Spokane Industries - Chapter 11 Case Summary
Spokane Industries has filed for Chapter 11 bankruptcy following a facility collapse, employee embezzlement, and operational headwinds, seeking to stabilize operations.
Business Description
Headquartered in Spokane, WA, Spokane Industries, LLC (the “Debtor”) is a specialized foundry established in 1952. The Debtor focuses on casting metal by melting it into liquid form and pouring it into molds to create durable wear parts, primarily serving the mining and aggregate industries.
- The Debtor operates out of a facility in Spokane, Washington, where it employs approximately 100 individuals.
- The Debtor is wholly owned and managed by Patrick Turner and his spouse, Lisa Turner.
Corporate History
In January 2022, Patrick and Lisa Turner acquired the Debtor with the strategic intent of expanding operations to better service the mining industry, specifically capitalizing on the increasing global demand for copper.
Operations Overview
Since 1966, the Debtor has operated out of Buildings No. 1, 2, and 4 at the Spokane Business and Industrial Park in Spokane Valley. Current operational goals include undertaking necessary equipment repairs to build material supply, with a production target of five heats per day (25 heats per week).
Scrap Buyback Program
The Debtor maintains a "Scrap Program" with its customers, which operates informally in the ordinary course of business. Although this program represents a small percentage of raw material purchases, it provides a lower-cost acquisition option for the Debtor while benefiting customers.
- Mechanism: As purchased parts reach the end of their useful life, customers can return the scrap to the Debtor.
- Credit System: The scrap, which retains value for reforging into new parts, is exchanged for credit on future customer purchases.
Workforce and Financial Administration
The Debtor manages significant payroll and benefit obligations for its approximately 100 employees.
- Payroll: Aggregate gross bi-weekly payroll is approximately $300,000.
- Benefits: The Debtor sponsors medical, dental, vision, and disability plans. Total monthly costs are approximately $83,000, with employees contributing roughly $20,000 through payroll deductions.
- Retirement: The Debtor facilitates a 401(k) plan, withholding approximately $16,000 bi-weekly from participating employees.
- Expenses: Monthly reimbursable expenses average $3,000 to employees and $20,000 to credit card providers for business-related travel and operations.
- Taxes: The Debtor estimates bi-weekly remittances of $75,000 in Employer Payroll Taxes and $5,000 in Trust Fund Taxes.
Prepetition Obligations
The Debtor faces significant liquidity constraints, with approximately 200 vendors holding unpaid claims due to cash crises. The prepetition capital structure is summarized below:
Secured Debt
- Pathward: As the senior secured lender, Pathward holds a claim of approximately $3.6 million under a $6 million revolving note facility.
- The obligation is secured by a first-position security interest in virtually all of the Debtor’s assets, including accounts, equipment, inventory, and general intangibles.
- The facility operated as a revolving loan based on a borrowing base formula derived from the value of receivables and inventory. Customers paid directly into a Pathward-controlled lockbox, which was applied to the loan balance to allow for re-borrowing.
Other Asserted Liens
- Several other parties have filed UCC statements asserting liens on the Debtor’s assets. These parties include CNC Associates, Inc., Dell Financial Services, LLC, Joy Global Longview Operations, LLC, Patrick Turner, Rogers Machinery Company, Inc., and Spokane Stainless Technologies, Inc. (collectively, the “UCC Parties”).
The Debtor asserts that to the extent the UCC Parties claim a lien on Cash Collateral, such liens are not secured by value exceeding Pathward's senior lien. Consequently, the Debtor positions that none of the UCC Parties hold a secured interest in Cash Collateral. Despite this, the Debtor proposes to grant the UCC Parties replacement liens.
Events Leading to Bankruptcy
Post-Acquisition Operational Challenges
Following the 2022 acquisition, the Debtor discovered that the facility's equipment was older and significantly less reliable than represented. The Debtor struggled to hire maintenance staff capable of efficiently targeting issues, leading to debilitating downtime, production limits, defective products, and waste.
Working Capital Crisis
The Debtor faced a severe working capital crisis driven by a mismatch between pricing and costs shortly after the acquisition.
- Backlog Issues: In early 2022, the Debtor held a substantial backlog of orders due to customer stockpiling during the Covid-19 pandemic and internal capacity constraints.
- Cost Spikes: In the first quarter of 2022, prices for the two primary alloys used in production rose by approximately 25-35%.
- Impact: The Debtor was forced to fulfill the backlog at original pricing despite the massive increase in raw material costs, decimating working capital.
While ordering levels returned to pre-Covid norms by the first quarter of 2024, the Debtor remained unable to operate at maximum efficiency due to persistent equipment issues and a difficult labor market.
Catastrophic Loss and Internal Fraud
Just as operations began improving in mid-2025, the Debtor suffered two distinct, major setbacks:
- Facility Collapse: On August 17, 2025, a structural beam in the primary operating facility collapsed. This resulted in a complete production shutdown for five weeks and a financial loss of $1.48 million. To date, the Debtor has received only a $450,000 insurance advance.
- Employee Embezzlement: In April 2025, the FBI notified the Debtor of an investigation into its human resources manager, Tahnya Shafer. An internal investigation revealed that Shafer had fraudulently obtained $1.068 million from the Debtor between 2023 and 2025.
Chapter 11 Filing and Postpetition Financing
To operate profitably and maintain stable production, the Debtor determined it requires a cash infusion and a mechanism to repay vendors over time. The Debtor does not intend to borrow further funds from Pathward postpetition and will instead direct customers to pay invoices to the estate's operating account at JP Morgan Chase Bank. Any funds remitted postpetition to Pathward would be wired to the estate's operating account.
- DIP Financing: The Debtor negotiated a DIP Loan with William and Christine Martz (the “DIP Lender”).
- Lender Relationship: The DIP Lender is a prepetition unsecured creditor but is not an insider. The Debtor notes that the DIP Lender is supportive of the owners and provided terms significantly better than other potential sources.