With judge’s approval, liquidation of AppHarvest’s assets marches forward

A federal judge approved AppHarvest’s bankruptcy plan Thursday, allowing the company to move forward with the liquidation of its assets.

The Kentucky-based company’s bankruptcy case could’ve easily ended up in a “much darker place,” said Judge David Jones of the federal bankruptcy court for the Southern District of Texas. Jones approved AppHarvest’s plan less than two months after the indoor produce grower filed for bankruptcy.

“I have seen a very interesting mix in this case of negotiation, as well as collaboration, and they don’t go hand in hand, always,” Jones told the court.

Thursday’s confirmation came a week after Jones signed off on plans to sell AppHarvest’s last three greenhouses. Equilibrium, an Oregon-based investment firm, purchased the two largest greenhouses in Richmond and Morehead. Bosch Growers, a Netherlands-based indoor produce grower, bought the greenhouse in Somerset.

As part of the negotiated plan, AppHarvest will use the money generated by the selling of its assets to pay back a portion of the company’s creditors for outstanding debts.

When the case was filed, unsecured creditors were expected to recover nothing, but through negotiations they could potentially recover up to 40% of their claims, Jeri Leigh Miller, an attorney representing AppHarvest, told the court. The plan will be executed by the end of the month.

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However, the potential amount of money recovered for the creditors — which includes several companies from across the state and world that assisted with the construction of AppHarvest’s greenhouses — are dependent on the resolution of an ongoing dispute between AppHarvest and Dalsem Greenhouse Technology, a Netherlands-based company that manufactures and installed the high tech greenhouse equipment used by AppHarvest.

Dalsem is AppHarvest’s largest unsecured creditor. The company claims it’s owed over $14 million for construction work done on the Richmond greenhouse.

Weeks ago, Dalsem objected to AppHarvest’s sale of its Morehead and Richmond greenhouses but eventually agreed to allow the sale to go forward after provisions were made for the company to pursue its claims in mediation.

Dalsem’s claims hearken back to over $14 million in mechanic’s liens the Dutch company filed in Madison County in late 2022 and earlier this year. Should meditation fail, the companies will enter arbitration to try to reach a resolution.

“It’s no secret that Dalsem’s relationship with AppHarvest has been strained,” Andrew Zatz, an attorney for Dalsem, told the court. “Our sincere hope was to use these Chapter 11 cases as a platform to resolve the ongoing dispute between the parties. Unfortunately, that did not materialize.”

AppHarvest officials will take about three months to build a claim against Dalsem, Zatz said.

After the liquidation, a small AppHarvest entity headed by Chief Restructuring Officer Gary Broadbent will continue to be employed by the company “to manage transition issues and to manage pending litigation against suppliers such as Dalsem,” said Travis Parman, a company spokesperson.

The recovery of money for the other unsecured creditors is essentially “held hostage” while Dalsem and AppHarvest go through mediation, said Chuck Gibbs, an attorney representing a committee of unsecured creditors.

The money the committee of unsecured creditors will receive will come partially from the sale or transition of two of the AppHarvest farms, a high-tech harvesting robot and the sale of shares owned by AppHarvest in an Abu Dhabi business called Red Sea Farms.

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According to a liquidation analysis filed in court as part of the bankruptcy process, the sale of Red Sea Farms shares was expected to generate up to $5 million.

The sale of robotics, developed by a company called Root AI, could command $180,000, the analysis said. In 2021, AppHarvest acquired the harvesting robot and the company that made it for roughly $10 million cash and $50 million in shares.

AppHarvest originally built four greenhouses. A greenhouse in Berea had already been sold to Mastronardi Produce, AppHarvest’s distribution partner, in a cash-generating move in December. It was therefore not sold in the bankruptcy process.

Prior to the bankruptcy filing, four company executives received nearly $2.47 million in direct cash payments from the company, AppHarvest announced in a public filing in July. Martin, Webb and Chief Financial Officer Loren Eggleton each received payments of $540,000. Broadbent, the company’s chief legal and restructuring officer, received $850,000.

Operations at all four of the companies’ farms — which employed hundreds of people across the state — have continued during the bankruptcy process. Bosch Growers told the Herald-Leader previously that they plan to continue the Somerset farm’s operations. Equilibrium has not publicly said what they plan to do with the Richmond and Morehead facilities.