It’s a mess. That’s about the only way to describe the ongoing unraveling of Express Grain Terminals and those caught up in what is looking like its certain demise.
Monday, the Mississippi Department of Agriculture and Commerce is set to hold a hearing to determine whether the alleged deceit by the company was so egregious that the only recourse is to yank Express Grain’s licenses to operate grain storage facilities.
That penalty seems probable. But even if it doesn’t happen, the reprieve will most likely be for only a few days. The consultants hired to try to restructure the company for a hopeful sale have formally told employees to prepare for a permanent shutdown that will begin on Jan. 28 and take about a month to effect. They seem to be holding out little hope that any lender would be willing to put enough working capital into Express Grain to keep it going.
Thus, a lot of what’s taking place now is jockeying by the creditors — banks, farmers and others — to see who can get as close to the front of the line as possible to reduce their losses when the company is sold or liquidated and the federal bankruptcy court divides up the proceeds.
The farmers who have lost tens of millions of dollars for grain they delivered this past harvest season but for which they were not paid have two hopes.
One is that the financial institutions that provided the farm loans to plant and raise the crops will prevail in their argument that their liens on that grain or its proceeds supersedes that of UMB Bank, Express Grain’s largest creditor.
The other is that Lexington trial lawyer Don Barrett and his colleagues can prove that UMB Bank knowingly propped up a failing concern only long enough for it to take in the grain from the 2021 harvest, so that when the bank foreclosed, it could seize that grain as collateral against the $70 million outstanding loan balance.
Express Grain’s duplicity has been documented by several sources. There are those rosy emails last year about the future of the company, including one from John Coleman, the company’s president, that Express Grain was “in good shape financially” the day before it filed for bankruptcy. There’s UMB Bank showing that the company grossly overreported last year how much grain it owned, which allowed the borrower to tap into more money from the bank than it otherwise could have. And then there is the apparently doctored financial audit that Express Grain submitted to the Department of Agriculture when the company applied for renewal of its warehouse licenses last spring. It is a work of extreme fiction, portraying a company that was still profitable and with a substantial net worth when, in fact, the truth was the opposite.
If anything results in criminal charges, it will be that report.
Whoever changed the numbers and excised some of the auditors’ warnings didn’t want the state regulators and possibly the bank to see that an independent assessment of the company was that it was on the brink of failure.
Express Grain’s expansion into biodiesel at its soybean-processing plant in Greenwood had apparently been a big mistake. After the biodiesel operation came on line in early 2019, it had to be idled for nine months to work out the kinks. It couldn’t get up to full capacity and was losing money. In the auditors’ opinion, the operation was unlikely to be successful, and if the company tried to sell the biodiesel plant, it wouldn’t get close to what it had put into it. The result was a $13 million write-down in the 2020 audit, an accounting adjustment that contributed to a $21 million operating loss on the books, compared to a $10 million profit the year before.
The most forgiving explanation for Express Grain’s deception was that it was desperate. It was trying to save the company and the jobs of the 150 or so employees who had come to depend on it for their livelihood. It knew that with no warehouse licenses, it had no business. And it knew that if farmers thought there was a chance they would not get paid, they would have taken their soybeans and corn elsewhere.
It had to put up a front — the “fake it till you make it” strategy — in order to maintain the confidence of its creditors until the company’s fortunes turned around.
The problem with that strategy — besides the potential of crossing over into fraud — is that if it doesn’t work, lots of folks are left holding the bag. And they’re likely to be furious, justly feeling that they have been misled and swindled.
What seemed like a great local success story not so long ago has turned into a sad, angry and disappointing tale.
- Contact Tim Kalich at 662-581-7243 or tkalich@gwcommonwealth.com.
