PORTLAND — A mid-sized Oregon food processor, Heritage Specialty Foods, has filed for Chapter 11 bankruptcy to protect its assets from creditors while restructuring its business and debts.

The company, founded 15 years ago in Portland, owes fewer than 200 creditors about $7.4 million and owns $9 million in real estate and other property, according to bankruptcy documents.

The family-owned manufacturer specializes in making “small-batch, kettle-cooked foods,” including soups, sauces and entrees, with an emphasis on buying local ingredients.

“HSF found a successful market niche as a mid-size producer able to take on projects that were too large for ‘mom and pop’ competitors, but smaller than the larger food manufacturers wanted to take on,” said Shane Hendren, its president and CEO, in a court declaration.

COVID-19 woes

In 2019, the company was in a “historically profitable” period with annual revenues of nearly $11 million, but that quickly changed in 2020 as the coronavirus pandemic “shut down” demand among its restaurant customers “almost overnight,” according to the document.

The federal “paycheck protection” program and emergency loans kept Heritage Specialty Foods afloat while the company shifted its client base, co-packing for other food companies and selling branded products to stores, but the year ended with a $1 million loss, the document said.

Sales rebounded in 2021, hitting nearly $15 million, and the company decided to move to a larger production facility, which proved “much more expensive” than anticipated in its budget, according to Hendren.

Relocating strained the company’s line of credit, as did the “buildup of accounts payable” associated with higher sales, which reached nearly $20 million last year, he said. Meeting commitments to suppliers proved “impossible” in early 2023.

Meanwhile, the company discovered errors in how it tracked inventory and production costs, revealing that it was “materially overstating profitability” and prompting the Commerce Bank of Oregon to declare that Heritage Specialty Foods had defaulted on loan terms, according to the filing.

‘Breathing room’

To get its finances under control, the company has stopped operating an associated warehouse and distribution firm that had “never been profitable” and has hired Clyde Hamstreet, a well-known business turnaround expert with experience in the food and agriculture sector.

Hamstreet helped develop a plan to return the company to profitability this year by phasing in price hikes, increasing business during its annual slow season, gaining labor efficiency and improving accounting practices.

Bankruptcy protection will now provide enough “breathing room” to put the plan into practice, the filing said. “HSF has been profitable in the past and has a viable core business that is worth saving for the sake of the creditors, employees, customers, and the family owners.”