After 10 months of the bankruptcy case, we thought it might be helpful to provide a recap of significant events in the chapter 11 case so that interested folks can understand both the history of the case and the plan moving forward.
As most of you are aware, Eastern Livestock’s troubles became public when they began to bounce checks in late October of 2010. Their bank, Fifth Third, took Eastern to court in Ohio and the court appointed a receiver in early November to oversee Eastern’s operations. Several of Eastern’s creditors went a step further and forced Eastern into bankruptcy proceedings in early December, 2010 in New Albany, Indiana. The creditors, among other things, wanted to make use of the Bankruptcy to insure an orderly and equitable liquidation of Eastern's assets. Often in bankruptcy proceedings the owners get to continue to run the company. Here, because of allegations of fraud and bounced checks, the Bankruptcy Court appointed a Trustee – Me.
The bounced checks caused concerns by buyers who were getting demands from cattle sellers, truckers and others not to pay Eastern, fearing that Eastern would take buyers money and continue to issue bad checks to the sellers, truckers and others. A number of the larger buyers decided to take the money they owed Eastern and put it in a court, then make everyone they knew of who might claim a portion of the funds a party to the court case. At the time of the bankruptcy filing, Eastern was involved in these types of cases in various courts in Wisconsin, Texas, Kansas and Colorado.
We have been working to administer the bankruptcy case and locate and liquidate Eastern's assets for the benefit of Eastern's creditors. As many of you are aware, this task has proven difficult in light of the disarray of Eastern's corporate records, the enormous number of Eastern's daily purchases/sales, and the actions of many creditors who helped themselves to Eastern’s assets in the days leading up to the bankruptcy.
In early January, we filed motions with the Bankruptcy Court seeking authorization to complete sales of Eastern's cattle inventory, collect funds owed from Eastern's sale of cattle and settle certain of Eastern's forward contracts for the purchase of cattle. The Bankruptcy Court granted these motions in late January. At the same time, at our request the Bankruptcy Court set deadlines for creditors to file their claims against Eastern. Those dates have now passed. To date, over 550 claims have been filed asserting a staggering $150 million in claims. We have begun reviewing these claims. Many are duplicated, many are subject to being denied or reduced because the creditor got paid some or all of their money after the claim was filed, many will not be allowed for other reasons. What I am trying to say is that I believe that when the dust settles, the actual amount of claims in this case that the court approves will be much, much small than the total right now – probably closer to $25 - $30 million, excluding Fifth Third Bank which has a lien.
Thus far, we have collected more than $10 million dollars. None of those collections include the approximately $7 million in funds paid into court in other states I mentioned earlier or approximately $4.7 million that was seized by the FBI from one of Tom Gibson's personal accounts during December, 2010. We have successfully moved all of the cases that were pending in other states to the Bankruptcy Court and are seeking authority to further combine the cases to simplify their administration and reduce the costs. We have also proposed briefing schedules for key issues in those cases. Since many of the claims in the cases have similar legal issues, we believe that getting one ruling affecting multiple claims will save legal expenses for all. Regarding the $4.7 million seized by the government, we believe that money is really property of Eastern that was fraudulently transferred to Tom Gibson's account. Therefore, it should be made available to satisfy creditors of Eastern's bankruptcy. We are working with the US Attorney General's office to determine how the money will be distributed. Some of you may be familiar with the fact that the government doesn’t always return seized funds or property. In this instance, the government officials have told us it’s not their intent to retain the funds and that they should go to the alleged victims.
We continue to collect outstanding accounts receivable and are attempting to negotiate settlement of the accounts in dispute, however we have about reached the end of the road with the accounts that can be settled. The next phase will be to sue on the accounts where we haven’t settled. Some of these cases have already been filed. There are sizeable cases pending against Superior Livestock Auction, Atkinson Livestock Market, and Willie Downs and many others yet to be filed.
From our investigation it has become apparent that some creditors of Eastern (with and without the help of Eastern's management) took actions in late October and early November of 2010 which allowed them to get paid ahead of everyone else. We will be asserting claims against these parties in coming months to recover some, if not all of the benefit they received to try to make sure that all creditors get treated equitably.
We have negotiated a lease that will allow us continued occupation of the office building in New Albany, Indiana that has served as Eastern's headquarters and which houses the majority of Eastern's books and records. We have researched and are in discussions to liquidate Eastern's ownership interests in various business entities and just recently filed a motion seeking authority to conduct an auction sale of Eastern's personal property.
While I wish that all of these actions could be wrapped up in short order, Bankruptcy can often be a slow process. This is further exaggerated in Eastern’s case by the fact that Eastern was capable of wearing multiple hats. It could be a cattle buyer, a cattle seller, a cattle broker or a clearing agent. In every case we are litigating, the party on the other side claims that Eastern was wearing the hat which most favors their claim or defense. This requires that we verify the factual circumstances of thousands of transactions, some of which were poorly documented by Eastern or not at all.
Our goal is to insure that funds are recovered and claims allowed and paid pursuant to the Bankruptcy Code and not just to creditors who have particularly aggressive lawyers. In circumstances where s person we were attempting to collect from has proven to me that they are legally entitled to different treatment, we have settled and/or agreed to treat that person differently. For example, we recently worked with parties in one of the state actions to distribute some of the interpled funds to an unpaid cattle seller who sufficiently proved that he, and not Eastern, was legally entitled to the funds at issue. I will continue to represent the interests of all creditors and the Bankruptcy Code, and insure that recovered funds are distributed the way the law requires.
The Bankruptcy Court has set up monthly hearings in the case in order to hear the vast majority of issues and you may dial into the hearings by calling 1-888-399-7768 and entering passcode "586676#" when prompted. Upcoming hearings are scheduled for October 25th at 3:00 p.m EST and November 15th at 1:30 p.m. EST.