In Re Bailey Ridge Partners, LLC

Six people formed Bailey Ridge Partners, LLC (debtor), a pig-feeding and pig-housing business. The members met with First Dakota Bank (First Dakota), which loaned the business $5.6 million. First Dakota also loaned member Jerry Ruba $500,000 personally, secured by his farm, but the $500,000 went to the company, while Ruba received a membership interest in return. Everyone assured Ruba the company would repay the loan. Eventually Ruba defaulted, First Dakota sued Ruba, and Ruba brought a third-party action against the company to pay the debt. Meanwhile, the company borrowed $11.4 million from Dubuque Bank to refinance and make improvements, secured by property and assets worth $11.5 million and guaranteed personally by the other five members. In 2016, the company defaulted, and Dubuque sued the five guarantors. At about that time, the company entered a five-year contract with a large pork-products producer that guaranteed income and switched to that producer exclusively. Projections showed the company could increase revenues enough to service its debt if it modified its facilities. Dubuque nonetheless sued to foreclose. The company filed for Chapter 11 reorganization in early January 2017, automatically staying the foreclosure proceedings and Ruba’s third-party action. The members moved to stay Dubuque’s action against the guarantors and First Dakota’s suit against Ruba. The members testified they were unified and committed to reorganization efforts, had made significant contributions including personally covering payroll during the preceding year, and would make additional contributions if necessary.