ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL COMMUNICATION
Dear Thomas and Margaret,
I am writing to inform you of a significant development affecting the pending collection action, *Greenfield Agricultural Partners LLC v. Prairie Basin Grain Co. et al.*, Case No. 2022-L-004831, Circuit Court of Cook County, Illinois. Earlier today, December 19, 2022, we received formal notice of the entry of a receivership order over Prairie Basin Grain Co. ("PBGC"). I want to walk you through what this means for GAP's claims and outline our recommended path forward.
**Background — PBGC's Deteriorating Financial Position**
As you are aware, PBGC's financial condition has been deteriorating for some time. Following the Macon County elevator fire on October 17, 2021, and the failed hedging strategy that resulted in approximately $6.8 million in losses during Q4 2021, PBGC ceased making payments to trade creditors beginning in January 2022. In April 2022, Heartland Prairie Bank, N.A. — PBGC's senior secured lender, with an outstanding balance of approximately $31.4 million under a Revolving Credit and Term Loan Agreement dated June 1, 2018 (aggregate commitment of $45 million) — declared PBGC in default.
More recently, PBGC's defense counsel, Bartlett, Reyes Linley CPAs LLP & Harkin LLP (Douglas M. Harkin), filed a motion to withdraw from the Cook County action on November 4, 2022, citing non-payment of legal fees. The Honorable Patricia Delacroix granted the motion on November 18, 2022. Since that date, PBGC has been without counsel and, as an Illinois corporation, cannot appear pro se in the litigation.
**The Receivership Petition and Order**
On November 28, 2022, Heartland Prairie Bank, N.A. filed a Verified Petition for Appointment of a Receiver over PBGC in the Circuit Court of Sangamon County, Illinois, Case No. 2022-CH-001247. On December 12, 2022, the Sangamon County Court entered an Order Appointing Receiver, designating Gareth J. Whitmore, CPA, CIRA, of Whitmore Strauss Advisory LLC (500 East Monroe Street, Suite 300, Springfield, Illinois 62701) as court-appointed receiver for all assets and operations of PBGC. The receiver's counsel is Joanna M. Lockridge of Lockridge Payne LLP (120 South Sixth Street, Suite 1800, Springfield, Illinois 62701). We will forward a copy of the receivership order under separate cover or upon your request.
**Effect of the Automatic Stay on the Cook County Action**
The receivership order includes an automatic stay of all pending litigation against PBGC. As a practical matter, this means the Cook County collection action (Case No. 2022-L-004831) is stayed as a matter of law. We cannot take further affirmative litigation steps against PBGC in that action — including motions, depositions, or enforcement measures — while the stay remains in effect.
I should note that this is an Illinois state-court receivership stay, which is distinct from a federal bankruptcy automatic stay under 11 U.S.C. § 362, though the practical effect on the Cook County litigation is substantially similar.
The discovery we served on PBGC — specifically, the First Set of Interrogatories and First Request for Production served on September 30, 2022, and the Request for Admission served on October 14, 2022 — remains unanswered and cannot be compelled during the pendency of the stay.
**Impact on GAP's Claims — Priority Analysis**
I want to be candid with you about what the receivership means for GAP's recovery prospects. GAP's claim of $4,870,050.00 in principal — together with accrued interest continuing at 1.5% per month under Section 7.3 of the Off-Take Agreement and attorneys' fees recoverable under Section 12.4 — is an unsecured trade creditor claim.
Heartland Prairie Bank holds a senior perfected security interest under UCC Article 9 over substantially all of PBGC's assets, with approximately $31.4 million outstanding. Based on preliminary information available to us, PBGC's total liabilities are estimated at $58–62 million, while total assets are estimated at $35–40 million, suggesting a significant shortfall for unsecured creditors.
Recovery prospects for unsecured creditors may therefore be limited, though the situation remains fluid. The ultimate outcome will depend on the receiver's administration of PBGC's assets and potential proceeds from other sources. Of particular note is PBGC's pending insurance coverage litigation against Triton Mutual Insurance Co. regarding the Macon County elevator fire, which involved an estimated loss of $3.2 million. Coverage has been disputed by Triton Mutual due to an alleged lapse in premium payments, but any recovery in that action could benefit the estate.
**Status of the Musgrave Guaranty Claim**
Count II of our Complaint asserts a breach of personal guaranty claim against Darren K. Musgrave individually, under the limited personal guaranty capped at $2,000,000 (Exhibit D to the Off-Take Agreement). Importantly, the automatic stay in the receivership applies to claims against PBGC — the entity in receivership. The Musgrave Guaranty claim is a personal obligation and may not be subject to the stay.
We will analyze this issue further and advise you on whether it is advisable to pursue the Musgrave Guaranty claim separately while the receivership is pending. Given the $2,000,000 cap, this remains a potentially significant avenue of recovery for GAP and warrants careful consideration.
**Recommended Next Steps**
We recommend the following course of action:
1. **File a Proof of Claim in the Receivership.** We recommend promptly preparing and filing a Proof of Claim on GAP's behalf in the Sangamon County receivership proceeding (Case No. 2022-CH-001247), asserting GAP's full claim: principal of $4,870,050.00, accrued interest calculated through the claim date at 1.5% per month, and attorneys' fees and costs incurred to date under the prevailing-party provision in Section 12.4 of the Off-Take Agreement. As a preliminary step, we will send a letter to the receiver's counsel, Joanna M. Lockridge at Lockridge Payne LLP, asserting GAP's claim and requesting information regarding the claims process and any applicable deadlines.
2. **Monitor the Receivership.** We will actively monitor the receivership proceedings, including any inventory of assets, proposed distributions, and deadlines for creditor claims, and will keep you informed of material developments.
3. **Voluntary Dismissal of the Cook County Action.** Once the Proof of Claim has been filed and GAP's position in the receivership is preserved, we recommend voluntarily dismissing the Cook County action without prejudice pursuant to 735 ILCS 5/2-1009. A dismissal without prejudice preserves GAP's right to refile the action if the stay is lifted or the receivership concludes without fully satisfying GAP's claims. There is no strategic benefit to maintaining the stayed Cook County case on the docket, and dismissal would avoid any future status-hearing obligations before Judge Delacroix.
4. **Musgrave Guaranty.** We will separately analyze whether to pursue the guaranty claim against Darren K. Musgrave individually outside the receivership and will provide you with our recommendation in the near term.
**Request for Authorization and Scheduling a Call**
I would like to suggest that we schedule a call with you, Margaret, and Caleb at your earliest convenience to discuss the receivership development, GAP's options, and the recommended path forward in greater detail. Please let us know your availability this week or early next week.
In the meantime, we ask that you confirm GAP's authorization to proceed with the Proof of Claim filing and the letter to the receiver's counsel.
Additionally, the five unpaid invoices (GAP-2021-3187, GAP-2021-3244, GAP-2021-3301, GAP-2021-3358, and GAP-2022-0042) and the Off-Take Agreement dated March 15, 2019 will need to be attached as exhibits to the Proof of Claim. Please confirm that GAP's records are readily available, and if so, we ask that Caleb coordinate with our associate Diane Velasquez on assembling the supporting documentation.
**Closing Thoughts**
I understand this is a frustrating development, particularly in light of the favorable August 22, 2022 ruling striking PBGC's force majeure and commercial impracticability defenses and the strong posture of GAP's claims on the merits. The receivership does not diminish the strength of those claims — it changes the forum in which we will pursue recovery. Please be assured that we will work diligently to maximize GAP's recovery in the receivership and to preserve all available avenues, including the Musgrave Guaranty.
Please do not hesitate to reach out with any questions in the interim.
This communication is privileged and confidential and is intended solely for the named recipients. Please do not forward or distribute without consulting with our office.
Best regards,
Francesca Morano Partner Calderwood & Harkness LLP 225 West Wacker Drive, Suite 4000 Chicago, IL 60606 Tel: (312) 555-4120 Email: fmorano@calderwoodharkness.com