The Chapter 11 liquidation plan for AFA Foods took effect on Wednesday, court records show, following bankruptcy court confirmation of the company’s plan on March 7.
U.S. Bankruptcy Judge Mary Walrath approved a global settlement resolving all key disputes remaining in the case last July. Lawyers for the bankrupt estate are now attempting to claw back about $84 million for creditors. AFA’s estate recently filed 125 suits seeking to recover allegedly preferential payments made to vendors and other parties in the weeks leading up to the company’s April 2012 bankruptcy filing, according to Law360.
Although the gross amount sought by the suits is about $84 million, the net value to creditors will likely be in the $15 million range due to the offset rights of some of the targets, Law360 reported.
AFA repaid its senior lenders last year after selling its meat-processing facilities, which brought in a total of $69.7 million. The company was left with about $14 million in cash on hand after repaying its $56 million debtor-in-possession credit facility.
AFA filed for Chapter 11 in April 2012, in the wake of negative media reports on one of its primary products, a lean, finely-textured processed beef often added to ground beef and known pejoratively as “pink slime.” The ground-beef processing company, based in King of Prussia, Pa., blamed its filing on “recent changes in the market for its ground-beef products and the impact of media coverage related to boneless lean beef trimmings.”
AFA became the subject of media scrutiny as early as 2009, when its facility in Ashville, N.Y., recalled more than 500,000 pounds of ground beef after it was linked to an outbreak of E. coli that killed two people and sickened about 500 others, according to The New York Times. The beef trimmings commonly used to make ground beef are more susceptible to contamination because E. coli thrives in cattle feces that can get smeared on the surfaces of whole cuts of meat, the newspaper reported.
The company faced another blow in March of 2012 when a series of reports by ABC News criticized boneless lean beef trimmings, also referred to as “pink slime,” which ABC said is added to 70% of ground beef sold in U.S. supermarkets. “Once only used in dog food and cooking oil, the trimmings are now sprayed with ammonia so they are safe to eat and added to most ground beef as a cheaper filler,” ABC News said. Still, the product meets federal food-safety standards and has been used for years, according to the Associated Press.
In the wake of the report, large grocery-store chains like Kroger pulled the product from their shelves.
Jones Day, Imperial Capital, and FTI Consulting advised AFA in its restructuring. – John Bringardner