A complaint has been filed in a Delaware U.S. Bankruptcy Court alleging that Hormel Foods Corp. failed to disclose issues that would eventually lead AgFeed Industries Inc. into bankruptcy. The suit states that Hormel Foods knew about serious issues with M2P2 LLC's operations that it failed to disclose before AgFeed Industries purchased the company's operations. Due to the far-reaching consequences of such a suit, some Michigan business owners may wish to play close attention to this case's outcome.
This business litigation suit arises from the fact that AgFeed Industries was reportedly given assurances by Hormel Foods that M2P2 was in compliance with contracts stating how the company would raise livestock and sell it to Hormel Foods. In August 2012, however, Hormel accused M2P2 of artificially raising the amount of reimbursement that is should pay for raising livestock. This was after AgFeed had purchased M2P2's operations, and an arbitrator would eventually award $8 million to Hormel Foods over the incident.
The issue at hand relates to the fact that a senior officer from Hormel Foods allegedly stated that M2P2's illegal tactics had been known since 2003. AgFeed shareholders state that they should have been informed of these contract violations and claim that they would not have purchased the company's operations otherwise. The suit alleges that it was the resulting arbitration award that caused them to file Chapter 11 bankruptcy.
When business relationships are not entered into honestly, it can cause serious issues for the owners and shareholders of the affected company. In some instances, such as in the aforementioned case, it can even lead to a company filing bankruptcy or going out of business. When these types of dishonest business practices occur, those affected by them may be able to obtain legal counsel on the issue.
Source: Nasdaq, "AgFeed Industries Shareholders Sue Hormel Foods", October 30, 2014