Bankrupt ethanol co. wants refund from corn farmers

Welcome ethanol plant
The VeraSun ethanol plant in the southern Minnesota town of Welcome in a 2008 file photo.
MPR Photo/Mark Steil

Farmers in Minnesota and across the Midwest who had the bad luck to sell corn to a bankrupt ethanol company are now being asked to repay most of the money they earned.

VeraSun, based in Sioux Falls, S.D., was once one of the top producers of ethanol, producing over a billion gallons each year. It went out of business after filing bankruptcy in the fall of 2008. The company wants the money back so they can use it to pay off creditors.

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.

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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.