Fiscal Fitness: Where to Use that 'Extra Money’

January 7, 2014 07:42 PM

With Riley Walter

p7 Fiscally Fit Riley Walter

Riley Walter is an attorney and founder of Walter & Wilhelm Law Group, a law firm specializing in agribusiness, reorganization and bankruptcy. Contact him at (559) 435-9800 or

Thankfully, at long last, dairy farmers appear to be getting a bit of a break. It seems there finally may be a little extra money left over in milk checks.

This raises the question of how this "extra money" should be used. Should you use it to:

  • Attend to deferred maintenance?
  • Upgrade the herd?
  • Pay the creditors who have been piling up over time due to the dairy crisis?

Whatever you do with the extra money needs to be based on strategic considerations that put you in a better position. Don’t just sprinkle it around. Be thoughtful and consider the consequences.

We have had several meetings with dairy operators in recent weeks. They are coming in to talk about the fact that they have barely survived the crisis, and now that things are looking better, they want to know what they can expect. Many of them have a significant amount of accrued, unpaid payroll taxes.

Almost all of them have a very large mound of unsecured creditors in the form of feed suppliers, veterinarians, vet suppliers, fuel distributors and so on.

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In these meetings, we often explain that there are debts that do not get wiped out by bankruptcy, and there are debts that do get wiped out by bankruptcy. Generally speaking, tax obligations are a kind of debt that does not get wiped out by bankruptcy, so if the dairy farmer has a choice between paying on a non-dischargeable tax or a payment on a dischargeable vendor bill, the answer should be pretty easy.

This still leaves hanging the looming question about what to do about the piles of trade debt.
As you might guess, most of these clients ask if we think the creditors are going to "walk away" and leave the dairy producers alone, not seeking any debt recovery. We explain that the trade creditor community is already starting to gear up to file numerous collection lawsuits.

As creditors perceive that there might be some "extra money," they are filing lawsuits, trying to get ahead of the other people in the pile.

At some point soon, these lawsuits are going to reach the point where there are actual judgments, and creditors will begin to attach milk checks or pursue judgement recoveries by levies or other means.

While many of the trade creditors will be, and have been, patient and willing to "take payments," others will not, simply because they want to get ahead of the rest of the herd to be first in line.

This makes us anticipate that there will be numerous operators who will have to reconsider using Chapter 11 or Chapter 12 as mechanisms for reorganizing their finances.

For a host of reasons, this probably will have to be done through official court action so that these operators can shed unsecured debt and fix their balance sheets.

The point of all of this is that just because it now appears that there might be a little "extra money," prudent operators should not let down their guard.

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