Sunterra takes steps toward creditor protection while U.S. subsidiaries face legal scrutiny

Several businesses under the Sunterra banner, known in Alberta for its agriculture and high-end grocery operations, have taken steps toward creditor protection as three of its U.S. subsidiaries face legal and financial scrutiny. 

Late last month, Sunterra Quality Food Markets, Sunterra Food Corporation, Sunterra Farms, Trochu Meat Processors and Sunwold Farms all filed notices under the Bankruptcy and Insolvency Act, a process that gives financially strained companies 30 days of protection from creditors while they come up with a plan to restructure.

Trochu is where Sunterra processes its pork in Alberta. The facility was damaged in a fire last summer and has not yet reopened.

Sunwold Farms is a pig operation in South Dakota where Sunterra sends pigs to be finished.

"Please be advised that the company is not bankrupt and has availed itself to a procedure whereby an insolvent person, with creditor and Court approval, restructures its financial affairs," said the insolvency trustee, Harris and Partners Inc., in letters to creditors for each of the five entities. 

Documents show each of the five entities owe millions of dollars to creditors, though some of that includes money owed to one another. For example, Sunterra Farms Ltd. owes just over $3 million to Sunterra Food Corp., and Sunterra Food Corp. owes $4.9 million to Sunterra Farms Ltd.

Meanwhile, a Midwestern farm credit cooperative has alleged breach of contract and fraud against three of Sunterra's U.S. subsidiaries. Since 2002, Sunterra has been shipping pigs to northwest Iowa and South Dakota to finish growing, according to the company's website.

The claims against Sunterra Farms Iowa, Sunwold Farms and Lariagara Farms South (another pig-finishing operation in South Dakota) are related to an alleged "cheque kiting" scheme in South Dakota, court documents show. 

All three entities have the same parent company, Sunterra Enterprises Inc.

Cheque kiting refers to the process of depositing cheques from one account with insufficient funds into another, to temporarily make a bank balance seem inflated.

According to Compeer Financial, the companies were sending multiple cheques every day via next-day mail to be deposited with Canada Western Bank. At the same time, they were also sending Compeer multiple cheques, drawn against the Canada Western Bank account.

"In other words, Defendants were sending nearly identical amounts and numbers of checks back and forth between CWB and Compeer daily," said the court documents.

Compeer alleges the cheques purposely didn't exceed $1 million to avoid scrutiny.

It's alleged that the companies collectively owe $35,259,796 to Compeer and have $19,017,724 in collateral.