Ethanol ghost seeks corn paybacks
A letter sent from the ghost of an ethanol industry giant is sending shockwaves around part of the Corn Belt.
VeraSun Energy Corporation filed for bankruptcy protection in October 2008, then liquidated assets last year. Now, the "reorganized debtors" of the dissolved once ethanol giant are trying to get their money back from farmers who sold corn to VeraSun during the 90-day period preceding the company's bankruptcy filing.
"Got my letter yesterday. They want my money back for the corn I sold them 3 months before they filed," says one Agriculture.com Marketing Talk member. "I don't know about everybody but my corn was contracted 2 months before the 90-day period. We delivered the corn got payed like we have on earlier contracts. Now they want it back."
In a letter sent August 20, the debtors are requesting 80% of the funds paid to those who sold grain to VeraSun during the 90-day "look-back period," according to Iowa State University Center for Agricultural Law and Taxation director Roger McEowen. Basically, the debtors are within their legal rights, in some situations, to have the money returned. When are they not?
In cases like VeraSun's, a debtor can "prefer" a creditor by paying them, then not paying a second creditor. This essentially leaves the bankruptcy trustee without a means to pay the debt that's owed from the company's dissolution. So, they're seeking it from those who sold grain to the fallen ethanol firm.
"A preference is a payment to the creditor within a specified relevant look-back period before a bankruptcy filing that allows the creditor to recover more money than it would have received from the bankruptcy estate if a bankruptcy had been filed on the date the payment on the antecedent 'old' debt was made," McEowen says.
See more from McEowen on the VeraSun case and possible scenarios for repayment.
The bankruptcy trustee's letter stipulated a response by September 30. McEowen says in the meantime, potential "preference defendants," or those from whom the trustee's seeking payback for grain sold during the bankruptcy filing look-back period, should seek legal help to determine their standing in the case. If the right information is discovered and presented to the trustee, litigation can be avoided. Or, required payback may be much lower than originally thought. But, whatever the potential outcome, McEowen says it's important to act before the trustee's deadline.
"Potential preference defendants should contact an attorney familiar with bankruptcy to help them assess their defenses and to properly organize the response to the trustee's demands. If no reply is made to the trustee, litigation will most probably ensue," he says. "If sufficient organized information is provided to the trustee, the potential preference defendant stands the best chance of avoiding the expense and inconvenience of litigation. Contacting a bankruptcy attorney will also help the potential preference defendant determine whether settling with the trustee makes sense.
"Remember, 80% is only the opening offer," McEowen adds. "Trustees frequently accept less depending upon the circumstances of each case."