May 29, 2014Buyers cautioned in wake of BEI woes
BEI International, a South Haven, Michigan, agriculture equipment supplier that went defunct in April, left several farmers throughout the country without their promised harvesting equipment and parts – and little chance of recouping their thousands of dollars in investments.
Creditors of the company, one of the few that specialized in manufacturing and fitting blueberry harvesters, received the bad news in an April 22 letter from the company’s attorney.
Robert Wardrop, a Grand Rapids, Michigan, attorney representing BEI, wrote that the company was shut down and its assets had been turned over to its secured creditor, Macatawa Bank.
“The company has no assets from which to pay other creditors,” Wardrop said.
He said the bank had recently called BEI’s loan because the manufacturer was unable to meet its obligations.
“In the end, it became clear that the company had no choice but to cease operations and surrender its assets to the bank,” Wardrop said. “It is clear that even after liquidation of all assets that the bank will not be paid in full.”
He said there was no intention to put the company into Chapter 11 or Chapter 7 bankruptcy, because “there would be little or no benefit to the creditors.”
The bank’s action resulted in a May 7 auction of the remaining equipment, parts and furnishings at the company’s South Haven facility, which attracted dozens of interested buyers, including some who had been caught up in the company’s tainted business dealings.
Auctioneer Sid Miedema told attendees that the bank had managed to work with a few of the previous equipment purchasers “to get some of their items out for them” prior to the auction. The bank would likely be the only beneficiary from the proceeds of the sale.
Among the items auctioned off were at least four harvesters in various stages of completion. Also gobbled up by attendees was a large amount of harvester parts, manufacturing equipment and other items used in the BEI enterprise.
Trent Hilding, an agriculture law attorney based in Edmore, Michigan, who was not involved with the BEI International situation, said a number of factors can come into play when growers are seeking to avoid dealing with an equipment supplier that may be struggling and can’t deliver what it has promised.
“Every case is different,” Hilding said. “In this one, it looks like they may have tried some hot technology that just wasn’t there. Sometimes when there are newer owners, the transition of generations of knowledge isn’t there. Anytime you get a transition, there has to be some cautions about whether the company can keep the standards that it had before.”
Hilding coordinates a lot of estate and succession planning for ag operations, and he sees similar gaps occurring in those types of transitions.
“In some operations it happens smoothly without problems or flaws,” he said. “In others, there are huge changes and shifts that are created. Part of the transition is you may lose knowledge, financial capital or something could be going on with that change of ownership. That can be a red flag.”
He said when a company “loses its name and reputation, it’s hard to keep the company going.”
The key for equipment buyers: Do your homework.
“It appears there was a lot of defective equipment (produced by BEI),” Hilding said. “Buyers need to see demos of equipment in action. If they are from another state, they need to come up here, take the equipment to a nearby farm and see it in action. This requires a lot of exploring and talking to people before you buy.”
One way to learn about a company’s track record is to check with the Secretary of State’s office, or with the Uniform Commercial Code (UCC) online service for possible filing of financial statements and liens.
“Pulling UCCs and seeing that may or may not be a good indicator of their stability,” Hilding said.
“These are hard, unless you can really look at it and dig and find financial stuff,” he said. “Some things you’re looking for might show signs (of trouble). Use common sense. Don’t give too much money up front. If they’re asking more than they did in previous deals, that kind of change should be a red flag – or when a business changes from not doing that to doing that.”
The preponderance for deals to be made on a pre-paid basis in agriculture also can cause problems, he said.
“You still have to use common sense,” he repeated. “You can’t get wrapped up in things like trying to minimize taxes. Asking questions to see if there are some other ways to do a deposit or scale down payments in advance would be more appropriate. If they’re asking for 90 percent or more up front, that’s something to be wary of.”
He said buyers shouldn’t be fooled by elaborate marketing schemes or flashy product websites.
“You can do a lot on a web page – people need to inspect the real property,” Hilding said. “People rely too much on online information.”
Another factor in the agriculture community is fairly easy access to loans, due to operators having a strong credit history. The onus isn’t on the financial institution to protect the grower from investments that turn sour.
“It’s too easy to get lenders and money because producers have access to assets and security. You have to be more cautious. In good times, people are a little more free with money. Banks don’t care if it’s a good client that has assets. If it’s ultimately secured by the farmer with other assets, banks don’t care.”
As appears to be the case with BEI, Hilding said it’s not unusual for there to be little recourse for purchasers to recoup either their expended funds or undelivered equipment.
“When a company like this goes defunct, it usually can’t file bankruptcy to reorganize because there’s no reorganization left. When the bank takes over, it goes into receivership. The company can’t file a discharge. If they’re sued, the individual owners would likely end up filing Chapter 7 bankruptcy.”
He said operators seeking to recoup their investment shouldn’t force action that “throws a lot of good money after bad. They should explore it and see where their options are.”
Efforts to engage the state attorney general’s office in the matter may prove fruitless, also, Hilding said, although criminal findings also could come into play down the road.
Signs were evident
Tim McTigue, a regional vice president of sales and customer relations for GreenStone Farm Credit Services in its Berrien Springs, Michigan, branch, said his firm detected indications BEI International was in financial distress some time before the news broke.
“We were concerned because of what we were seeing on Dun & Bradstreet (reports) before this all came to light,” McTigue said. “It showed they weren’t paying vendors and were over 90 days due.”
Farm operators can pursue Dun & Bradstreet reports for companies on their own, or through their financial institutions.
He said asking for a down payment of a third or more to manufacture equipment may indicate a problem.
“In this case, the manufacturer was using the money to cash flow their own operation – that’s what BEI was doing, using that as a line of credit to finance their operation.”
GreenStone’s Tom Urban, vice president of credit in the southwest Michigan region, said smaller companies are more susceptible to financial woes.
“If you’re dealing with John Deere, that’s one thing,” he said. “(With smaller companies’) cash flow and capital needs – they can get on the wrong side of that.”
He also said some growers purchase equipment through overseas sources, making it more difficult to track information on those suppliers.
“With the technology and advanced equipment that our industry utilizes, it’s not unusual to require a third or even half before that equipment is built, and you have to wire the money overseas. There is some risk in that, and I don’t know of a good way around that.
“We typically support our customers,” Urban said. “If we have knowledge or information that pops up from time to time that makes us aware of any troubles, we try to let people know that in a tactful way.
“The whole industry kind of works on a handshake,” Urban said. “For the most part, it works pretty darn good in this industry. From time to time, it sneaks up and bites a few people, and I don’t have a good way to prevent that.”
Lynn Kime, senior Extension associate at Penn State University, said caution is the byword.
“When purchasing and financing any piece of equipment, producers should conduct extensive research into the company, product and the financing company,” Kime said. “This research is especially critical if purchasing equipment from an out-of-state company.”