VeraSun has changed its corn procurement policy and is not honoring corn that was contracted for more than $4 per bushel. Instead, farmers are being offered the spot market price, which has been consistently lower than most of the contracted prices.
VeraSun filed for Chapter 11 Bankruptcy on Oct. 31, 2008, which protects them from creditors while trying to reorganize financially. Because of bankruptcy rules, VeraSun is not permitted to pay for corn received before Oct. 11, 2008 nor for services before Oct. 31, 2008. Farmers that were not paid for goods or services provided before these dates have to file a claim form with the court and payment would depend on a reorganization plan being accepted by the court and creditors.
According to Roger McEowen, director for Iowa State University's Center for Agricultural Law and Taxation, the bankruptcy language appears to trump any obligations that the VeraSun debtors have to pay the contract prices they agreed to pay farmers and elevators.
McEowen says VeraSun appears to have the upper hand as it can wait until plant confirmation to decide whether to accept or reject corn contracts while the farmers and elevators that have agreed to sell to VeraSun are required to honor those contracts until VeraSun decides whether or not to accept them.
Secured creditors are first in line to recover any assets, with businesses and individuals that worked on VeraSun structures next and finally unsecured creditors, which includes individual farmers who have contracts with VeraSun to deliver corn.
"Farmers and elevators should consider hiring a bankruptcy lawyer to collectively represent them in the VeraSun bankruptcy as their interests appear to be identical," McEowen says. "By hiring one attorney, the farmers and elevators can have their interests properly represented when none of them could afford proper representation alone."