When the Sunland peanut plant in Portales, New Mexico, closed its doors Oct. 8 this year after filing for Chapter 7 bankruptcy, everyone from plant workers to community leaders thought the end had arrived.
But new life may be returning to the plant temporarily now that U.S. Bankruptcy Court Judge David Thuma has cleared the way for the plant's door to reopen on a limited basis to help clear some of the plant’s assets.
Court officials say the plant has been granted authority to reopen with a limited crew in order to move product inventory to the company's existing customers and to maintain plant equipment that was purchased about a year before the plant was shut down after it was linked to a nationwide salmonella outbreak.
Sunland Trustee Clarke Coll made the request to the court arguing it was in the best interest of all parties involved in the bankruptcy protection case. It remains unclear how many workers might return to work, but officials close to the case say the number of workers under terms of the court action will probably be limited to a skeleton crew.
According to the judge's order, Sunland trustees are authorized to operate the plant in a limited capacity but can not process peanuts or peanut products. The court further granted a period not to exceed one year for temporary operations.
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The court says of primary concern are the estimated $20 million in peanut inventory that is remains stored at the plant. Since the bankruptcy was filed, a legal fight between three of Sunland's creditors, including Costco who provided cash to Sunland to purchase the peanuts prior to the bankruptcy, Production Credit Association of Southwest New Mexico, and CoBank has been brewing over disposition of that peanut inventory.
Costco had asked the court to release the inventory after the October filing instead of including them in a forthcoming asset sale. But Sunland's trustee claimed Costco is partly responsible for the plant's bankruptcy filing because they cancelled a peanut butter contract with Sunland, resulting in an estimated $4 million loss for the plant. Coll argued that loss was instrumental in Sunland's decision to file for bankruptcy earlier this year.
Court officials say a December hearing has been scheduled to resolve the peanut inventory issue. The court has also limited the length of time the plant can be reopened to a maximum one year. Officials representing Sunland's trustee say reopening is warranted to "protect and/or move the inventory" contingent on the ruling in that hearing and also to maintain the relatively new equipment in good order.
Suspension of operations at the plant were ordered in 2011 after the Federal Drug Administration (FDA) reported inspections at the facility indicated products from the plant may have been associated with a salmonella outbreak that caused 41 illnesses in 20 states. The company was the largest organic peanut butter processor in the nation and produced both organic and non-organic products at the Portales facility before being shutdown.
An agreement was later reached between the plant and the FDA in late 2011 that called for an independent, third party inspection of the facility to determine if the problems discovered from previous inspections had been corrected. But in order to pass that inspection, plant officials say new equipment had to be purchased and installed.
In addition to granting a request for a temporary reopening of the plant, Judge Thuma ordered the plant's trustee to identify and protect all assets of the plant as well as all records and to enter into whatever agreements and contracts are necessary to preserve and protect the estate.
The court also gave the trustee full management powers and responsibility over the plant and its operations during the temporary reopening period and authorized the trustee to engage employees to carry out necessary duties and to invoice customers for products that were delivered.
The trustee was also directed to file periodic reports of the operations to the court.