Coffees of Hawaii
files for bankruptcyThe Molokai company lists
$10 million in unsecured debts
Coffees of Hawaii Inc., which pioneered coffee-growing on Molokai nearly 20 years ago, has filed for bankruptcy court protection from its creditors, listing nearly $10 million in unsecured debts. Most of the money is owed to companies controlled by Coffees of Hawaii's president, Brian J. Barbata.
But there are other creditors and one of them, company founder John Hays, said the bankruptcy filing caught him by surprise. Hays is still a significant stockholder.
"We had an annual meeting July 1 and they didn't say anything" that would indicate a problem, he said.
"I am very disappointed," said Hays, who, with his wife Susan, has about $2 million invested in the company.
The Chapter 11 filing, which holds off creditors while the company reorganizes, leaves current management in charge and the business going on as usual. Observers say Molokai coffee has been a success and the company continues to put out a good product that has wide market acceptance.
While millions of dollars of debts are listed in the bankruptcy filing, the company filed for protection because of one bill for less than $100,000. Some of the Coffees of Hawaii bank accounts were about to be stopped by a court order relating to a bill for $82,000 from the company's former chief operating officer, Daniel Kuhn.
Court documents show the company had a chance to overturn the attack on its accounts in the Kuhn matter if it filed for bankruptcy within 90 days of the court's payment order. That order came in September and the bankruptcy filing apparently puts it on hold.
While the case looks big, it is really about a relatively small amount, but once bankruptcy is launched a lot can happen.
That worries Hays.
"A lot of the Molokai stockholders put their family savings into this thing. I've always made Coffees of Hawaii my highest priority, even at the expense of my own well-being," he said.
Hays started the business in 1984, after being encouraged by two top executives of Bank of Hawaii at the time, Howard Stephenson and Frank Manaut, to give it a shot because they saw a decline in sugar and pineapple and liked his idea of a mechanized coffee plantation turning out a high-markup product.
It is still the only coffee plantation in the United States to use mechanical harvesters.
The company built the plantation about 20 miles inland from Kaunakakai and harvested its first test crop of beans in late 1989, proving it was possible to grow good coffee on Molokai to compete with the well-established Kona plantations.
In February 1993, then-Hawaiian Airlines chairman John H. Magoon Jr. adopted the company, investing $5 million in it and becoming chairman.
By 2001, Magoon had sold most of his shares and they were picked up by petroleum dealer Brian Barbata, who had been an associate of Hays and was aware of Coffees of Hawaii from its beginning.
A company Barbata owns, Kualapuu Coffee Co., is owed $9 million as the biggest unsecured creditor on the bankruptcy list. Next-biggest is Molokai Ranch Ltd., which leased 200 acres of its land to the coffee operations and says it is owed $153,000. Other unsecured creditors include the state Department of Agriculture, $147,000; Kuhn, $82,000; the law firm of Cades, Schutte, Fleming & Wright, $25,000; and Bank of Hawaii, with a debt of $12,000.
The Nov. 30 Chapter 11 filing came less than a week after Magoon's death, but court papers show there is no connection between his death and the bankruptcy.
Magoon is still shown as a stockholder, controlling some 3 million shares personally and 2.6 million shares through his investment company, Hawaiian Securities & Realty.
The company said in the court documents that it needs to protect its accounts and pay wages to employees because it is a crucial harvest time and if the employees aren't paid they may not work.
A source close to the company said the Kuhn debt was to cover the company's use of agricultural equipment owned by him. Kuhn was out of the country and could not be reached.
Barbata did not return calls seeking comment. Another Barbata company, Inter Island Coffees Inc., is listed as a significant shareholder, with more than 5 million of the company's shares.
Another shareholder is James Romig, founder of Pomare Ltd. and Hilo Hattie. Romig, who is listed as holding 26,000 shares, said he bought into Coffees of Hawaii years ago "on a whim," but has not kept track of the company and did not know it had filed for bankruptcy.
Meanwhile, the bankruptcy court has authorized Coffees of Hawaii, which now does business as Molokai Coffee Plantation, to pay wages so as to keep the harvest going.
Some motions are to be heard in bankruptcy court Dec. 22 and a meeting of creditors is scheduled for 1:30 p.m. Jan. 9 in the U.S. trustees hearing room on the sixth floor of 1132 Bishop St.