First Day Declaration
King Mountain Tobacco Company
, a Native American owned and operated tobacco products manufacturer based in White Swan, Wash., within the boundaries of the Yakama Nation Reservation, filed for chapter 11 protection on Friday in the Bankruptcy Court for the Eastern District of Washington. The company reports $28.6 million in assets and $92.4 million in liabilities. The debtor is represented by Bush Kornfeld in Seattle. The case number is 20-01808. The case has been assigned to Judge Whitman L. Holt. Continue reading for the First Day by Reorg team's update on the King Mountain Tobacco chapter 11 filing, and request a trial to access our coverage of thousands more chapter 11 filings.
According to schedules attached to the petition, King Mountain has no secured debt. The debtor’s list of 20 largest unsecured creditors is led by the Department of the Treasury’s Tobacco Tax & Trade Bureau with a $75.5 million claim related to federal excise taxes, followed by $5.6 million owed to the U.S. Department of Agriculture with respect to a U.S. District Court judgment, $3.5 million owed to the State of Indiana Office of the Attorney General on account of a settlement agreement, $2.9 million owed to the U.S. Food and Drug Administration related to tobacco user fees and $2.5 million owed to the State of South Carolina Office of the Attorney General on account of a settlement agreement.
The first day declaration of King Mountain Tobacco Company CEO Truman Thompson laments that the company struggled with certain elements of its business “from the start,” with “Big Tobacco” manufacturers possessing “significant control over distribution channels” and barring distributors from carrying competitors’ lower priced products. This has made and continues to make it difficult for the debtor to secure distributors, the declaration says. Consequent entry into agreements with problematic distribution channels led to cash flow difficulties early on, which were exacerbated in 2010 and 2011 when the debtor shipped 11 truckloads of product to a distributor in South Carolina for which the debtor was never paid, resulting in a loss of “nearly” $16 million. These cash flow troubles early on spurred significant tax liabilities that King Mountain continues to face to-date.
On behalf of the Alcohol and Tobacco Tax and Trade Bureau, on Aug. 25, 2020, the Department of the Treasury sent the debtor a final notice and demand for repayment of the outstanding federal excise taxes. According to the government’s calculation, the amount owed is $75.5 million (consisting of $38.3 million of principal, $18.4 million of interest, $9.1 million for failure to file timely and $9.7 million for failure to pay timely). The government threatened to levy against the debtor’s assets if payment was not made within 30 days of receipt of the demand letter. “The Debtor is not in a financial position to repay the $75.5 million owed to [the Alcohol and Tobacco Tax and Trade Bureau] and a levy of the Debtor’s assets would likely result in the cessation of the Debtor’s operations and the loss of jobs on the Yakama Nation Reservation,” Thompson writes. Consequently, Thompson continues, the debtor filed the chapter 11 case “to provide it with an opportunity to address its outstanding obligations in a manner that allows it to remain in operation going forward.”
Reorg First Day will provide a full summary once the first day briefing is complete.