Leading Beef Processing Company Files Bankruptcy

AFA Foods, Inc., a leading ground beef processing company out of Pennsylvania, filed chapter 11 bankruptcy in Delaware on April 2, 2012. Its bankruptcy case is consolidated in Case No. 12-11127, which includes the cases of its affiliates.

AFA is among the largest ground beef processing enterprises in the United States, processing more than 500 million pounds of ground beef products annually.

In its first day pleadings, AFA disclosed that it had $219 million in assets and $197 million in liabilities. AFA operates beef facilities in California, Georgia, New York, Pennsylvania and Texas. AFA’s books and records reflected that AFA and its affiliates generated $958 million in revenues by the end of 2011.

The Company announced that it filed bankruptcy to commence a prompt sales of its businesses, with the goal of preserving and maximizing value for its stakeholders. Company officials further mentioned that AFA filed because of recent changes in the market and negative media coverage over its “finely textured beef,” which caused supermarkets, like Safeway Inc. and Supervalu Inc., to stop buying the specially-treated beef.

Jeremy Russell of the National Meat Association predicted that the bankruptcy was likely to have economic impact on the industry, from cattle ranchers to other meat processors, affecting thousands of jobs as well as the prices of processed beef.

But this result is exactly what AFA is trying to avoid by attempting to quickly sell its business assets. By effectuating a quick and smooth sale and transition with a new buyer, the Company can avoid a disruption in its business.

While the quick sale approach is not favored, bankruptcy courts will approve such sales when the debtor can show that, based on the business judgment of management, such sales are absolutely necessary to preserve value for the debtors’ stakeholders. Indeed, there are several recent cases in the automobile industry supporting quick assets sales, pursuant to section 363 of the Bankruptcy Code.