Affiliated Foods Trustee Close to Settlement in Lawsuit Against Board Members

It looks like a settlement is on its way in the case in which the bankruptcy trustee for Affiliated Foods Southwest Inc. of Little Rock blamed the company’s former directors for failing to halt a nearly half-billion-dollar check-kiting scheme.

The trustee, Richard Cox of Hot Springs, was seeking at least $40 million in damages from 14 members of Affiliated’s board of directors.

In April, the case was sent to a mediator who heard that case plus another one that was filed in Pulaski County Circuit Court by two investors involving similar allegations against Affiliated’s board members.

Since the mediation, the dozen or so lawyers who have a hand in the cases have been scrambling to hammer out the settlement, which must be approved by the U.S. Bankruptcy Court.

The settlement could be final any day now. As of Thursday afternoon, the agreement had not been filed, but the attorneys said in a court filing that it should be submitted to the Bankruptcy Court by Aug. 13.

Cox’s lawsuit detailed the collapse of Affiliated Foods, once one of Arkansas’ largest private companies with annual revenue of $730 million in the fiscal year that ended June 30, 2008, the last full year of operation before it filed for bankruptcy protection. In the bankruptcy filing, it listed $47.6 million in assets and $101.5 million in debt, of which $62.5 million was to unsecured creditors.

As of last week, Cox reported in his filing that he has distributed a total of $2.5 million in Affiliated’s bankruptcy case.

The fallout from the collapse included trips to prison for Affiliated’s former CEO, John Mills, and former CFO, Alexander “Lex” Martinez. Mills was released in June after serving 41 months. And Martinez is scheduled for release on Oct. 18, when he will have served a year in prison.