Just spend some time this morning reading about the express grain bankruptcy. Hopefully none of the farmers who post on here are impacted by this. Sounds like a situation where several farmers sold 100% of their crop to express grain and likely won’t get a penny for it.
Express grain bankruptcy
- Thread starter ronpolk
- Start date
An awful deal that will have long term implications for many farm families and the Greenwood area. For those wanting to know more, Jackson Jambalaya blog has done good write ups:
http://kingfish1935.blogspot.com/2021/11/were-delta-farmers-shucked-jived.html
http://kingfish1935.blogspot.com/2021/11/lawsuit-express-grain-shucked-bank-for.html
http://kingfish1935.blogspot.com/2021/11/were-delta-farmers-shucked-jived.html
http://kingfish1935.blogspot.com/2021/11/lawsuit-express-grain-shucked-bank-for.html
Some of what I've read implies the bank was complicit in allowing Express Grain defraud the farmers.
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Anybody know the law regarding the lawsuit by the farmers claiming the bank waited until Express Grain had their crops to put them in bankruptcy to increase their recovery? Seems obvious that it's not a lender's responsibility to look out for future creditors of their borrower. But it also seems different when the "credit" being extended is a physical crop they are providing to be sold. And there's a lot of farm specific law because they've historically been a powerful interest group, so curious as to whether those farmers have any protection.
I don't think you are understanding who was defrauded here. Certainly there is a pretty broad spectrum of farmers involved, but some of them are going to be hiring somebody like Butler Snow, Balch & Bingham, Bradley Arant, Baker Donaldson, etc. At worst, some of them will be hiring small town lawyers who are good lawyers, even if this is outside their area of expertise. These farmers won't be getting their lawyer off of a billboard.
Does not believe in Alexander Shunnarah
Sorry I left off these ** I kind of figured most folks would get it. Sorry you didn't.
Baker Donaldson is representing the bank that was allegedly defrauded and may be complicit in defrauding the farmers. It may be a conflict of interest for them to represent any of the farmers caught up in this mess.
My Dad was a small town lawyer. I'm acutely aware of the proficiency of small town Mississippi lawyers.
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It looks like the bank certainly allowed the company to keep operating until the borrowing base showed adequate collateral to make the bank feel more secure. I think that is what the farmers are saying is that bank could have called a default well before harvest season but didn’t because the bank knew they would be in a bad collateral position.
I work at a bank but I don’t work in a workout group, so I don’t have a ton of experience in this. But I think it would be difficult for the farmers to show the bank intentionally defrauded them.
It sounds like that's exactly what the bank did. Waited until the company had the crops but hadn't paid the farmers yet to foreclose. Obviously the smart move for the banks to limit their losses, but I have no idea of the legality of it.
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I have several friends caught up in it. It’s a mess and I can’t put into words how stressed they are over this.
Do you happen to know what their rights are? Is Express Grain just a broker? Do they essentially buy the crop on credit and then pay the farmers when they sell the crop? If that's the case, do farmers realize the risk they run extending credit like that? Or do they think the crop is "theirs" until they are paid for it? Or can they maintain a lien if they follow the proper procedures (if they can and didn't perfect their lien, how bad are they going to feel).
Have friends that say essentially everybody that sells to farmers on credit in the Delta is antsy because they don't know how many people are going to be put under. If the farmers are unprotected, the truly rich farmers are about to get a lot richer because there's going to be a lot of farm land up for sale, and there are going to be a lot of former farm owners that are going to turn into tenants in what were supposed to be their retirement years.
I’m sure DCD knows way more about express grain than I do but I think they use they crops they buy from farmers to make different products. Bio diesel and soybean oil. I’m thinking the crops they buy from the farmers would be accounts payable and then the crops are then inventory on express grain’s balance sheet. So, that would make the farmers unsecured creditors to express grain. Not an uncommon situation at all. Pretty much every company would have trade receivables that are unsecured.
One of the biggest corrections needed in our country is the order of precedence on who gets paid during a bankruptcy. It should be vendors/suppliers first, lenders second, and investors third. Lenders are knowingly taking risk and get paid a premium for the risk.
How they get preferential treatment as "secured" lenders but suppliers and employees are unsecured is mind boggling. Suppliers often can't get there **** back and are told by the court to keep selling. Those farmers are just operating within a system that is arranged against them.
DeSoto... How long does crop sit at a place like this before you get paid? More than 30 days? If so, does anyone sell it on a consignment/vmi basis? I got burned by a lumber customer in 2009 for $60k. From that point on, I put all of my program customers that weren't publicly traded on a vmi and had a UCC 1 filing. Everything on the floor was mine until they used it. From that point they had 10 days to pay. It cut my receivables way down, increased cash flow for the customer, lowered risk because 80% of what was on there floor was recoverable if they filed or got behind. Other than a little extra paperwork, it was a big win for everyone. Plus I sold more to those customers as they kind of became lazy on the price shopping.
How they get preferential treatment as "secured" lenders but suppliers and employees are unsecured is mind boggling. Suppliers often can't get there **** back and are told by the court to keep selling. Those farmers are just operating within a system that is arranged against them.
DeSoto... How long does crop sit at a place like this before you get paid? More than 30 days? If so, does anyone sell it on a consignment/vmi basis? I got burned by a lumber customer in 2009 for $60k. From that point on, I put all of my program customers that weren't publicly traded on a vmi and had a UCC 1 filing. Everything on the floor was mine until they used it. From that point they had 10 days to pay. It cut my receivables way down, increased cash flow for the customer, lowered risk because 80% of what was on there floor was recoverable if they filed or got behind. Other than a little extra paperwork, it was a big win for everyone. Plus I sold more to those customers as they kind of became lazy on the price shopping.
So there’s several ways this works. One is through futures contracts. So let’s say you’re a farmer and you get your crop planted and it looks good and you feel good about where the price is in June so you go ahead and book a contract to the elevator for September delivery for 40,000 bushels of soybeans with the price locked in based on the September futures price at that moment on the board of trade. You harvest your beans and bring them to the elevator and once you fill your contract you get payed.
Or you store some beans in your own personal bins until January (often because the price is better in January) and either price them on a January contract or just take them to the elevator and price each load as you bring them.
or you just take your crop straight to the elevator with no contract and price them out as you dump them.
The problem that’s going on with Express is they didn’t have the funds to pay anyone as they were delivering grain and told those waiting on a check that it would be resolved soon. And here we are.
There is talk of starting an grain indemnity program in Mississippi like many other states have. Basically you volunteer to take one cent per bushel of your crop as it’s sold at the elevator and that goes into an account that would be used for a situation like this. Basically an insurance policy.
Or you store some beans in your own personal bins until January (often because the price is better in January) and either price them on a January contract or just take them to the elevator and price each load as you bring them.
or you just take your crop straight to the elevator with no contract and price them out as you dump them.
The problem that’s going on with Express is they didn’t have the funds to pay anyone as they were delivering grain and told those waiting on a check that it would be resolved soon. And here we are.
There is talk of starting an grain indemnity program in Mississippi like many other states have. Basically you volunteer to take one cent per bushel of your crop as it’s sold at the elevator and that goes into an account that would be used for a situation like this. Basically an insurance policy.
Also, pretty common among my farmer clients is to sell at the price they like, and then not get paid until January to defer the income tax because they are cash basis taxpayers. Man, that would suck.
It is almost impossible to get a win against banks. Maybe if they can get state auditirs involved. I went through a situation with a bank over a few hundred k and talked to 3 attorneys. None wanted to touch it. One finally said he would start working it for a 35k retainer up front, but to expect the case to last years and probably hit 100k or more in cost.
I can't imagine a lawyer or firm taking this for less than 500k up front.
I can't imagine a lawyer or firm taking this for less than 500k up front.
Secured creditors don't get paid before vendors/supplies or other unsecured creditors in bankruptcy. Secured creditors are entitled to their collateral (or cash equivalent if the collateral is sold in the bankruptcy) and to the extent they are undersecured - meaning the debt they hold is in excess of the collateral's value - the excess debt is treated as an unsecured claim and is lumped in with the other unsecured creditors.
Without secured credit, our entire economy would collapse. If secured creditors' rights in their collateral were primed by unsecured creditors or debts of vendors/suppliers, it would be impossible to buy a house or start/manage a business.
A little bit of semantics, but the secured lenders has a right to the inventory of the supplier, even if it hasn't been paid for yet. So anything that's on the balance sheet goes to lenders first once liquidated, then if anything is left over, employees get paid, then suppliers. That's ********.
Employees and suppliers should be given the same status as secured lenders. That would not collapse the system, it would be a complete balance. Yes lenders will lose a little more in bankruptcies/liquidation events. Suppliers and employees would be made whole though. Lenders would raise rates to offset any increased risk and those with ****** balance sheets/credit would bear the brunt of it. As they should. One thing that won't happen though, is lenders won't prop up businesses like this Express Grain until they can build inventory (collateral) on the backs of farmers or any other supplier. As the current laws stand, it not only allows this behavior, it rewards it. But suppliers and employees at the front of the line with secured creditors and this **** gets nipped in the bud at the first sign of trouble and everyone is made closer to whole vs one being made completely whole.
There are a multiple ways to raise capital outside of secured lending fwiw, but employees and suppliers only have one avenue to get paid for their labor/goods. The rules are the way they are because the banks wrote them. Nobody is arguing against secure credit, it just shouldn't be reserved for one stakeholder.
Employees and suppliers should be given the same status as secured lenders. That would not collapse the system, it would be a complete balance. Yes lenders will lose a little more in bankruptcies/liquidation events. Suppliers and employees would be made whole though. Lenders would raise rates to offset any increased risk and those with ****** balance sheets/credit would bear the brunt of it. As they should. One thing that won't happen though, is lenders won't prop up businesses like this Express Grain until they can build inventory (collateral) on the backs of farmers or any other supplier. As the current laws stand, it not only allows this behavior, it rewards it. But suppliers and employees at the front of the line with secured creditors and this **** gets nipped in the bud at the first sign of trouble and everyone is made closer to whole vs one being made completely whole.
There are a multiple ways to raise capital outside of secured lending fwiw, but employees and suppliers only have one avenue to get paid for their labor/goods. The rules are the way they are because the banks wrote them. Nobody is arguing against secure credit, it just shouldn't be reserved for one stakeholder.
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You just described another example of why we need real anti-trust law enforcement that has been sorely lacking for 30 plus years.
I think in most cases the current arrangement works fine. Company A sells 500 widgets to company b and gets paid in 30 days… if company A does not get paid, it’s sucks and maybe there is some legal recourse there but it’s probably not worth it to company a because 500 widgets is only a portion of their revenue. Where it’s different in this case and hurts really bad is the money owed to the farmers may be 100% of their annual revenue. It’s probably not the typical case when it comes to trade receivables between vendors. But I understand your point and would hope we could come up with a better system rather than allowing something like this.
They basically are given the same status. The difference is in how they negotiate their positions. Banks are in the business of extending credit, think a lot about counterparty risk, and they protect themselves accordingly. Most suppliers view themselves as in the business of moving product and focus on volume and margins and some don't even think of "extending credit" as part of their business, even if they do it with 75% or more of their business. Some of them think a lot about counterparty risk and do things to put themselves in a better position. Employees are usually not extending more than three weeks credit and they don't think about counterparty risk at all. Even if they did, very few would have the ability to negotiate for upfront payment. The system wouldn't collapse if you put suppliers of materials in a better position by default, but it would certainly make other types of credit more expensive if all of the sudden they were by default put behind suppliers.
Get out of the bank once in a while Polk.
It hurts a lot more than you think in almost any industry, especially for the larger vendors. Its not a big deal if a small customer goes belly up, but when a business gets hit by a top customer, it hurts very bad. Remember the 80/20 rule. Almost every business has 1-2 customers that make or break it.
Imagine if the bank let Express Grain put in a new grain elevator for $500k and it was 50% down pay in full upon completion... Mr Grain elevator installer is out of business now too because he only makes $80k on the elevator and has $420k in costs to subs and suppliers. In my old industry of lumber, you are working on single digit margins. One big hit has sent, many and I do mean many, of businesses under. When I took a $60K loss, I had to sell an additional $750K to make up the loss.
In the one I went through. My customer was owned by a father nearing retirement age. The lumber was sold on 30 day terms with the assumption everything was normal. The "bank" sold all of the lumber and equipment to the son who opened up a new business the next town over. I walked into the son's place 45 days after our lumber was delivered to the father and every damn stick was there. The son immediately said "I paid fair market value" for that. I asked for proof and he told me to leave. So the bank was made whole. There was no auction or liquidation event on that inventory.That's what fair market value meant to them. It may have been 20-30 cents on the dollar. Who knows. The trustee was selling stuff before we even knew what was going on.
It's complete ********. Banks have maximized moral hazard in loaning money to businesses these days. Between vendors, employees, taxpayers, or landlords... somebody other than the bank is going to bear the burden if it goes wrong. That needs to change. Raise rates if need be, but good God quit shitting on the little people.
It hurts a lot more than you think in almost any industry, especially for the larger vendors. Its not a big deal if a small customer goes belly up, but when a business gets hit by a top customer, it hurts very bad. Remember the 80/20 rule. Almost every business has 1-2 customers that make or break it.
Imagine if the bank let Express Grain put in a new grain elevator for $500k and it was 50% down pay in full upon completion... Mr Grain elevator installer is out of business now too because he only makes $80k on the elevator and has $420k in costs to subs and suppliers. In my old industry of lumber, you are working on single digit margins. One big hit has sent, many and I do mean many, of businesses under. When I took a $60K loss, I had to sell an additional $750K to make up the loss.
In the one I went through. My customer was owned by a father nearing retirement age. The lumber was sold on 30 day terms with the assumption everything was normal. The "bank" sold all of the lumber and equipment to the son who opened up a new business the next town over. I walked into the son's place 45 days after our lumber was delivered to the father and every damn stick was there. The son immediately said "I paid fair market value" for that. I asked for proof and he told me to leave. So the bank was made whole. There was no auction or liquidation event on that inventory.That's what fair market value meant to them. It may have been 20-30 cents on the dollar. Who knows. The trustee was selling stuff before we even knew what was going on.
It's complete ********. Banks have maximized moral hazard in loaning money to businesses these days. Between vendors, employees, taxpayers, or landlords... somebody other than the bank is going to bear the burden if it goes wrong. That needs to change. Raise rates if need be, but good God quit shitting on the little people.
By having employees and suppliers as lenders on the same tier as secured lenders, you also put everyone in the room when decisions are made on when to pull the plug. As it is now, the lender is the only one getting to make the decision and they are going to do everything within their legal means to make themselves whole as soon as possible.
The bank does not force their way into these situations. One company has to go to the bank and ask them to be a part of the capital structure. 99% of the time a working capital line is given and a company uses that to pay vendors and uses the float to improve their cash flow. 99% it works exactly as it’s supposed to. You can’t cherry pick the worst examples and say the whole system needs to be overhauled.
Exactly. The situation described by JLS is really only applicable for floating liens and fungible collateral, and even then, JLS's proposed fix is still inappropriate. There are certain rights afforded to suppliers/vendors in bankruptcy (for example, 503(b)(9) claims) that mitigate against this risk. Market dynamics usually ensure suppliers/vendors sell via open accounts, which allocates default risk to suppliers/vendors. Depending on the proceedings and nature of the bankrupt entity, suppliers/vendors can negotiate critical vendor status, receive all or some percentage of pre-petition debts owed on account of their unsecured claim, and negotiate new terms going forward.
Fact is, there are always painful results arising in bankruptcy. Banks take it on the chin all the time (ask any manager of a bank's special asset division). So do pensioners, employees and suppliers. But no CAPEX would happen in the vast majority of situations/going concerns without secured debt, and the protections afforded to those that extend it in that collateral.
Placing secured debt (or rights in collateral) pari passu with unsecured debt would be catastrophic. Thankfully, as well intentioned as JLS is, that won't happen.
ETA words
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Why would it be catastrophic to allow a system where more than a "lender" is able to secure debt? Are you telling me business lenders are looking at balance sheets when writing loans and counting on inventory and FFE that are not yet paid as collateral? If so, that's one hell of a problem.
Secure lenders should have all rights to assets that have been PAID for... Point blank. Though I would argue unpaid base wages for employees should be placed ahead of all else. But pensions, bonuses, etc should stay in the unsecured category. The only way you could possibly make the argument that giving vendors and employees equal footing in securitization of debt with lenders would be "catastrophic" is if the system counts on that portion of the "collateral" when making a loan decision.
Banks will still write plenty of loans if they don't get to seize unpaid inventory as collateral when their clients **** the bed. They will still write plenty of loans if unpaid wages are at the front of the line upon liquidation. In fact, one would argue they would be more diligent about writing such loans. Businesses would be able to lower costs and more willing to extend credit if they have more recourse in recovering losses when they do so.
Your argument is, we the lenders get to secure our debt to reduce our risk and nobody else does.
As for CAPEX. Assuming you work at a bank and your institution gets a .25% rip for writing new loans. I work at Microsoft and want to build a new campus. $2.5 billion. You get to secure it against only the new campus itself. And if you foreclose, all current vendors/suppliers in the project are to be paid in full. Are you writing that loan? Your damn right you are. Maybe not at the exact same rate as if the little stipulation about not 17ing the vendors wasn't in there, but you write that loan all day. Now where it doesn't get written is if I am trying to do it at JC Penney or some other garbage company and we should all be okay with that.
No system would collapse. Interest rates would increase, but not much, maybe not at all for the most credit worthy. The reality is as a vendor, supplier, employee, or bank, we are all lending to the company. Unfortunately, the system we have in place is one where only one lender gets to secure the debt and everyone else gets to eat **** if it hits the fan.
Secure lenders should have all rights to assets that have been PAID for... Point blank. Though I would argue unpaid base wages for employees should be placed ahead of all else. But pensions, bonuses, etc should stay in the unsecured category. The only way you could possibly make the argument that giving vendors and employees equal footing in securitization of debt with lenders would be "catastrophic" is if the system counts on that portion of the "collateral" when making a loan decision.
Banks will still write plenty of loans if they don't get to seize unpaid inventory as collateral when their clients **** the bed. They will still write plenty of loans if unpaid wages are at the front of the line upon liquidation. In fact, one would argue they would be more diligent about writing such loans. Businesses would be able to lower costs and more willing to extend credit if they have more recourse in recovering losses when they do so.
Your argument is, we the lenders get to secure our debt to reduce our risk and nobody else does.
As for CAPEX. Assuming you work at a bank and your institution gets a .25% rip for writing new loans. I work at Microsoft and want to build a new campus. $2.5 billion. You get to secure it against only the new campus itself. And if you foreclose, all current vendors/suppliers in the project are to be paid in full. Are you writing that loan? Your damn right you are. Maybe not at the exact same rate as if the little stipulation about not 17ing the vendors wasn't in there, but you write that loan all day. Now where it doesn't get written is if I am trying to do it at JC Penney or some other garbage company and we should all be okay with that.
No system would collapse. Interest rates would increase, but not much, maybe not at all for the most credit worthy. The reality is as a vendor, supplier, employee, or bank, we are all lending to the company. Unfortunately, the system we have in place is one where only one lender gets to secure the debt and everyone else gets to eat **** if it hits the fan.
First of all, I’m not talking about FF&E loans or any type of CAPEX loans. These are typically secured by a specific piece of equipment or specific asset.
Secondly, I’m not opposed to anyone having collateral. I would encourage that for anyone. But what I know for a fact is no bank is going to lend on working capital (AR and inventory) on an unsecured basis.
Lastly, and this is the last I will post on this topic because I didn’t intend for it to become a pissing match about banks and bankruptcy laws (which I don’t have any experience in). Companies get working capital lines for 2 reasons: 1) they increase float days, which in turn can improve cash flow; 2) the additional capital allows for more revenue. I guarantee that express grain was able to buy substantially more crops from farmers over the years due to having the line of credit. That worked out well for both farmer and express grain. No one complained about the bank having a lien on inventory when you’re able to sell more crops because express grain has more capital. Now, you don’t want to deal with a company that has a working capital line, then that is fine, require express grain pay you upfront day 1. But let’s not act like everyone didn’t benefit from express grain having this line. As I said previously, the bank didn’t force anyone in this situation. They provided more capital and it helped all for awhile. Now if the bank did wait to an opportune time to pull the plug, that is wrong and I hope it’s discovered. But that really seems irrelevant to what you’re saying. You seem to think banks should lend unsecured on working capital but I can’t rationalize a reason why that would happen. I understand the practicality of a business should be paid for what they provide to another business but again that really has nothing to do with the bank. The bank was asked to come in and provide capital and all parties were fine with it until express grain defrauded everyone.
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CDC, where is the grain now? Is is sitting in the elevator or has it been sold to a processor or middle man up the line?
Probably 50 years ago my dad (very small time farmer compared with most of these guys) didn't like the price the elevator was offering so we he stored the last few loads hoping the price would go higher. We he finally sold, he ended up taking a big loss over the initial price offered. He often told that story when he was in his 70s/80s with a chuckle, but at the time it happened he probably was crying rather than laughing..
It’s either in bins at Express Grain or they have crushed the soybeans. They run an oil plant there.
Working capital loans can be securitized against anything or unsecured. (Receivables and FFE are what I always used as collateral, not really inventory.) I've had both myself. I am all for lenders having access to collateral, but I don't believe that collateral should include inventory, buildings, or FFE that is already collateralized. My whole argument is suppliers should be able to use their own inventory that is extended on credit as collateral to securitize their loan/credit.
I got all this started, because I pointed out that there is a loophole to do this already, consignment inventory with UCC 1 filings. If we simplify this system to consider all unpaid inventories as a consignment inventory, we really solve the whole argument. It will greatly reduce the need or at least size for working capital loans (unless the business is cash poor I guess.)
Honestly though, if a business has no other assets to collateralize for working capital other than that portion of unpaid inventory, they are already likely flashing a red light no? This is where credit worthy unsecured loans at higher rates should fill the need. Allowing lenders to collateralize that type of inventory could encourage overbuying (fraudulent behavior) from the borrower.
I don't want to argue about it anymore either. My jadedness comes from 08-09. 30-40% of the construction industry went belly up. The guy that screwed my business and his little yocal bank came out fine. My P&L was destroyed. It was a crooked *** experience. I learned my lesson. Luckily I worked for a big public company, many others have lost it all in this scenario.
If the banks and suppliers are collateralized in the same tier it creates a transparency openness that doesn't currently exist.
I got all this started, because I pointed out that there is a loophole to do this already, consignment inventory with UCC 1 filings. If we simplify this system to consider all unpaid inventories as a consignment inventory, we really solve the whole argument. It will greatly reduce the need or at least size for working capital loans (unless the business is cash poor I guess.)
Honestly though, if a business has no other assets to collateralize for working capital other than that portion of unpaid inventory, they are already likely flashing a red light no? This is where credit worthy unsecured loans at higher rates should fill the need. Allowing lenders to collateralize that type of inventory could encourage overbuying (fraudulent behavior) from the borrower.
I don't want to argue about it anymore either. My jadedness comes from 08-09. 30-40% of the construction industry went belly up. The guy that screwed my business and his little yocal bank came out fine. My P&L was destroyed. It was a crooked *** experience. I learned my lesson. Luckily I worked for a big public company, many others have lost it all in this scenario.
If the banks and suppliers are collateralized in the same tier it creates a transparency openness that doesn't currently exist.
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