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Iowa attorney objecting to VeraSun bankruptcy plans

By DOUG SCHMITZ
Iowa Correspondent

CEDAR RAPIDS, Iowa — A Cedar Rapids, Iowa attorney has filed an objection to VeraSun Energy Corp.’s historic bankruptcy filing on behalf of nearly 100 Iowa and Minnesota farmers which challenges the ethanol company’s liquidation proceedings that would threaten corn sales contracts for October, November and December 2008.

“In the Midwest, this would be viewed as tantamount to playing a game of Texas hold ‘em where the VeraSun Corn Suppliers are ‘all in’ and VeraSun gets to see the flop prior to deciding whether to assume the contracts,” Cedar Rapids Attorney Joseph Peiffer wrote in his Nov. 14 objection.

Iowa Legislature General Assembly Rep. Mark Kuhn, a Charles City, Iowa grower, formed VeraSun Corn Suppliers to oppose the company’s motion, stating that “farmers who have contracts with VeraSun could suffer substantial damages.”

Peiffer, who specializes in bankruptcy proceedings, wrote in his objection that “the outlined procedure essentially holds the VeraSun Corn Suppliers’ product hostage while the debtors determine whether or not to reject the contracts.”

Moreover, Pieffer said VeraSun’s request to cancel futures contracts with corn growers allows them “to set the price prior to committing to assumption of the contract.”

On Oct. 31, VeraSun and its 24 subsidiaries filed Chapter 11 bankruptcy in the U. S. Bankruptcy Court in Wilmington, Del. VeraSun Corn Suppliers is questioning provisions in VeraSun’s Nov. 14 motion that would allow the Sioux Falls, S.D.-based ethanol behemoth to assume or reject executory contracts and unexpired leases with no set date.

In its motion, VeraSun asked the court to reject corn contracts for its plants in Janesville and Welcome, Minn., which were scheduled to begin operation this fall but are likely to be idle through the end of the year.

But Peiffer asked the court to reject VeraSun’s proposed procedure and set a Dec. 15 deadline for the company to assume or reject all 2008 and 2009 corn delivery contracts.

One concern that VeraSun Corn Suppliers raised involved a proposed bankruptcy procedure that could allow VeraSun to wait until 10 days before a contracted delivery date to notify growers that the contract would be rejected.

“That would let VeraSun determine the market price before deciding whether to accept delivery under a contract, but it would leave growers up in the air until the last minute,” said Gary Edwards, Anamosa, Iowa, corn grower and Iowa Corn Growers Assoc. (ICGA) president.

“Growers could lose out on their contracted price,” he said. “At the same time, leaving the grower in limbo could mean losing the chance to sell corn someplace else at a decent price.”

Roger McEowen, director of the Center for Agricultural Law and Taxation at Iowa State University (ISU), said if the court approves the company’s motion, VeraSun Corn Suppliers wouldn’t be able to invoke the bankruptcy procedure to establish a certain time.
“Consequently, in order to have input in the process, contract suppliers have until Nov. 21 to file an objection,” he said. “For corn contracts that have not been rejected, the contracts remain executory.

“However, for farmers that have not cashed a VeraSun check containing a restrictive endorsement which ties the supplier to market price for future deliveries,” he added, “it appears that VeraSun must pay the contract price for corn that is delivered.”
The ICGA said it would continue to monitor VeraSun, meeting with key Iowa officials, and “taking steps to keep ICGA members informed of the latest developments.”

Ron Litterer, a past ICGA president who now chairs the National Corn Growers Assoc. (NCGA), and farms near Greene, Iowa, said he has an outstanding contract to deliver corn to VeraSun.
Litterer said he and fellow group members filed the objection on behalf of “all affected corn growers who have similar situations and are concerned with VeraSun’s proposed procedures to reject outstanding contracts.”

Litterer added that VeraSun Corn Suppliers hopes to serve as “a voice for corn growers and advocate for farmers’ interests with the U.S. Bankruptcy Court in Delaware.”

“It is doubtful that we can influence the courts to require VeraSun to pay the contracted price for our corn,” he said. “However, we do hope to influence other issues of concern to growers.”

Keith Bolin, a Manlius, Ill., corn and hog producer, and president of the American Corn Growers Assoc. (ACGA), said the ACGA supports the objection.

“A court ruling will have an impact on corn producers all across America,” he said. “Under these circumstances, if VeraSun is allowed to reject corn contracts and future deliveries, this decision will create undue concern and our hopes in the future of ethanol.”
If VeraSun’s motion is approved, Litterer added that thousands of corn growers in Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota and other states could be affected. A hearing on VeraSun’s motion was scheduled yesterday in Wilmington.

12/3/2008