Eastern Seafood Distributors and Terra Austral are among the creditors owed hundreds of millions of dollars by Detroit, Michigan, U.S.A.-based Harvest Sherwood as the distributor works through bankruptcy proceedings it alleges were caused deliberately by grocery chain Sprouts Farmers Markets.
The USD 4 billion (EUR 3.6 billion) wholesale food distributor, which closed down all of its warehouses and laid off around 1,500 employees in February, filed for Chapter 11 bankruptcy protection on 5 May in U.S. Bankruptcy Court for the Northern District of Texas. The company lists between USD 323.5 million (EUR 289 million) and USD 558.5 million (EUR 499 million) in liabilities and blames Sprouts for its financial troubles.
The company has gone as far as filing an adversary complaint within the bankruptcy proceedings, accusing Sprouts of a breach of contract and fraud. Harvest Sherwood said it has served as Sprouts’ meat and seafood distributor for many years, but the retailer notified the company in December 2024 that it intended to migrate to a full self-distribution model for a variety of its products.
“Harvest’s business suffered a fatal blow when its largest customer – Sprouts – communicated to Harvest that it would transition largely to self-distribution,” the adversary complaint filed by Harvest Sherwood said.
The complaint said Sprouts' transition to self-distribution was disastrous but is not the full reason for the complaint. Rather, it claims Sprouts took advantage of Harvest Sherwood’s financial vulnerability while explicitly aware of it and that Sprouts purposely transferred funds belonging to Harvest to third-party vendors “knowing full well Harvest's risk of insolvency.”
“In response to Sprouts’ wrongful actions, Harvest stopped its distribution to Sprouts’ stores. This brought Sprouts to the negotiating table,” the complaint alleges. “After arm’s-length negotiations between the parties, Sprouts entered into a written contract whereby it would provide Harvest specific scheduled payments of desperately needed funds – funds that Sprouts already owed to Harvest – if Harvest agreed to ship certain products to Sprouts.”
Harvest claims that after shipping the products, Sprouts claimed to need time to “validate” the amounts owed and then never sent any of the promised payments.
“Instead, Sprouts, which has vast resources and a market capitalization approaching USD 17 billion [EUR 15 billion], had its lawyers send a letter to Harvest alleging that it had only agreed to pay Harvest under ‘duress’ and would not provide the remaining funds that it owed to Harvest,” Harvest’s complaint said. “Sprouts knew all along that Sprouts would never hold up its end of the bargain. Sprouts knew that Harvest, in its desperation for funding, would ‘make the first move’ and ship its product before receiving full payment. The only ‘duress’ in this situation is that imposed by Sprouts upon Harvest.”
The complaint alleges Sprouts withheld payments and owes the company “at least” USD 41.8 million (EUR 37 million).
Outside its dispute with Sprouts, Harvest Sherwood’s issues worsened in late January 2025 when it was downgraded from “Recommended” to “Cautionary” by credit reporting agency Seafax.
“The downgrading had an immediate impact on Harvest’s customer and vendor base and further strained the company’s liquidity. In particular, Harvest lacked the liquidity to make scheduled payments to certain vendors, including vendors who had supplied products for distribution to Sprouts’ stores,” the distributor said.
The company’s liquidity was also strained by rising costs, Eric Kaup, who is serving as the chief restructuring officer for Harvest Sherwood in the case, said in a statement to Law 360.
"Industry headwinds, including rising fuel and labor costs, created significant liquidity constraints," Kaup said.
As Harvest Sherwood works through its bankruptcy and its complaint against Sprouts, some seafood firms are being left in the lurch.
Eastern Seafood Distributors, based in Ponte Vedra Beach, Florida, U.S.A., is one of several creditors that have filed claims against Harvest Sherwood. The company claims it is owed USD 915,940 (EUR 819,00).
Miami, Florida, U.S.A.-based Terra Austral, a trader that specializes in Chilean seafood, claims it is owed USD 239,586 (EUR 214,000).
Tyson Foods, JBS USA, and Perdue Farms are among the major meat suppliers listed in Harvest Sherwood’s top 30 creditors. However, no seafood suppliers are included in the top 30 list.
Harvest Sherwood is seeking to roll up USD 79.1 million (EUR 70.6 million) of existing debt and plans to sell its Dallas, Texas-based facility as part of the wind-down process, according to The Street.
"I believe that the commencement of these Chapter 11 cases is in the best interests of the debtors' estates and stakeholders," Kaup said.
