Selkirk-Interlake, said it was good news that Maple Leaf bought Puratone and planned to continue operating the mills and barns in Manitoba.

Nonetheless, he added, Maple Leaf should compensate affected farmers.

“We are monitoring (this) quite closely and want to see these producers (have) their outstanding invoices settled up,” he said.

“They will have a hell of a time convincing farmers to deliver grain to their feed mills if they don’t treat the ones owed thousands of dollars equitably.”

Bezan said Maple Leaf shouldn’t be blamed for Puratone’s financial hole, but the new entity, however it’s structured, can’t ignore the needs of its suppliers.

“It’s about being a responsible corporate citizen and working with the producers … to make sure they have a long-term supply coming to their facilities.”

A monitor, Deloitte and Touche, is overseeing the Puratone creditor protection process. Farmers, including Sigurdson, are trying to get their status as unsecured creditors changed so they have a chance of recovering their losses.

Sigurdson is particularly frustrated that Puratone entered creditor protection rather than filing for bankruptcy. He said affected grain farmers would have been able to recoup their losses if the company had gone bankrupt because of a clause in the federal Bankruptcy and Insolvency Act that protects farmers and fishermen.

“I know that according to the act, it says that a farmer who has delivered grain there within 15 days of the time they go into bankruptcy, they become a secured creditor and they go to the top of the list.”

The clause, section 81.2 in the act, does provide special rights for farmers, said Vic Kroeger, director of corporate recovery for Western Canada with MNP in Calgary.

However, provisions in the clause make it tricky for farmers to recover their loss, he added.

“There is a right that they can get back the grain that is still remaining from what they delivered,” he said.

In other words, a farmer can get the grain back if the company still has it.

In this case, the grain was probably fed to Puratone pigs.

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