Liborio Ordered Into Chapter 7 Bankruptcy

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A bankruptcy judge ordered Liborio Markets Inc. into Chapter 7 just three days after the U.S. Department of Agriculture lifted a reparation order against the company and members of the Alejo family.

The USDA’s Agricultural Marketing Service restored the rights of the Los Angeles company and its principals to do business in the produce industry July 24. The agency stated the company had met its obligation under the Perishable Agricultural Commodities Act.

An unpaid debt of $21,461 to an unnamed Florida supplier spurred the USDA on April 3 to sanction the company and John Alejo, Enrique M. Alejo, Randy M. Alejo, and Enrique J. Alejo.

Regardless of the removal of the sanction, members of the Alejo family and the group of Liborio companies they operate are still in the midst of a multimillion-dollar bankruptcy case.

Judge Barry Russell entered an order July 27 converting the Chapter 11 reorganization to a Chapter 7 liquidation.

“… in light of the exigent circumstances associated with the debtor’s business operations, the  court determined on its own motion that cause exists to convert the debtor’s case from a case under Chapter 11 to Chapter 7, which is in the best interest of creditors…” Russell’s order states.

The judge set the following schedule:

  • Within 14 days of his order Liborio must file a schedule of unpaid debts incurred after the Chapter 11 case was filed (April 13);
  • Within 30 days Liborio must file and transmit to the trustee a final report; and
  • Liborio must turn over to the trustee all records and property remaining in its custody and control.

Bankruptcy documents show total debts of $50 million to $100 million. The bankruptcy filing estimates 100-200 creditors, including a $56 million claim by Banco Popular North America.

In its statement of financial affairs filed May 7, Liborio reported gross business revenue of $11 million in 2010, $10.58 million in 2011, and $2.57 million year-to-date at that time for 2012.

Liborio Markets Inc. and the Alejo famiy are also defendants in two federal court disputes with produce suppliers who say they are owed a total of more than $1 million under PACA.

In the federal court cases, Valley Fruit & Produce Co., Los Angeles, is seeking $887,000 and American Produce, Denver, is seeking $199,000. Those cases, both filed Jan. 23, remain pending.

The bankruptcy judge addressed those claims as well as those of other PACA creditors in a separate order July 27. He also gave Banco Popular retroactive control and possession of the stores operated by Liborio and the Alejo family back through July 24.

The judge ordered the bank to coordinate with PACA claimants valuation of perishable goods and personal property disposition. By Sept. 15 the bank, other debtors, PACA claimants and the trustee must file a report for the disposition of personal property in the case.

“All proceeds from the liquidation of the personal property, net of all out-of-pocket costs incurred for security and asset disposition, shall be held by the bank in a segregated account pending resolution of any disputes concerning priority rights and interests…,” Russelll said in his order.

In the bankruptcy case, John Alejo is listed as president and general counsel for Liborio Markets Inc., Alejo Grocers Inc. and Liborio Market No. 5. There are several Liborio markets in California, Nevada and Colorado and other corporate entities that carry the Liborio name, but in court filings, the Alejo family contends those and other various business entities with assets and are not related.

The road to resolution

American Produce contends in its civil complaint that John Alejo, Enrique M. Alejo and Enrique J. Alejo own and control Liborio Markets Inc., Liborio Holding Co., Liborio Markets and individual stores Liborio Market Nos. 7, 8, 9, 10 and 11.

“Adherence to the fiction of the separate existence of the entities, distinct one from the other, would permit an abuse of the corporate privilege and would promote injustice,” states American Produce’s complaint.

As the allegations flew in the civil cases, John Alejo’s statements about his company’s attempts to reorganize in the Chapter 11 case came under fire from Banco Popular.

In a declaration to the bankruptcy court July 23, Alejo asked for a 30-day extension to file the reorganization plan the court had ordered due July 24. In that declaration he states Liborio decided to close five of its weakest performing stores and convert them to Chapter 7 liquidation status.

Alejo also said Liborio had been working diligently on transactions to aid with the reorganization, including the sale of real property, furniture and fixtures for $36.5 million to SP Grand Resources.

Objecting to Liborio’s request for the 30-day extension to file the reorganization plan, Banco Popular stated in a July 23 filing that Alejo’s declaration was not true.

“…The debtors have not made any real progress toward reorganizing. All they have been able to do is manage to keep the doors open while digging themselves further into debt…” the bank stated in its objection.