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August 1, 2022 – HeartBrand Holdings, Inc. and one affiliated debtor (together “HeartBrand” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 22-90127 (Judge Jones). The Debtors, Texas cattle/beef producers with a focus on Japanese Akaushi beef, are represented by Harry A. Perrin of Vinson & Elkins LLP. Further board-authorized engagements include Omni Agent Solutions as claims agent.
The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $10.0mn and $50.0mn. Documents filed with the Court list the Debtors’ only unsecured creditor as Twinwood Cattle Company ($28.9mn disputed judgment claim).
In filing for bankruptcy protection, the Debtors note: "the ongoing litigation with Twinwood Cattle Company, Inc. ('Twinwood') currently pending before the Fourteenth Court of Appeals of the State of Texas, titled American Akaushi Association Inc., HeartBrand Holdings, Inc., and Ronald Beeman v. Twinwood Cattle Company, Inc., No. 14-21- 00701-CV, including the amount of money required as security to supersede the money judgment associated therewith, and weighing the probability of the Company’s success on appeal, as well as the Company’s and Twinwood’s inability to reach mutually acceptable settlement terms…"
In mid-July, a Texas jury awarded a $28.9mn verdict to cattle companyTwinwood which had alleged that Debtor American Akaushi Association ("AAA") had breached a contract with Twinwood by withholding information on the pedigrees of its rare breed of Japanese cattle known as Red Wagyu; and that it had failed to provide DNA back-up as to the pedigree of cattle sold by AAA. That provenance as to lineage increasingly important to the beef industry and premium prices charged for steaks sourced from certain cattle breeds (eg, the Debtors' sell their "Certified" 6 oz Akaushi Beef tenderloin filets for $65)
The jury's award provides for more than $21.0mn in damages for breach of contract, an additional $1.3mn for fraud, $3.3 mn in exemplary damages, and Twinwood's attorneys' fees. The jury also found HeartBrand was the alter ego of AAA and responsible for AAA's conduct.
Events Leading to the Chapter 11 Filing
A statement in support of the Debtors' filing [Docket No. 20] provides, "These chapter 11 cases are the result of the Debtors having no choice but to file for chapter 11 to preserve the value of the Debtors’ enterprise. Faced with the inability to post additional security in an ongoing appeal of an unjust trial verdict in Texas state court, the Debtors find themselves out of options, out of time, and with only one path forward to maximize value for stakeholders — chapter 11. The Debtors intend to vigorously argue the appeal on the merits, and subsequently resolve these chapter 11 cases in a manner that preserves the value of the Debtors’ enterprise for all of their stakeholders….
[T]he non-debtor operating subsidiaries are well-capitalized, have been historically profitable and should continue to be able to operate their businesses, pay all of their obligations in a timely manner and generate sufficient excess cash flow to fund the costs of the administration of these chapter 11 cases. However, the Company does not have sufficient liquidity to post the remaining $10,749,900.10 of additional security without significant risk of harm to the Company’s operations and the interests of its stakeholders.
Out of options and faced with the approaching deadline by which Twinwood may execute on the Judgment, the Debtors determined that filing these chapter 11 cases would maximize their chances of preserving the value of the Debtors’ enterprise in the best interests of the Debtors, their estates, and the Debtors’ various stakeholders. The Debtors are prepared to do so by vigorously arguing the appeal before the Texas Court of Appeals and have filed these chapter 11 cases in a final effort to provide themselves the additional time necessary to be heard on the merits.
While the Debtors are confident they will prevail on the merits, should the Texas Court of Appeals rule unfavorably, the Debtors are prepared to pursue all alternatives available to them to maximize the value of the Company’s enterprise which may include restructuring the Company’s existing debts and exiting chapter 11 in an orderly fashion."
About the Debtors
According to the Debtors: “Fourth-generation cattle ranchers Ronald and Jordan Beeman created HeartBrand Beef to revolutionize the beef industry by bringing exceptionally delicious and healthy Japanese Akaushi beef to American consumers.
HeartBrand’s Akaushi Beef is both tender and delicious as well one of the healthiest sources of protein you can eat. The great taste and health benefits are unique to Akaushi cattle, so the Beemans have worked diligently to maintain and protect the Akaushi breed. HeartBrand produces source-verified Akaushi beef under rigorous quality guidelines and certified product testing.
HeartBrand is involved in every step of the process, from ranch to table, ensuring that our beef is both the best-tasting beef in the world and the healthiest beef you’ll ever eat."
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