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BURLINGTON — A Chittenden County judge approved the payment of nearly $8 million in outstanding claims made by three Koffee Kup Bakery creditors on Tuesday afternoon.

However, when the former employees of Koffee Kup might receive their paid-time-off balances has not yet been determined.

KeyBank, Koffee Kup’s primary lender, will receive $7.6 million, the Vermont Economic Development authority will receive $213,000 and Continental Indemnity, an insurance company, will get $84,000.

Judge Samuel Hoar approved the payments and also signaled he was open to expanding the role of Ronald Teplitsky, the receiver of Koffee Kup’s assets, to make recommendations on how other creditors, including the 500 employees who lost their jobs on April 26, will receive money owed to them.

Just 25 days after American Industrial Acquisition Corporation acquired a majority interest in Koffee Kup, its three bakeries, in Burlington, Brattleboro and North Grosvenor Dale, Conn., were closed.

The closure was blamed on an inability to find investors to take on debt accumulated by Koffee Kup over the past four years, said Jeff Sands, a “turnaround” specialist at Dorset Partners and the senior advisor in North America for American Industrial Acquisition Corporation.

“Four years of losses are the culprit,” said Sands. “Everyone wants a villain storyline, but there’s just not one there. This one just wasn’t salvageable.”

Employees received their final paychecks, but shortly after they were deposited in bank accounts, they were rescinded by the receiver, who said he was not responsible for paying paid-time-off balances, about $800,000, out of the funds he was overseeing.

Employees filed a class action suit in federal court, which is pending, against Vermont Bread Company, which was located in Brattleboro, Koffee Kup and American Industrial Acquisition Corporation, alleging the abrupt termination was a violation of the federal Worker Adjustment and Retraining Notification Act of 1988.

Since the closure, a number of companies showed interest in purchasing Koffee Kup’s assets, including Mrs. Dunster’s, a Canadian firm, and East Baking Company, in Holyoke, Mass.

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However, during a court hearing on June 8, Justin Heller, attorney for the receiver, announced an offer from Georgia-based Flowers Foods had been accepted.

“While we are contractually bound to keep the purchase price confidential,” said Heller during the hearing, “we are authorized to disclose that the price is sufficient to pay KeyBank and others secured, in full, and to pay the PTO claims ... in full.”

That same day, Flowers Foods announced it had “no immediate plans” to reopen the three bakeries.

During Tuesday’s hearing, Hoar learned that the deal has not yet been finalized, but also learned a “substantial surplus” was available to pay off the creditors, including the employees.

“Turns out there is more than enough to satisfy the claims that underline this entire lawsuit,” said Hoar.

He also learned that other creditors, including Bernardino’s Bakery in Chicopee, Mass., and Lily Transportation, are asking for payment of monies owed.

“The receivership as presently structured does not contemplate a continuing process beyond the payment of the KeyBank claim,” noted Heller.

“There needs to be a mechanism for a determination of the validity of the claims,” said David Reier, representing Lily Transportation. An expanded role for the receiver should also include who has priority when it comes to being paid, he said.

Reier recommended the court expand Teplitsky’s role under court supervision.

Attorney’s fees will also need to be paid out of the surplus, noted Jack Kennelly, counsel for KeyBank.

What Flowers Foods paid for the assets of Koffee Kup and what funds were accumulated by the receiver as accounts receivable were tallied is considered confidential.

Hoar asked the attorneys to come back before the court on July 6 to describe the expanded role for the receiver and how payments will be made to all the creditors.

Bob Audette can be contacted at