Producers angered over VeraSun letter
Corn growers in Iowa, and elsewhere across the Midwest, were upset over the weekend to receive letters from “reorganized debtors” of VeraSun seeking refunds on payments they received for delivered corn in 2008.
The letters were sent to producers and cooperatives alike who were paid for corn within a 90-day time frame prior to VeraSun filing bankruptcy proceedings on Oct. 31, 2008 in Delaware.
The letters, dated Aug. 20, claimed that the recipients were given preferential treatment and were given until Sept. 30 to repay upward to 80 percent of what they were paid.
On Monday and Tuesday, corn producer groups and Iowa Secretary of Agriculture Bill Northey, urged farmers to seek advise from a bankruptcy attorney and then respond to the letter by the deadline. An Iowa State University source said failure to respond could require the bankruptcy court to order 100 percent repayment of the 2008 corn sales.
“I’m mad as hell,” said Tim Barrack, a letter-receiving producer near Arlington in Fayette County. He is also president of the Iowa Corn promotion Board. Barrack left a recorded message with Farm News saying he would wait and see how “things played.” His response would be based on legal advice he would receive.
“That’s all I have to say about it.”
Barrack’s reaction to the letter was common among former VeraSun suppliers.
“Producers felt it was a bit of a shock,” said Don Elsbernd, president of the Iowa Corn Growers Association, who farms near Postville, speaking of recipients’ initial reactions. “They were a little worried. One producer told me it would $108,000 for him and a co-op (elevator) was told it meant $8 million.
“This a big deal.”
However, Elsbernd said, once producers started working through the situation, most felt they could defend the repayment and would send letters stating those defenses in their responses under the Sept. 30 deadline.
According to Roger A McEowen, of the Center for Agricultural Law and Taxation, such letters are routine in bankruptcy proceedings.
“The bankruptcy trustee sent letters to many suppliers indicating that the trustee was investigating and seeking recovery of the payments made to suppliers based upon a
preference theory under bankruptcy law,” McEowen wrote Monday on an opinion that was posted on CALT web site at www.calt.iastate.edu. “The letters … indicated that the trustee would be willing to accept 80 percent of the alleged preferential payments.”
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. As applied to most suppliers, the look-back period is 90 days.
McEowen said that state law allows a debtor to pay one creditor and not another. The other creditors, he wrote, are “left to exercise any of remedies under the law to collect the debt.
“When limited assets are available to satisfy debts, the result may be that some creditors are paid in full while other creditors receive nothing. The Bankruptcy Code attempts to level the playing field by recovering payments received within the applicable look-back period and then distributing the assets of the debtor’s bankruptcy estate pro rata to all of the debtor’s unsecured creditors.”
A defense to the payment demand, McEowen told Farm News, could be if the payment came as a cash sale for corn delivered, known as ‘a contemporaneous exchange of value,” or if there was deferred payment or a payment-in-kind agreement, known as “subsequent new value.”
Another defense would be in proving that the transactions in question were typical in the ordinary course of business, based on the supplier’s history with VeraSun.
“The bottom line we’re trying to tell people,” McEowen said, “is to don’t go it alone. Folks need to take the letter to an attorney. They should not ignore (the letter’s deadline). If they do, they could be ordered to pay 100 percent.
“Don’t write the check yet, but don’t fail to respond.”
According to a fact sheet issued Monday by the ICGA and National Corn Growers Association, such demands as made by the letters are often made without checking into the accuracy of the information or the likelihood of defenses, leaving the former VeraSun customers to prove they were not given preferential treatment.
Contact Larry Kershner at (515) 573-2141, ext 453 or at email@example.com.
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