By TIM THORNBERRY
Kentucky Correspondent

AMES, Iowa — Many corn producers across the Midwest have recently found themselves in a tight legal spot, as VeraSun Energy wants back most of the money it paid to those producers 90 days prior to the company’s bankruptcy filing, which took place nearly two years ago.

Only recently did a letter from a bankruptcy law office go to growers, asking for repayment of funds and claiming “bankruptcy preference” as the reason. A statement from Iowa Secretary of Agriculture Bill Northey urged growers to seek legal advice before doing – or not doing – anything.

“Many Iowa farmers, who sold grain and received payments in the 90 days prior to the VeraSun bankruptcy filing on Oct. 31, 2008, have received a letter from a New York law firm. If you have received the letter from the Silverman Acampora law firm, you need to seek out an attorney for legal advice, preferably a bankruptcy attorney,” wrote Northey.

“Contact your attorney before you respond to the letter. Don’t sign anything until you have contacted your attorney; but, it is important to not ignore the letter. State of Iowa officials are consulting with experts to see what ramifications this letter may have on Iowa farmers.”

The letter is asking for 80 percent of the payment back, something state officials aren’t certain has to be done or not. The letter noted that respondents have until the end of September to reply, or an attempt to retrieve all of the money will be made. The National Corn Growers Assoc. (NCGA) has prepared a guide containing answers to commonly asked questions to help producers navigate their way through this. The guidelines say first, producers need to determine “promptly” if indeed the letter is correct or if they have defense.

“If you have good defenses, it is wise to respond to the letter and assert those defenses,” stated the information. “If you do not respond to the letter, it is likely a lawsuit will be filed against you in Wilmington, Del., where the bankruptcy was filed, and you will incur expenses, even if you are successful in winning the suit or convincing the plaintiff to drop the suit before trial.

“If you have good defenses, usually the least expensive way of disposing of the demand is by a carefully written response to the demand.”

The document goes on to list several ways for producers to determine if they have defenses in the matter: “Determine whether the facts stated in the letter are accurate. Is that the correct amount that you received within the 90-day period prior to the filing of the bankruptcy, and is the date of the receipt correct? If you received less than the amount demanded during the 90-day period, then that is your first defense to the extra amount claimed.”

Next, “determine whether the payment received was in the ‘ordinary course of business.’ This is the primary defense that you need to evaluate. If the payment was made within the terms of the contract or if the payment was received on the same schedule as prior payments, then this may provide a good defense. “Likewise, if the payment was received within the terms that are routine in the industry, that may provide a defense.”

The letter also states other possible defenses include whether a farmer shipped grain to the debtor after they received this payment and were not paid for that grain; or if the debtor was not insolvent at the time of the payment; or if the payment did not come from the debtor.

The NGCA notes the guideline document is not intended to replace legal representation but rather supply some information.

Roger McEowen, director of the Iowa State University Center for Agricultural Law and Taxation, prepared an overview of the action and listed information as to what producers may consider doing.

“Potential preference defendants should contact an attorney familiar with bankruptcy to help them assess their defenses and to properly organize the response to the trustee’s demands,” he wrote. “If no reply is made to the trustee, litigation will most probably ensue.

“If sufficient organized information is provided to the trustee, the potential preference defendant stands the best chance of avoiding the expense and inconvenience of litigation. Contacting a bankruptcy attorney will also help the potential preference defendant determine whether settling with the trustee makes sense. Remember, 80 percent is only the opening offer. Trustees frequently accept less, depending upon the circumstances of each case.”

While it is not known how much grain was bought in that time period or just what producers stand to have to pay back, VeraSun had at least five facilities in Iowa at one time. The Iowa Department of Agriculture and Land Stewardship website at www.IowaAgriculture.gov is releasing information as it becomes available.