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Judge deems Rakhra case futile

Posted: Saturday, Feb 23rd, 2013

Courier editor

ALAMOSA — Barring a miracle or major investment, Rakhra Mushroom Farm is out of business.

Chief U.S. Bankruptcy Judge Howard R. Tallman, who has overseen the Alamosa farm’s bankruptcy case since it was filed last January, vacated a hearing scheduled on the farm’s reorganization plan this week and dismissed the Chapter 11 case.

In dismissing the case, the judge apparently agreed with Senior Assistant Attorney General James Holden, representing the Colorado Department of Revenue, who noted in his motion to dismiss that Rakhra’s financial situation was basically hopeless.

“The debtor is hopelessly insolvent,” Holden stated.

Holden stated that since the Rakhra Mushroom Farm Corporation filed Chapter 11 bankruptcy last year its operating losses exceeded $2 million, and that was for only a portion of the 2012 year. The only month last year when the mushroom farm made a profit was in May, when it netted $36,230, Holden noted.

In dismissing the bankruptcy case last week, Judge Tallman stated that after conducting an evidentiary hearing and considering the evidence, the evidence showed there has been a “substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation.”

The judge also noted that a proposal for an infusion of money into the farm was withdrawn by the George Family Trust, which determined the capital infusion necessary to pay administrative expenses and to make improvements to the farm would have taken about $3 million, a great deal more than the $1.8 million proposed in the Trust’s Letter of Intent dated November 27, 2012.

With the cost of rehabilitating the farm too high, the George Family Trust backed out.

Judge Tallman added the debtor had also failed “timely to pay taxes owed after the date of the order for relief or to file tax returns due after the date of the order for relief.”

With all the odds stacked against the farm, the judge granted the Attorney General’s motion to dismiss the case. The judge also determined “the appointment of a Chapter 11 trustee, appointment of an examiner, or conversion of the case to a case under Chapter 7 of the Bankruptcy Code would not be in the best interests of creditors and the estate.”

Holden stated, “Even if the debtor found a way to satisfy all administrative claims that have accumulated in this case, the debtor does not have a confirmable plan.”

He concluded, “The debtor is hopelessly insolvent. Unsecured creditors have worse prospects than they did when the case was filed because the debtor has accumulated more than $1.3 million of administrative debt, which is likely to increase each month so long as the debtor continues to operate. CDOR [Colorado Department of Revenue) thus believes that the best option available to the creditors and the estate is dismissal of this case.”

Where that leaves the mushroom farm’s future is not certain, but its present circumstances are bleak. The farm, which has employed as many as 270 people, had about 60 workers on site on Friday and was expecting to reduce that number by about half next week, possibly to 35-40.

Rakhra Controller Don Clair said on Friday he had not heard anything at all about what was going on.

“I don’t have a clue,” he said. “We are in limbo.”

He said some crops were in the system but no new crops had been seeded at this point.

“We are just running the crops through the system that we have available and we will go from there.”

Clair added that he kept hearing from his bosses that “Denver was working hard on it” trying to develop a plan that would keep the farm in business.

“Rakhra Mushroom Farm, the largest private employer in the beautiful, high alpine San Luis Valley, has been a going concern since the early 1980’s,” the farm’s web site continues to advertise. “The company is highly regarded in the Valley as a stable source of jobs in this region of Colorado, and many of its employees have worked much of their careers within its facilities.”

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