Bankrupt ethanol producer VeraSun asking farmers for repayment of money from sold corn

By Dirk Lammers, AP
Thursday, September 2, 2010

VeraSun asking corn farmers for repayment

SIOUX FALLS, S.D. — Midwest farmers who sold corn to bankrupt ethanol producer VeraSun Energy Corp. have been receiving official letters asking for most of that money back.

Although the request carries legal precedent, trade association groups say growers have a defense and should consult an attorney before sending any money. They do have to respond though — and promptly, the groups advise.

Shannon Hannappel, who farms 1,400 acres near Clarks, Neb., said Thursday she thought she was done dealing with VeraSun until she received a letter requesting an $80,000 repayment.

“We thought we had gotten settled a year ago and we were done,” said Hannappel who typically sold to her local grain elevator but decided to take advantage of VeraSun’s higher offer. “For us, that’s a quite a dent.”

The Aug. 20 letters were sent to farmers paid by VeraSun in the 90 days before it filed for Chapter 11 bankruptcy protection. The settlement offer good through Sept. 30 requests an 80 percent repayment of what VeraSun paid them for their corn.

The demand has not been well-received by farmers, many of whom also had their high-price corn contracts with VeraSun negated when the company filed for bankruptcy, said Lisa Richardson, executive director of the South Dakota Corn Growers Association.

“The ghost of VeraSun has returned, and there is significant frustration,” Richardson said.

The association is trying to get a list of how many growers are affected, and Richardson estimates hundreds in South Dakota and thousands nationwide received letters.

Sioux Falls-based VeraSun, once the nation’s No. 2 ethanol producer, filed for bankruptcy in October 2008 after tightening credit markets erased its lifeline to weather the swings in corn and fuel prices. San Antonio-based traditional refiner Valero Energy Corp. has since bought nine former VeraSun facilities.

VeraSun as a company exists only in a Delaware bankruptcy court, with a trustee who is responsible to the creditors in charge of its remaining assets.

Seeing the VeraSun name in correspondence caught many Nebraska farmers off-guard, said Jay Rempe, vice president of governmental relations with the Nebraska Farm Bureau.

“I think they thought that was well behind them now,” Rempe said. “The first reaction from farmers is ‘Is this real? Is this credible, or is this somebody just out on a fishing expedition?’”

Sioux Falls law firm Meierhenry Sargent LLP is representing a couple of farmers, one of whom received a letter requesting more than $29,000.

“These are not small amounts of money,” said attorney Patrick Glover.

Bankruptcy code considers any payment made by a company in the 90 days leading up its Chapter 11 filing a preferential payment. The idea is to prevent a company that knows its days are numbered from choosing to pay certain creditors while stiffing others.

“They think that maybe they’re trying to pay off certain creditors to the detriment of others,” Glover said. “That’s why they have that law.”

He said the best defense for those who receive letters is to show the payments were part of an “ordinary course of business.”

If farmers can show that VeraSun made payments for corn to farmers in the ordinary course of its business before and up through the bankruptcy, then they could be considered exceptions to the preferential-payments rule, Glover said.

Glover said his firm is talking to the South Dakota Corn Growers to see if farmers could be grouped in a class since the letters and issues are similar.

National and state trade organizations have been getting swamped with phone calls, and they’ve been offering farmers guidance.

The Iowa State University’s Center for Agricultural Law and Taxation has posted a legal brief on its website, and the South Dakota Corn Growers has linked to the document and another prepared by the National Corn Growers Association.

Hannappel said that even though the ethanol plants’ current owners have nothing to do with VeraSun, many farmers are wary of getting burned.

“We’re all a little bit gun-shy about working with the ethanol plants, period,” she said.


Iowa State University’s Center for Agricultural Law and Taxation guide:

South Dakota Corn Growers’ VeraSun Bankruptcy FAQ:

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