Meeting planned in S.D. on VeraSun letters

By Holly Jessen | August 27, 2010
Posted Sept. 9, 2010

Corn farmers that received payment for corn deliveries to now-bankrupt VeraSun Energy Corp. ethanol plants have been surprised to receive letters asking for some of that money back.

In South Dakota, a public meeting has been set for Sept. 14 in Sioux Falls to discuss options. Patrick Glover is one of two attorneys from Sioux Falls-based law firm Meierhenry and Sargent LLP that will be there. "The meeting is to inform area producers who were ‘lucky' enough to get one of the letters, what the situation is, what their rights are, and should they choose to have our office represent them, what the plan would be moving forward," Glover said.

Although corn farmers make up the largest group, the letters have gone out to anyone that received a payment from VeraSun in the 90 days before it filed for Chapter 11 bankruptcy in 2008. A settlement offer gives until Sept. 30 to repay 80 percent of the payment. Of the letters Glover has seen, that's a chunk of change—ranging from $5,000 to $185,000.

Although it's not known exactly how many letters have been sent out, likely more than 1,000 corn producers have been affected across the country, said Lisa Richardson, executive director of the South Dakota Corn Growers Association. "Unfortunately I think it's leading to a lot of fear and uncertainty for corn producers," she said.

When it filed for bankruptcy VeraSun was the second largest U.S. ethanol producer, with 16 plants in eight states. It owed more than 1,700 creditors approximately $1.5 billion, according to its bankruptcy filing.

The letters were mailed out by legal counsel for the reorganized debtors of VeraSun in late August. The next legal step, should the settlement offers not be taken, is for VeraSun's reorganized debtors to file with bankruptcy court and take part in hearings, Glover said.

Iowa State University's Center for Agricultural Law and Taxation posted information on its website on the topic. Written by Roger McEowen, the document cautioned sellers from ignoring the letter, as failure to respond could result in the bankruptcy court authorizing full repayment.

At issue is whether the payments made by VeraSun between Aug. 3, 2008, and Oct. 31, 2008, were preferential or in the ordinary course of business. A preference payment is when a creditor is paid in the look-back period that allows the creditor to recover more money than if the bankruptcy estate had distributed the creditor money after the bankruptcy. For most suppliers, McEowen wrote, the look-back period is 90 days and it is one year for insiders. On the other hand, a transaction that occurs in the ordinary course of business cannot be avoided.

Some suppliers will have a strong defense that what they were paid was in the ordinary course of business, McEowen predicted. Others may have partial defenses and can negotiate lower repayments. However, some may not have a good defense and could have to repay the full amount.

The preferential treatment law is in place to make sure that everybody gets a fair slice of the pie, Glover said. Otherwise, a company might be able to pick and choose among its creditors, paying three in full and ignoring seven others. The trustee looks at those decisions and determines if the three creditors were treated with preference, and if so, redistributes the money to all creditors evenly. "It's a good law, but there are exceptions too, and I think these producers fit under the exception," he said. In other words, if VeraSun paid the corn farmers in the ordinary course of business, those farmers will not be required to pay back the money. "That, at least in my opinion, is pretty clear that it's a yes," he added.