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Case 12-02872-als11 Doc 662 Filed 04/02/14 Entered 04/02/14 17:29:31 Desc

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UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF IOWA


In re:
NATURAL PORK PRODUCTION, II, LLP






Debtor and Debtor in Possession.


P.O. Box 468
Harlan, IA 51537

EIN: 03-0480873
CRAWFORDSVILLE, LLC






Debtor and Debtor in Possession


EIN: 26-2579415
BRAYTON, LLC






Debtor and Debtor in Possession


EIN: 26-2579316
NORTH HARLAN, LLC






Debtor and Debtor in Possession


EIN: 26-2579476
SOUTH HARLAN, LLC






Debtor and Debtor in Possession


EIN: 26-2579560
















Lead Case No. 12-02872-als11

Chapter 11

Hon. Anita L. Shodeen




Affiliated Case No. 12-03748-als11




Affiliated Case No. 12-03749-als11




Affiliated Case No. 12-03750-als11




Affiliated Case No. 12-03751-als11


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JOINT RESPONSE OF THE PLAN PROPONENTS TO

THE IC COMMITTEE OBJECTION TO DISCLOSURE STATEMENT


The Debtors and Debtors-in-Possession NATURAL PORK PRODUCTION, II, LLP

(“Natural Pork”), CRAWFORDSVILLE, LLC (“Crawfordsville”), BRAYTON, LLC

(“Brayton”), NORTH HARLAN, LLC (“North Harlan”), and SOUTH HARLAN, LLC (“South

Harlan”) (hereinafter referred to as “NPPII” or “Debtors”) and the Official Committee of

Unsecured Creditors of each of the Debtors (the “Committee,” and with the Debtors, the “Plan



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Proponents”) hereby respond to the objection lodged by the IC Committee (“ICC”) to approval

of the Disclosure Statement filed in support of the Joint Liquidating Plan of Reorganization dated

January 21, 2014 (the "Joint Plan").

1.

The ICC objects to approval of the Disclosure Statement filed in support of the

Joint Plan on a number of grounds large and small. The Plan Proponents have addressed certain

objections with the filing of First Amended Joint Plan of Reorganization dated April 2, 2014

(“Amended Joint Plan”), and the accompanying amended Disclosure Statement in support of the

Amended Joint Plan which was also filed April 2, 2014. Other objections have no merit.

2.

The Amended Joint Plan and accompanying Disclosure Statement have been

works in process for several weeks. While the changes described herein address any material

objections lodged by the ICC, they were not made in response to those objections but based on

assessments made by the Plan Proponents that have led to refinements in plan structure, where

appropriate, and informational corrections, where necessary. All are discussed below.

Confirmation Objections

3.

The ICC’s first objections are confirmation objections. First, the ICC contends

that the Joint Plan had a fatal flaw - the inability to secure an accepting impaired class of

creditors – based on the prediction that the only impaired class of creditors identified in the

initial Joint Plan (Class 6) will assuredly reject the Joint Plan. The ICC also contends that the

Joint Plan is not feasible on its face because it is allegedly premised on the Debtors’ victory

against all defendants in the Adversary Proceedings -- in particular, the proceeding that all

parties in this case informally refer to as the Priority Litigation (Adv. Pro. 12-30098), which is

currently scheduled for trial commencing April 28, 2014.



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4.

The Plan Proponents have refined the Joint Plan’s claim classification and reserve

structure in a manner that resolves both objections.

Accepting Impaired Class

5.

As an initial matter, the Plan Proponents do not concede that they cannot secure

Class 6 as an accepting impaired class. The Plan Proponents submit that the overall settlement

structure in the Amended Joint Plan provides significant incentives to members of the ICC’s

constituency to vote for the Amended Joint Plan. It is certainly possible that a sufficient number

of ICC members (all of which have Class 6 claims) will accept the Amended Joint Plan to make

Class 6 an accepting impaired class.

6.

Furthermore, Class 9 in the Amended Joint Plan, which is a class of holders of

unsecured subordinated debt that does not overlap with the ICC constituents, is an impaired

class. Class 9 (along with Class 8 – trade creditors) will be receiving post-petition interest on

their claims at the rate of 3% based on the premise that the estates’ are solvent under the capital

structure proposed in the Amended Joint Plan. As 3% is less than the contract rate under the

applicable subordinated notes, which is typically 9% but can vary from 5 to 12%, Class 9

creditors are impaired, and thus entitled to vote.1


1



Under the Bankruptcy Code, any impairment to a creditor’s contractual right of interest is “impairment”
that creates a right to vote. See 11 U.S.C. § 1124. “Under § 1124, a class of claims or interests is impaired
unless the plan ‘leaves unaltered the legal, equitable, and contractual rights to which such claim or interest
entitles the holder of such claim or interest.” Cutcliff v. Reuter (In re Reuter), 427 B.R. 727, 773 (Bankr.
W.D. Mo. 2010). The Reuter court further explains: “Impairment is a term of art, extending beyond a
worsening of a creditor's position to include virtually any alteration of the rights of interested parties
beyond those specifically designated in § 1124 as not affecting impairment. Any impairment, no matter
how insignificant, renders the entire claim impaired under the plan. Id. at 773-74 (internal citations
omitted).






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7.

Assuming a prediction about class voting is a basis for approving, or not, a

Disclosure Statement, the Plan Proponents look into the ICC’s crystal ball and predict that the

creditors in Class 9 will vote to accept the Amended Joint Plan.

Contested Interests Reserve

8.

The Amended Joint Plan contains a mechanism – the Contested Interests Reserve

– that protects the economic interests of ICC members that vote against – or opt out – of the

Amended Joint Plan and, in effect, go “all in” on the outcome of the Priority Litigation and other

pending adversary proceedings.

9.

The Plan Proponents have created Class 15 which will control the distribution

rights of ICC members that vote against the Amended Joint Plan. An opt-out party’s right to

distribution on account of its dissociated interest (defined as “Dissociated Equity Interest” under

the Amended Joint Plan) will be assigned from Class 14 to Class 15, and a reserve in the amount

of that party’s Class 6 claim, if such claim was allowed in full, will be established through the

Contested Interests Reserve. This structure will preserve the economic interests of ICC members

that select “litigation to judgment” as their option for determining their rights, as opposed to

accepting their treatment under the Amended Joint Plan, pending the outcome of litigation. If

the ICC prevails in that litigation, such members will be paid their Class 6 claim amount from

the Contested Interests Reserve. If the Debtors prevail, however, the cash in the Contested

Interests Reserve will be forfeited by the losing parties, and will be assigned to the Equity

Interests Fund for redistribution to Classes 13 and 14.

10.

The ICC members presently assert that their Class 6 claims exceed $18 million.

ICC Objection, p. 9, ¶ 17(a).2 There is currently sufficient cash in the Debtors’ accounts to


2

It is worth noting there that under the ICC’s view of the world, at least $18 million of the remaining

available cash belongs to the ICC members. If $18 million plus is paid to Class 6, then the Debtors would not be



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satisfy such claims in full – approximately $20 million - and therefore sufficient cash to reserve

for such claims even assuming every ICC member votes against the Amended Joint Plan. The

necessary size of the Contested Interests Reserve cannot be determined, however, until voting is

completed. The Plan Proponents (once again looking into the ICC’s crystal ball) accept that

some ICC members will opt out of the Amended Joint Plan, but also predict that the Contested

Interests Reserve will require substantially less than $18 million once the votes have been tallied.

Alleged Inaccuracies

11.

The ICC also complains about alleged inaccuracies in the Disclosure Statement.

The Plan Proponents welcome such comments to the extent they prove correct, or lead the Plan

Proponents to clarify a section.

12.

The ICC complained about the addition of the statement of facts currently

appended as Exhibit A to the Disclosure Statement, and to its characterization in the Disclosure

Statement as “undisputed.” This was a valid comment, and it has been corrected. The

Disclosure Statement continues to include Exhibit A, but the Disclosure Statement now clarifies

that Exhibit A presents the facts as presented by the Debtors in the Priority Litigation. The

Disclosure Statement also encourages interested parties to review the pleadings filed in the

Priority Litigation if they want further information about the positions taken by the litigants in

that action.

13.

The Disclosure Statement has been amended to note that the cross-motions for

summary judgment filed by the Debtors, the ICC, and creditor Purina Mills, LLC, were all

denied by this Court in January 2014.


able to pay even trade creditors (Class 8) in full. It would be the ultimate irony (or is it tragedy) in this case if the
partners that abandoned the Debtors’ ship in 2008 precisely because the ship was beginning to flounder manage to
leapfrog themselves ahead of the innocent businesses that continued to do business with the Debtors.



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14.

The ICC asserts that the description of the outcome of the Iowa state court

litigation captioned Craton Capital, L.P. v. Natural Pork Production II, LP is “materially

misleading.” ICC Objection, p. 8, ¶ 17(a). While that court did rule that partners that dissociated

pre-impairment were entitled to receive debt instruments, the Plan Proponents believe that the

Settlement and Intercreditor Agreement to which all ICC members (led by the state court

plaintiff, Craton Capital, L.P.) signed on amounted to a consensual elimination of the distinction

between pre- and post-impairment dissociation. In effect, Craton Capital, L.P., and the few other

pre-impairment dissociated parties went “all in” with the balance of the dissociated partners. For

the ICC to now contend that the Plan Proponents should acknowledge a distinction between pre-

and post-impairment dissociated parties that the ICC itself does not acknowledge is the height of

irony.

15.

The ICC ratchets up the volume by claiming that the description of the Iowa state

court captioned IC Committee v. Lawrence Handlos is “patently false.” ICC Objection, p. 9, ¶

17(b). The only thing patently false here is the ICC’s description of that litigation. Among other

things, the Iowa state court did not hold, as the ICC contends, that “the case against Mr. Handlos

personally is not related to NPPII’s bankruptcy proceeding.” The order in that court speaks for

itself, and is attached hereto as Exhibit A. In any event, every allegation made against Mr.

Handlos in that litigation relates to his acting in the capacity as managing partner of lead debtor

NPPII, and the allegations in the original petition, filed less than two weeks before these cases

commenced, were almost immediately parroted by the ICC in its failed attempt in these cases to

oust Mr. Handlos in favor of a chapter 11 trustee. The Petition is attached as Exhibit B. It is not

a stretch to describe the action against Mr. Handlos as a litigation that involves the Debtors.



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16.

The Plan Proponents have also made corrections to the debt or payment figures

attributed to certain parties in the Amended Joint Plan and Disclosure Statement, including the

amounts that pertain to Michael Westphalen and Mark Zaccone. ICC Objection, p. 11, ¶ 17(g).

17.

The Plan Proponents have also modified the description of the issuance of

subordinated notes to the parties in Class 9 to address the ICC’s concerns. ICC Objection, p. 10,

¶ 17(d).

Other Objections

18.

The ICC disputes the inclusion of claims by Purina Mills, LLC, Trupointe

Cooperative, Inc., and a claim by Gary Weihs for development fees in Class 8, which includes

trade debt. ICC Objection, p. 9, ¶ 17(c). The claims held by these parties relate to obligations

incurred in the course of conducting business transactions with the Debtors, and are therefore can

be distinguished from the debt placed in Class 9, which involves an investment in the Debtors.

Both Class 8 and 9 will receive post-petition interest at 3%. The impact of allowing such interest

until the claims are paid should be obvious to readers, but in any event, cannot be accurately

reported because the Plan Proponents do not know when such claims will be paid.

19.

After consultation with the Debtors’ long-time operations administrator, the Plan

Proponents have corrected the characterization of the January 2012 Distribution as a payment

made on account of an equity interest. ICC Objection, p. 10-11, ¶ 17(f).

Conclusion

20.

The Plan Proponents believe that the amended Disclosure Statement filed in

connection with the Amended Joint Plan contains more than the adequate information required

by 11 U.S.C. § 1125, and should be approved.





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Dated: April 2, 2014





Official Committee of Unsecured Creditors
of Natural Pork Production II, LLP.,
Crawfordsville, LLC, Brayton, LLC, North
Harlan, LLC, South Harlan, LLC


/s/ Aaron L. Hammer





Natural Pork Production II, LLP.,
Crawfordsville, LLC, Brayton, LLC, North
Harlan, LLC, South Harlan, LLC, Debtors
and Debtors in Possession


/s/ Jeffrey D. Goetz

Jeffrey D. Goetz, Esq., IS# 9999366
Bradshaw, Fowler, Proctor & Fairgrave, P.C.
801 Grand Avenue, Suite 3700
Des Moines, IA 50309-8004
515/246-5817
515/246-5808 FAX
[email protected]



General Reorganization Counsel for Natural
Pork Production II, LLP., and its wholly-
owned subsidiaries: Crawfordsville, LLC,
Brayton, LLC, North Harlan, LLC, South
Harlan, LLC, Debtors and Plan Proponents


CERTIFICATE OF SERVICE: This document was served electronically on parties who receive
electronic notice through CM/ECF as listed on CM/ECF’s notice of electronic filing.
/s/


Aaron L. Hammer, Esq.
Mark S. Melickian, Esq.
Sugar Felsenthal Grais & Hammer LLP
30 N. LaSalle Street, Ste. 3000
Chicago, IL 60602
312/704-9400
312/372-7951 FAX
[email protected]
[email protected]

Counsel to the Official Committee of
Unsecured Creditors

Barbara Warner









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