Steele’s creditors wait for payout

DENVER — Hundreds of creditors for Steele’s Markets Inc., including some former employees, remain empty-handed nearly two years after the Northern Colorado grocery business folded.

Now chances for some reimbursement, while still slim, may be gaining ground.

Officials of the U.S. Bankruptcy Court are beating the bushes to collect hundreds of thousands of dollars from so-called “preferred creditors” – vendors that received payment from Steele’s in the weeks before the grocer filed for bankruptcy in February 2001.

According to documents in the bankruptcy file, the bankruptcy trustee has targeted at least 26 different businesses to return payments totaling $337,024.47 they received from Steele’s. The trustee said the payments constituted “preferential transfers,” unfairly leaving other creditors without a chance of collecting on their bills.

In those 26 cases, the creditors and the trustee are negotiating settlements that would ultimately return $139,699.71 to the pool of funds available for other creditors.

The case file did not indicate if more settlements are in the works, or if some creditors are challenging the trustee’s collection effort. The attorney representing the trustee declined to speak on the record about the Steele’s case.

Allegations of preferential transfers in a bankruptcy case are common and do not mean the Steele’s ownership was involved in any illegal movement of funds.

The bankruptcy trustee will try to recover any payments made by the debtor within 90 days of the bankruptcy filing, contending that all creditors have a right to share in those funds.

Among the creditors who have agreed to return money to the bankruptcy trustee are Citizen Printing, the law firm of Dwyer, Huddleson & Ray, the Fort Collins Coloradoan, Wild Oats Markets Inc. and Xcel Energy.

Xcel Energy and the Coloradoan were hit the hardest in the wallet. Xcel returned $30,893.69 from a disputed payment of $55,686.90. The Coloradoan and it’s sister publication the Windsor Beacon gave back $22,000 from total payments of $77,889.20.

Xcel and the Coloradoan, as with other creditors, are able to keep part of the disputed payment if they can prove the money was received in the normal course of doing business with Steele’s. For example, if the payments in the 90-day pre-bankruptcy period matched the payment track record prior to the pre-petition period, it’s considered normal business.

Creditors can also keep funds if they show their service helped Steele’s gain new value, which in turn was beneficial to Steele’s and thus to its other creditors.

Bankruptcy records list more than 600 creditors in line for payments from Steele’s. The creditor list ranges from employees who are asking for unpaid wages and benefits, to law firms that represented Steele’s through the bankruptcy process. All but a handful of the creditors are unsecured, meaning they did not hold any collateral from Steele’s to protect them if they weren’t paid.

The Northern Colorado Business Report is listed as an unsecured creditor in the Steele’s case.

Steele’s initially filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, which gave the grocer time to reorganize. During the reorganization process, Steele’s closed stores in Fort Morgan, Windsor and Niwot in order to shave costs.

In November 2001, the court ordered Steele’s to liquidate under Chapter 7 rules, after secured creditors decided the reorganization plan wouldn’t work.

Since then, the former Steele’s ownership launched Steele’s Fresh Market, which focused on sales of perishable foods. But that venture closed in March after just four months.

At the time of the Chapter 7 filing, Steele’s Markets Inc. had run up a total debt of $21.5 million, including secured creditors. According to the case file, the estimated unsecured claims against Steele’s totaled $3.2 million.

How much money those unsecured creditors stand to retrieve is uncertain, said Fort Collins attorney Ted Gould, who represents Citizen Printing.

“I’m guessing secured creditors will take the lion’s share, if not all of it,” Gould said.

In theory, Citizen — which gave back $3,155.95 from a $4,179 payment — could collect part of the money it returned to the trustee.

“It is earned money,” Gould said. “The services were provided. It’s not a question as to indebtedness ? Had they (Citizen) known, they would have stopped all services.”

“Citizen has additional (bills) that weren’t paid off,” Gould said. “They continued to render service post-filing (after the Chapter 11 filing).”

The law firm Dwyer, Huddleson & Ray stands to be one of the biggest losers in the Steele’s case. The firm, which worked on the reorganization process, filed a claim for $110,579.95 in legal bills, but later reduced its claim to $97,378.50.

Jim Ringenberg, who handled most of the work for Dwyer, Huddleson & Ray, said all unsecured creditors should be cautious about the ultimate payout from the bankruptcy trustee.

“I don’t want to raise or deflate anyone’s hopes,” he said. “Frequently a 10 percent dividend (10 cents on the dollar) for general unsecured creditors is not unusual. But there’s so much variation.”

Furthermore, the payout could be years down the road, until the trustee is done wrangling with preferential transfers.

According to one attorney involved in the case, the trustee is still working on cases that were filed in the early 1990s.

“It could be next month, it could be next year,” the attorney said. “It could be five years down the road.”

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