Humboldt Creamery reorganizing
May 26, 2009
by Editorial Staff
FORTUNA, CALIF. — Milk is still coming to the receiving bays and ice cream is still being shipped to stores nationwide, but there is little good news surrounding Humboldt Creamery this summer. The farmer-owned dairy cooperative filed for Chapter 11 bankruptcy protection in April, two months after former chief executive officer Rich Ghilarducci admitted that the company’s finances were worse than what had been previously reported.
Upon Mr. Ghilarducci’s resignation, the company named Len Mayer as interim-c.e.o. and announced the commencement of an independent inquiry into the circumstances surrounding the abrupt resignation of Mr. Ghilarducci. Mr. Mayer had been chief operating officer of the company.
The independent inquiry was triggered when, on Feb. 20, Humboldt Creamery’s outside counsel received a call from the personal lawyer for Mr. Ghilarducci, saying Mr. Ghilarducci had resigned, effective immediately, that the creamery’s outside counsel would be receiving the resignation letter to be delivered to the board of directors, that there may be inaccuracies in the company’s financial statements, and that the company should suspend its offering of its Series B Preferred Securities.
The Chapter 11 filing will allow the creamery to keep operating, but farmer members (who own 75% of the creamery), plant employees, and anyone with a stake in the local community are now even more worried about the future at a time when fresh starts are hard to come by.
Longtime board member Dennis Leonardi told the Whittier Daily News press that the creamery’s 50 farmer-owners are trying to be optimistic about a reorganization that will keep the plant open.
"The optimism comes in trying to put together a company that can buy us back out of bankruptcy," Mr. Leonardi said. "That’s putting together financing as a cooperative and basically putting together a company that that we thought we had."
The remaining 25% of the company is held by Dairy Farmers of America, Kansas City.
With $50 million to $100 million of debt, combined with the inaccurate financial reports, the company took its case to the U.S. Bankruptcy Court in Santa Rosa, Calif., on April 21. Much of that debt is money owed to farmers for milk that’s already been delivered.
Humboldt Creamery is seeking a $3 million loan to carry it through the busy summer production cycle while it grapples with reorganization. The company’s members said they are working on a plan to buy the company, but they may not be the only prospective buyers. The company also has asked the court’s permission to pay farmers a lump sum of $1.75 million to keep them afloat, even though its debt to them was generated prior to the bankruptcy filing.
Cooperative board members said that if they do not receive payment individual farmers will themselves wind up in default.
"We are small family farmers that have been tending the land and dairying for generations," Mr. Leonardi said in the bankruptcy filing. "We don’t have massive reserves to weather this massive economic storm and there is no bailout or stimulus money, just sweat equity lost."
Just a year ago, Humboldt Creamery announced that its flagship ice cream products would be sold in more than 100 Safeway stores throughout Oregon and southern Washington.
Cooperative board members have said that if they cannot continue to run the creamery themselves they hope it would be bought by a well-established company. One of the creamery’s chief competitors is Oregon Ice Cream, Eugene, Ore.