Agriprocessors U.S. trustee looks to appoint Chapter 11 trustee in light of arrests, attorney appointment

By Caroline Salls

Pittsburgh, Nov. 17 - Agriprocessors, Inc.'s U.S. trustee requested court approval to appoint a Chapter 11 trustee to oversee the company's bankruptcy case, according to a Friday filing with the U.S. Bankruptcy Court for the Eastern District of New York.

If the Chapter 11 trustee is not appointed, the U.S. trustee is asking the court to convert the company's Chapter 11 bankruptcy case to Chapter 7.

According to the motion, not only has the company been unable to manage its financial affairs, but its treatment of its workers does not appear to be consistent with either federal or state law.

Specifically, U.S. trustee Diana G. Adams said Agriprocessors' president and sole shareholder, as well as its former chief executive officer, currently face charges by the Iowa attorney general's office with 9,311 criminal counts resulting from violations of Iowa's child labor laws.

Adams said the allegations include requiring children to work with dangerous and poisonous chemicals, operate power-driven machinery, work more than 40 hours per week and/or during school or otherwise prohibited hours and paying the children for less overtime hours than they actually worked.

The U.S. trustee said the federal authorities have arrested and charged the former CEO with violating federal immigration and fraudulent identification statutes, stemming from an immigration raid in which roughly 400 of the company's employees were arrested by federal authorities on various immigration and possession of forged documents charges.

"The failure to comply with federal and state laws had an immediate and profoundly negative impact upon the financial affairs of the debtor," Adams said in her motion.

In addition, immediately before Agriprocessors filed for bankruptcy, Adams said allegations were made in papers filed in Iowa state court by the company's primary secured creditor that Agriprocessors had diverted at least $1.3 million in funds that constitute collateral proceeds.

On Friday morning, Agriprocessors' former CEO was again arrested by federal authorities and charged with bank fraud based on the alleged diversion of collateral, according to the motion.

While Adams said the company might argue that it removed its previous management and recently appointed an attorney to replace the CEO, Adams said the attorney has a pre-existing relationship with president Abraham Rubashkin, who is still the 100% owner of Agriprocessors and is effectively still in control.

A hearing is scheduled for Nov. 25.

Agriprocessors, a Brooklyn, N.Y.-based kosher meat and poultry packer and food processor, filed for bankruptcy on Nov. 4. Its Chapter 11 case number is 08-47472.

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