Joe Peiffer, of Day, Rettig and Peiffer, P.C., a bankruptcy attorney from Cedar Rapids, makes a point Thursday during a meeting with former VeraSun corn suppliers in Fort Dodge.

More than 100 former corn suppliers of the VeraSun Energy Corporation met with attorneys Thursday in Fort Dodge to hear how they can defend themselves in a threatened preference case against “reorganized debtors” who are seeking at least 80 percent repayment of VeraSun checks issued to them from July 31, 2008 to Oct. 31, 2008.

At issue is a letter that corn suppliers and vendors received, dated Aug. 24, claiming the suppliers and vendors may have received preferential treatment by VeraSun accepting payment of goods and services while other debtors went unpaid.

Called a preference case, bankruptcy laws allows debtors to “look back” 90 days prior to the ethanol manufacturing giant filing Chapter 11 bankruptcy on Oct. 31, 2008. Those who received a check, or had a check clear VeraSun’s accounts within the 90-day period, received the letter.

Letter recipients were given until Sept. 30 to respond with their defense that they did not get preferred treatment from a VeraSun plant.

Letters were issued from two law firms, hired by VeraSun’s bankruptcy administrator, to suppliers and vendors from 24 plants in Iowa, Nebraska, South Dakota, Ohio, North Dakota, Minnesota, Indiana and Michigan.

What producers heard was not good news. All were counseled to get their documentation to a bankruptcy attorney and file a timely response of some kind and not to be surprised if a suit is filed against them after Oct. 31. The statute of limitations for preference cases is two years from when VeraSun filed for Chapter 11.

Those who are defending themselves against the case were told that if they are sued after Oct. 31, the case will be heard in bankruptcy court in the District of Delaware. That means defendants must hire attorneys licensed to practice in Delaware.

Steve Moline, from the agricultural division of the Iowa Attorney General’s office, told those attending that the case is complicated. So far, Moline said, “no court proceeding has been filed” and that the letter implies that the law firm has determined “there’s enough reason to justify the preference letter.”

Moline later told the audience, “I have never seen a preference case involving the grain sales. A lot of people will have strong defenses. Try to get yourself into the group that will be pushed out (of litigation) quickly.”

He told listeners to not contact the law firms, give them no information other than what is in their written defenses and to pay no money without getting advice from legal counsel.

He added that letter recipients cannot afford to set the issue aside until harvest is over.

Erin Herbold, from the Center for Agricultural Law and Taxation, based on Iowa State University’s campus, outlined three typical defenses to show a business transaction should not be considered preferred treatment.

Herbold said a defense could be if the payment was a cash sale for corn delivered, known as “a contemporaneous exchange of value,” or if there was a 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.

One producer noted he received a letter for a check that did not fall within the 90-day look back period.

Joe Peiffer, of Day, Retting and Peiffer, P.C., in Cedar Rapids, said the date the check was issued means nothing, the important date is when the check cleared VeraSun’s bank. So a supplier who delayed cashing the check could get pulled into the proceedings.

Herbold said that under Iowa state law, VeraSun had the option to prefer paying some obligations while allowing others to go unpaid.

Another Fort Dodge attorney, Charles Walker, cautioned that even if a defense is filed on time, “due to the sheer volume of responses” corn suppliers may be filed upon to meet the two-year statute of limitations.

Some producers may choose to settle rather than hire an attorney in Delaware, Peiffer said, “but if 80 cents on the dollar is going to break you, you better get a lawyer to defend you.”

Moline advised that defenses should be sent by registered mail in order to establish that the responses were received.

The issue, Moline said, “will squeeze the bankruptcy bar in Iowa to do this. There aren’t that many (bankruptcy attorneys) in Iowa.”

Finally, Moline said, even if a corn supplier or vendor cannot file a complete defense by the deadline, they should file something with the law firms. “Just don’t shut down if you can’t get the letter done by Sept. 30.”

Contact Larry Kershner at (515) 573-2141 or kersh@farm-news.com