Judge approves McM Inc. farm bankruptcy payout of $9.1 million to secured creditors
FARGO — U.S. Bankruptcy Judge Shon Hastings in Fargo approved a mediated settlement among major secured creditors in the McM Inc. farm bankruptcy on Thursday, divvying up the $9.1 million in cash to be paid out by Friday, Dec. 29.
The Dec. 28 settlement allows 14 cents on the dollar, overall, but only for secured creditors — nothing so far for unsecured creditors, such as workers or laborers.
On Feb. 10, McM Inc., a St. Thomas farm, filed Chapter 7 bankruptcy, which requires liquidation. In September, the company's owner, Ronald G. McMartin Jr., filed personal bankruptcy, also in Fargo.
McM was one of the region's largest high-value crop farms, controlling some 40,000 acres in 2016, producing potatoes, edible beans and corn. Total claims are nearly $64 million, of which $48 million are secured. BMO Harris Bank has a $43 million claim but will receive about $4.9 million from this settlement.The farm at times produced about $20 million in gross annual revenue.
Trustee Erik Ahlgren, a Fergus Falls, Minn., lawyer, has accumulated nearly $9.1 million in crop proceeds for the escrow account. The estate is selling two farmland parcels in Pembina County in Drayton and St. Thomas townships. Two parcels totaling 139 acres will be sold at auction at 2 p.m. Jan. 11 at Bremer Bank in Grafton, N.D., in a sale to be supervised by attorney Steven C. Ekman of Grafton.
On March 29, 2017, suppliers Wilbur-Ellis and T.F. Thompson had filed an action, seeking a determination of the priority of liens, especially pertaining to claims by Columbia Grain Inc., Minneapolis, and Kelley Bean Co. Inc., Scottsbluff, Neb.
In an effort to avoid the significant cost and expense of litigation, the creditors came up with the settlement proposal.
In April and May 2016, Columbia Grain had supplied $765,493 in fertilizer products to McM Inc. Kelley Bean Co. had inventory they were "setting off" payment for. The settlement involved the timing and security level in liens.
65% to BMO
About 65 percent of the escrow will go to BMO, with a $43,185,883.69 claim.
In the agreement, about 45 percent of the escrow account will go to the non-BMO Harris secured creditors in the settlement group. Those creditors and amounts are: Crop Production Services Inc., Indianapolis, $2,657,000, or 70 percent of its $3,766,850.78 claim; Wilbur-Ellis Co., Dallas, $505,000, or 87 percent of its $577,766 claim; T.F. Thompson & Sons Inc., Grafton, $231,509.50, or 40 percent of its $577,766 claim; Johnson Potato Co., Inc., Walhalla, N.D., $502,982.82, or 94 percent of its $534,873 claim; Northdale Oil Inc., East Grand Forks, Minn., $250,000, or 90 percent of a $277,760 claim.
(Separately, landowner Kenneth H. Johnson lists separate claims of $356,532.50 and $228,000 — a total of $584,532.50.)
Wednesday's settlement required Columbia Grain to pay BMO $38,274.66 and Kelley Bean to pay $185,000 to BMO, to compensate for funds they had withheld from what they thought McM had owed them.
Trustee Ahlgren is pursuing whether the bankruptcy estate can recover assets in an Island Lake place near Detroit Lakes, Minn.
The lake place
He says McM transferred the lake place into an irrevocable trust for the benefit of McMartin's daughters. The property was estimated at $1.3 million in March 2015 when it was transferred. Ahlgren alleges the transfer was civilly fraudulent because the company was in fact insolvent and that the trust didn't compensate the company for equity. If any value from the Island Lake Irrevocable Trust is returned to the estate, it would go only to unsecured creditors, according to law.
Ahlgren said he doesn't pursue criminal fraud actions. Any criminal actions would be against the corporation, which he said would be unusual. BMO Harris in an earlier receivership case against McM and McMartin alleged that McMartin had misrepresented his financial situation in rolling up $43 million in loans against $10.2 million in assets. That allegation of civil fraud was made moot by the McM and McMartin individual bankruptcies.
The Wall Street Journal on Dec. 19 published a feature story about McMartin's plight, which detailed his rise and fall. Among other things it detailed his relationship between himself and his brother, Larry, who worked for McMartin in one of his three farm headquarters.
Among other things, it indicated Ron McMartin Jr. spent time living either at the farmstead owned by his father, Ron McMartin Sr., or "as often as he can, he escapes to his lake house in Minnesota," the story says.