Farmers drawn into court battle over VeraSun corn payments

(from an article posted at http://agweek.areavoices.com/2010/09/09/bankrupt-ethanol-co-wants-refund-from-corn-farmers/ )
 
…VeraSun is finished as an ethanol company; it sold off its plants last year, including two in Minnesota. But the company lives on, as a paper entity, in bankruptcy court. The legal shell of what was once one of the nation’s top ethanol producers wants farmers to repay large amounts of money.

One southern Minnesota corn producer told MPR News that the company is demanding he repay $50,000. That’s about 80 percent of what the company paid him for his corn.

He’s not alone. Hundreds of farmers are being asked for the 80 percent repayment.

Roger McEowen director of Iowa State University’s agricultural law center, said nearly 40 farmers have contacted him.

“Farmers wanting assistance and information as to what’s going on here,” McEowen said.

McEowen said VeraSun has a well-established legal basis for the repayment action. Known in bankruptcy law as a preference claim, it allows the company to reclaim funds it paid out within 90 days of the bankruptcy filing.

That includes money VeraSun used to buy corn. McEowen said there are thousands of claims against the company. He said VeraSun will use the reclaimed funds to pay off as many of those people as it can. Preference claims are meant to make those payouts as fair as possible. That allows people creditors who missed being paid by just a few days because of the bankruptcy filing have a chance to recover some of what they lost.

Despite the law’s good intentions, farmers are feeling the pain, McEowen said. But he said they have options.

“There are some traditional defenses that a farmer can utilize to make the argument at least that they do not have to pay any of it back,” he said.

McEowen said one defense is to show that the money was paid as part of an ongoing good faith business relationship. He said that will demonstrate that there was nothing underhanded about the pay-out.

To prove that, he said, farmers will have to dig out receipts and other documents verifying that they had a corn-for-money agreement with VeraSun.

McEowen said the biggest mistake a farmer could make is to ignore the repayment action. He said if they do that there’s a good chance they’ll be sued for the funds. If they lose in court, the 80 percent compromise figure now in play would probably disappear — and there’s a good chance the court would demand payment in full.

Our Take:
Now to the famous Latin phrase “Caveat Emptor” — Buyer Beware — we have to add the phrase “Caveat Venditor” –seller beware. When it comes to big, publicly-owned companies that can experience a reversal of fortune, farmers cannot trust the soundness of the transaction, even though they sell a physical commodity.

The best defense is a little foresight. When you must sell to the big guys, make sure your contractual bases are covered by consulting with a good attorney first, to devise a strategy to protect against the company’s creditors in the case of bankruptcy.

An even better solution is, if you are not already a member of a farmer cooperative or majority farmer-owned LLC ethanol plant, join one of those and sell your grain to yourself. Known as the “Minnesota model,” farmer-owned ethanol is still the surest ticket to prosperity for the average corn producer.

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