The more they are owed, the less unsecured creditors of Big Sky Farms will get under a plan approved by Court of Queen’s Bench in Saskatoon last week.
Creditors will vote on the plan Feb. 8.
The plan calls for the Humboldt, Sask.-based hog company to pay about $4.7 million of the $32.5 million it owes to unsecured creditors.
Over all, the recovery rate would be about 15 percent, but payments would be scaled according to the amount owed.
Those with claims of less than $4,000 would get 99 percent of their money.
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Creditors with claims of more than $4,000 but less than $40,000 would receive an average of 31 percent of their money, while those with higher claims would see 10 percent.
Chief executive officer Casey Smit said 10 cents on the dollar is better than the alternative.
“The other option is not to get anything,” he said. “That’s not palatable.”
He said those owed the smaller amounts are generally suppliers in rural communities near the company’s barns and feed mills. While the total amount is not significant, paying those bills will reduce the receivables of many small businesses.
Creditors in the $4,000 to $40,000 category have the option to take 10 percent of their money or a maximum of $3,960. For example, someone with a $20,000 claim could opt to take $2,000 for a 10 percent return or $3,960 for almost 20 percent.
Farmers who sold grain worth more than $40,000 and didn’t get paid before the company sought creditor protection Nov. 10 have been vocal in their displeasure. Some have vowed never to do business with the company again.
Big Sky, after Nov. 10, offered an incentive program to encourage farmers to continue delivering. Smit said about half of the farmers on the creditors’ list have enrolled in that program and are being paid.
“The majority of our suppliers want to see Big Sky continue,” he said.
Selling grain to livestock operations such as Big Sky, Saskatchewan’s largest hog producer, is still an attractive, competitive option for grain farmers, he added.
The company’s outstanding liabilities and debts total nearly $111.3 million, including $71.3 million to senior secured lenders and $10.1 million to sub-debt lenders.
It owes the Saskatchewan hog loan program $4.6 million and Prairie Hog Production Limited Partnership leases $9.2 million.
Farmers, suppliers and trades are owed about $16 million.
Kevin Brennan, senior vice-president at Ernst & Young Inc., served as the court-appointed monitor. He said if creditors did not approve the plan and the company was forced into bankruptcy, there would be additional claims that would further dilute the recovery.
“In our view, unsecured creditors would be significantly better off if they voted to accept the plan,” he wrote in a letter to Smit.
Smit said the company had been working through unprecedented industry challenges over the past couple of years, including the high Canadian dollar, country-of-origin labelling in the United States and high feed costs.
“It had been proactive in what it needed to do,” he said, including securing money and reorganizing. “It was all in place until H1N1 hit.”
The company lost $19.6 million in fiscal 2008 and $13.3 million in fiscal 2009.
The company has sold its farrow-to-finish operation at Treherne, Man. The 600-sow facility had been for sale since last May and empty since September. Because it was sold while Big Sky was under Companies’ Creditors Arrangement Act protection, the court had to approve the sale.
Porcherie Lac du Onze Ltee. of Notre Dame de Lourdes, Man., offered $600,000 for the land, barn, mill, bins and other assets on the site.
According to court documents, the facility was listed at $990,000. Despite multiple inquiries and five site tours, there were no other offers.
