Citing regulatory and environmental problems, farm entrepreneur Frank Tiegs has pulled out of his planned $155.5 million takeover of the bankrupt NORPAC Foods processing company.

In August, the farmers’ cooperative filed for Chapter 11 bankruptcy protection to restructure its debt while remaining operational and announced Tiegs’ Oregon Potato Co. planned to buy most of its assets.

A hearing to approve the deal was scheduled for Oct. 28 in bankruptcy court after no other bidders materialized to compete with higher offers, but Tiegs said he’s withdrawn from the “asset purchase agreement” due to several red flags with the company.

“We terminated because of a lack of information on the due diligence,” Tiegs said, adding that NORPAC hadn’t supplied documents that were needed to complete the agreement.

Since making the offer, Tiegs said he’s become aware of serious problems with soil and water contamination at NORPAC’s facilities, as well as other regulatory problems he did not want to discuss.

Other red flags included NORPAC officials not supplying him with requested documents and deleting an email system that contained internal company communications, Tiegs said.

“If you got a turd in the skillet, you want to avoid anyone seeing it,” he said.

Capital Press was unable to reach Albert Kennedy, the lead attorney representing NORPAC in the bankruptcy, for comment.

During an Oct. 21 court hearing, however, Kennedy told U.S. Bankruptcy Judge Peter McKittrick that Tiegs notified NORPAC of the termination less than half an hour before competing bids were due on Oct. 18.

“We have since responded and said we believe the grounds for the termination are baseless and the termination notice was given in bad faith,” Kennedy said.

While NORPAC remains willing and able to close the transaction, the timing is precarious, he said. In previous court documents, the company disclosed that it needed additional financing to continue operating as a going concern.

“The window for closing this transaction is very short, and if they don’t withdraw their termination within a matter of a day or two, it will probably be impossible,” Kennedy said.

If nobody steps up to buy NORPAC’s facilities — including Oregon properties in Brooks, Salem and Stayton, as well as a plant in Quincy, Wash. — it’s likely those assets will be sold off piecemeal as part of a liquidation.

Tiegs had planned to keep the Brooks, Salem and Quincy facilities operational, while he wanted to cease operations at the Stayton property until later deciding what to do with it.

The termination of the deal is “probably a default” on NORPAC’s loan agreements with CoBank, a major agricultural lender, though the bank doesn’t immediately plan to “exercise its rights on default,” Kennedy said at the hearing.

When a company is in default, a bank may foreclose on loan collateral, for example.

Scott Cargill, an attorney representing unsecured creditors, told the bankruptcy court at the hearing that he may file a motion seeking to uncover documents explaining why Tiegs terminated the deal.

“We’re coming to a preliminary view that Oregon Potato’s alleged reasons for the termination really was a pretext just in order just to renegotiate the acquisition in light of there being no other bidders coming to the table by the bid deadline,” Cargill said.