Don't cash a check from VeraSun Energy without checking with an attorney, warms, Iowa State University Ag Law Professor Roger McEowen.
VeraSun declared bankruptcy in October and gained permission from the bankruptcy court to pay farmers for grain delivered from Oct. 11 to Oct. 31, but language on re-issued checks appears to relieve VeraSun of its obligations to honor high-priced contracts, McEowen says.
In a letter to corn suppliers, VeraSun said, "To get authority from the court to pay for corn delivered before the filing date, we will need acknowledgement from you that you will continue to do business with us on normal terms. This acknowledgment will be on the back of the check to pay for the corn and will be accepted by your endorsement."
However, farmers and elevators that sign the checks in order to get prompt payment for their corn appear to have agreed to continue supplying corn at prevailing market prices, says McEowen.
This language appears to trump any obligations that VeraSun has to pay the contract prices they agreed to pay farmers and elevators, while requiring farmers and elevators to continue selling corn at current market prices.
McEowen advises those who receive checks from VeraSun for grain delivered between Oct. 11 to Oct. 13 to consult with their attorneys to determine what their future obligations will be if they endorse the check. "They could be agreeing to deliver corn at the prevailing market price with payment on the most favorable terms provided within the past 12 months," he says.
The bankruptcy code allows a debtor to decide whether to accept or reject contracts such as grain supply contracts through the date of confirmation of the plan. For example, if a farmer or elevator has a contract to sell corn to VeraSun for $5.25 per bushel and the prevailing market price rises to $6 per bushel, VeraSun has the option to enforce the contract by accepting the contract.
"At this time VeraSun appears to have the upper hand as it can wait until plan 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 to accept them," says McEowen.
Contract holders can seek limits on time for VeraSun to accept or reject contracts through the bankruptcy court. If a corn supply contract is rejected by a buyer, the contract holder can market the grain and file an unsecured claim that can share in any dividend paid to VeraSun's unsecured creditors. But no guarantee exists that any payment will be made to unsecured creditors, notes McEowen. Farmers who supplied corn to VeraSun before Oct. 11 will be treated as unsecured creditors.