KAILUA-KONA — Mountain Thunder Coffee Plantation, which former management said was the world’s largest Kona coffee company, abruptly shut its gates for good Tuesday after a court-appointed trustee made the decision to end operations.
Mountain Thunder has been in bankruptcy since November, according to court records, and the trustee has been in control of the business since late December.
The former owner and general manager of the business, Trent Bateman, is pushing back, saying he believes he was the target of predatory lending by a company intent on taking his business.
That lender, GemCap, did not respond to a request for a comment on this story.
Mountain Thunder and its holding company, Naturescape Holding Group Intl Inc., were pushed into Chapter 11 bankruptcy after a group of their creditors filed petitions against them in two separate federal cases to initiate bankruptcy cases in September.
The groups of creditors who filed the petitions against the companies included several Kona residents alleging nonpayment for coffee cherry, according to the petition.
The petitions also included GemCap Lending, LLC, a Malibu-based lending company with whom Mountain Thunder was already involved in a state foreclosure case, where a state judge determined that Trent and Lisa Bateman, along with Mountain Thunder and Naturescape “have breached and are in default” of a loan agreement with GemCap, according to court documents.
In January 2016, Kona Circuit Court Judge Ronald Ibarra determined that the couple were in breach of the loan agreement through a “failure to make timely payments, failure to keep accurate reporting and attempts to divert GemCap’s secured collateral,” according to court documents.
The judge also appointed a receiver, George Van Buren, “to preserve and protect GemCap’s collateral.”
The appointment authorized the receiver to take over control of the property and business operations, granting him a wide range of powers over Mountain Thunder and Naturescape.
However, the judge held off on issuing a decree of foreclosure.
A month after the judge appointed the receiver, he issued a second order allowing Trent Bateman to resume management of the farm’s business and operations, although Van Buren would have to approve any expenses or asset transfers, including the farm’s coffee inventory.
That order specifically barred Bateman from buying bulk sales in excess of 50 pounds, purchase new inventory or access any business accounts without Van Buren’s written pre-approval.
A later order issued in April required the receiver to “carry on the operations of the business … and maintain the status quo” with certain conditions, while still allowing Trent Bateman to continue management with Van Buren’s approval for any expenditures.
Trent Bateman, in a recent interview, said he believes he was a target of predatory lending, alleging several acts of wrongdoing including “fictitious charges,” and that the lender fabricated the default that triggered the foreclosure case.
In court documents responding to those allegations, the lending company argued that the debtors didn’t dispute the default when GemCap originally declared it and said the argument only came up “after losing summary judgment in the state court.”
Bateman also said that they hired a forensic accountant to analyze the borrowing bases and reportedly “found that (the lender) had been cheating,” by allegedly charging fake charges to the borrowing base, posting them to a line item that required a signature by Bateman.
“I never signed any of these,” he said.
“We’ve asked. We’ve asked. We’ve asked to explain,” he said. “And they refuse to explain. They just say ‘You owe me money; pay me.’”
GemCap stated in court documents that allegations of inappropriate charges are based on an “improper and inadmissible expert report,” according to a response the company filed to a motion filed in state court.
In February 2016, after Ibarra appointed the state receiver, the Batemans filed a counterclaim in state court against GemCap alleging numerous counts of misconduct on the part of the lender.
The state court later dismissed some of the charges. Others, such as allegations of “unfair and deceptive acts and practices” and “negligent misrepresentation” remained pending.
Although Trent Bateman said he believes the receiver was “falsely appointed,” things seemed to be running OK with him in place, saying the receiver “did a great job of maintaining the business.”
“He was fair,” Bateman said. “He was fair with the lender and fair with the owner.”
The move to federal court though, he said, changed matters.
In an October motion to dismiss the bankruptcy petition against Naturescape, Naturescape’s federal bankruptcy attorney Chuck Choi accused GemCap of engineering the petition “in a ‘bad faith’ attempt to ‘forum shop’ from the state court to bankruptcy court because of GemCap’s dissatisfaction” with the state court judge’s rulings.
Choi argued that the case was already pending in the state court and that by that point, the receiver had already been in place for nine months.
The federal judge, though, denied the attempt to dismiss the petition one month later.
The petition kicked off a series of disputes about the loan, the creditors and allegations of financial mismanagement.
In November, two months after the initial petition was filed, the federal bankruptcy judge hearing the case officially declared Mountain Thunder in Chapter 11 bankruptcy and approved a motion to appoint a trustee.
The following month, the same judge granted a motion to appoint a trustee for Naturescape.
That trustee, Elizabeth Kane, was granted a wide range of authority over the business, essentially being charged with the ability to make any and all decisions about the business.
That includes taking control of all of the businesses’ assets, operating the business and reporting to creditors and the court as well as to “decide as quickly as possible how to operate the business, if to continue to operate the business and to figure out what the long term plans will be,” when it comes to potential re-organization, said Kane in an interview.
Kane said she ultimately made the decision to shut down the business after reviewing its financial reports and operations.
“I saw that the company was only making money by selling off all of its inventory and not being able to afford to buy new inventory to replace it,” she said. “As a long-term proposition, the company was not going to be able to survive without somebody else who could step in and completely revitalize it.”
By shutting down operations, she said, the company could avoid losing money through continued operations while a sale is negotiated.
Kane said the company’s secured debt far exceeded the value of any assets it had.
“So it couldn’t even do the debt service and continue to operate for very long,” she said.
“Even with just paying the lease rent for leased equipment, insurance and payroll, and the rest of the things you have to do at an absolute minimum to keep the business going, it was still only marginally profitable,” she added. “And, as I said, in the long run, the business doesn’t work. … Economically, it just wasn’t going to work in the long run.”
Trent Bateman, though, disputes the idea that the company wasn’t sustainable.
“We have $7 million worth of assets and we’re making $100,000 a month,” he said. “She has no business shutting this place down.”
Bateman argued that there was money that wasn’t being invoiced or collected, seriously impacting the company’s financial reports.
“Now, how can you evaluate a company’s cash flow if you’re not invoicing?” he said.
As a result of invoices not being made, reports would appear as if the company is making less than it actually is, he said.
When the state-appointed receiver was in place, he said, Bateman’s role was to make sure everything was invoiced and collect anything that needed to be collected.
That changed when the trustee came in and Bateman was pushed out of management.
In the month that the trustee has been in control, he said, there have been no collections and no invoices.
“All they’re counting is the website and the cash register,” he said.
The company’s financial reports, he said, indicated the company was making $50,000 a month, when in reality he believed they were netting close to $100,000.
Furthermore, Bateman added that he estimates about half a million dollars has gone uncollected from collectible receivables.
Kane, in response said Bateman “is not in a position to know what was invoiced or not.”
Kane said the next step is either to sell the company as “a going concern” or all of its assets.
“The plan is to sell things and the lender doesn’t get it back until I give it back or the court orders me to give it back,” she said. “We’re not there yet.”
She said her goal is to sell off the assets either to a single buyer or piecemeal, “depending on the best offer I get.”