Hilo Brewery Faces Bankruptcy Battle

Less than two weeks after a Hilo-based craft brewery filed for bankruptcy protection to reorganize its assets, the move is coming under fire from three of its largest creditors, including its landlord.

Hawaii Nui Brewing LLC, makers of Mehana and Hawaii Nui beer brands, filed for Chapter 11 bankruptcy on April 10.

At the time, it cited assets between $100,000 and $500,000 and debts between $1 million and $10 million.

Company officials noted that the beer brands were doing well but that the company needed to reorganize and possibly find a new buyer in order to handle double-digit growth it had experienced in recent months.

A day after lawyers for Hawaii Nui Brewing filed a motion to extending time to file documents, three of its creditors filed their own motion asking the court to convert the bankruptcy from Chapter 11 to Chapter 7.

On April 19, Mehana Investments, Hilo Soda Works, and Dustin Shindo asked a US Bankruptcy Court judge to convert the bankruptcy, remove Hawaii Nui senior management and liquidate the company’s assets.

Dustin Shindo is one of the founders of Mehana beer. Mehana Brewing Company merged with Hawaii Nui Brewing in 2009.

Hawaii Nui itself was formed in 2007 in order to acquire Keoki Brewing Company, which was created on Kauai in the late 1990s. Keoki beer was then relabeled under Hawaii Nui.

At the time of the 2009 merger, Hawaii Nui shifted its brewing and bottling operations to Mehana’s bottling facility in Hilo, which it leases from Hilo Soda Works, a firm managed by Dustin’s father Calvin Shindo.

The trio this week submitted a 25-page memorandum in support of converting the bankruptcy from a reorganization to a liquidation action.

The factors cited by the creditors include that “the debtor does not have a viable business to reorganize,” that “the debtor’s bankruptcy case was filed to forestall an eviction proceeding,” and “the debtor is not attempting to reorganize.”

According to court documents, the creditors claim Hawaii Nui has operated at a loss since 2009.

The motion also claims that Hawaii Nui filed for bankruptcy protection less than 24 hours before the company was set to go trial in an eviction proceeding initiated by Hilo Soda Works.

In that case, filed in District Court in the third circuit, North and South Hilo division, Hilo Soda Works claims they are owed $85,000 in back rent and have not been paid since June 2012.

According to that lawsuit, Hawaii Nui’s lease at its facility located on East Kawaili Street expired last December.

The creditors further claim that Hawaii Nui is not attempting to reorganize and that the bankruptcy petition was filed in bad faith.

They cite the fact that the principals of Hawaii Nui formed a new company, Hawaii Ohana Brewing LLC.

In the April 19 filing, the creditors also sought to shorten the time for the conversion and requested an expedited hearing on April 29.

Earlier this week bankruptcy Judge Robert Faris denied that motion.

Lawyers for Hawaii Nui submitted their own motion this week to authorize the sale of the company and have petitioned the court for approval to sell its assets to Hawaii Ohana Brewing free and clear of liens and encumbrances.

A hearing to authorize the sale of the business is slated for May 20 in Honolulu. A hearing to change the bankruptcy filing from Chapter 11 to Chapter 7 is set for the same day.