Private equity firm Paine Schwartz’s plan to liquidate Prima Wawona after failing to solicit sufficient bids to buy the company whole faces a serious hurdle in bankruptcy court.
The Official Committee of Unsecured Creditors that was appointed in the Chapter 11 bankruptcy case filed an objection to the liquidation plan on Wednesday.
The backstory: Prima Wawona – which had been formed by investment firm Paine Schwartz when it acquired Gerawan Packing in 2019 – filed for bankruptcy in October and initially sought a third party buyer.
- Things appeared to be moving in a positive direction when a notice cancelling a scheduled Dec. 7 auction signaled a potential buyer.
- In the notice cancelling the auction, Prima Wawona notes it received a $275 million credit bid, but left the door open to “seek approval to implement one or more asset sales at a later date.”
- On Dec. 18, the company filed a plan in court signaling its intent to liquidate its assets.
The objection: In the objection, the committee said the company’s liquidation plan would deprive general unsecured creditors of their right to participate in the confirmation process and gratuitously release valuable claims against third parties.
- Creditors may not even be aware that those claims exist, the objection states, since the plan “contains virtually no information” to enable creditors to even make the decision to opt out of the third-party release.
- The committee argues that the liquidation plan would jettison assets “for the exclusive benefit of insiders” to the company. Relatedly, former Prima Wawona CEO Dan Gerawan filed a lawsuit early in the year against Paine Schwartz claiming the firm intentionally tanked the company to enrich company insiders.
- Paine Schwartz is “proposing simply to throw those claims away for free, for the sole benefit of their insiders and to the direct and material detriment of their unsecured creditors who would be the beneficiaries of any recoveries,” the objection reads.
- The committee also argues in the objection that the liquidation plan does adequately explain potential claims that are being released by the plan, nor does it provide adequate information regarding the current state of the bankruptcy case.
- While Paine Schwartz has filed to select an administrator or trustee for the liquidation plan, the committee argued that the unsecured creditors should have the sole right to select an administrator.
- “[Paine Schwartz Partners’] control and management of the Debtors is already shrouded in suspicion, as it combined two companies that had been successful for decades and almost immediately plummeted both businesses deeply into insolvency,” the objection reads. “Simply put, neither the Debtors nor any of their insiders should play any role in choosing the post-confirmation fiduciary who will have the authority to pursue litigation against insiders.”