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Affiliated Foods Southwest Inc. and its subsidiary Produce Pre-Pak, both headquartered in Little Rock, AR, filed separate voluntary Chapter 11 bankruptcy petitions.

Though they filed Chapter 11, which typically indicates the company will continue to do business, Cleveland attorney Mark Amendola of Martyn & Associates said that this is a "liquidating Chapter 11," which will eventually be turned into a Chapter 7, as the company has indicated that it is going out of business. In fact, he said that the firm's attorneys have said that the last day that the doors would be open would probably be Friday, May 8. Mr. Amendola said that a company tends to receive more for its assets in a Chapter 11 sale than a Chapter 7 foreclosure sale, hence the initial Chapter 11 filing.

Affiliated has debts said to be in the range of $100 million to $500 million with assets in the $10 million to $50 million range. Mr. Amendola said that PACA Trust-protected debt appears to be in the neighborhood of $2 million to $2.5 million. He did not know if that included debt from Produce Pre-Pak, which made a separate bankruptcy filing with a separate case number. While the bankruptcy protections are expected to eventually be combined during the court proceedings, Mr. Amendola said that it is not yet clear if the figures released by the firm also include all the debt of its subsidiaries, four of which filed separate bankruptcies.

Mr. Amendola does expect produce creditors to be paid in full and in relatively short order. He said that along with the initial filing, Affiliated filed a petition to pay all pre-petition claims that qualify for PACA Trust protection. The attorney said that this is the same procedure that has been used in other large retail group bankruptcies such as Fleming and Winn- Dixie. "Those claims would represent the great, great majority of produce debt," he said.

If the petition is approved as expected, produce creditors should receive what they are owed fairly quickly.

Mr. Amendola said that he has been closely following the struggles of Affiliated for many months. The firm hired a restructuring debt expert as well as efficiency experts in an effort to stay afloat. But in the end, the wholesale grocery distribution company could not remain solvent.

On Tuesday, May 5, Associated Wholesale Grocers Inc. of Kansas City announced that it had purchased some of the assets of Affiliated Foods and would begin servicing many of its customers within a few days. The press release did not indicate which assets it had purchased. AWG has distribution facilities in Tennessee, Texas, Oklahoma and Missouri, which puts the company geographically close to most of Affiliated's former customers.