Many MGFA members have received a letter from a New York law firm asserting a “Preference Claim” against them related to the VeraSun Energy Corporation (“VeraSun”) bankruptcy case (the “Demand Letters”).
Although MGFA cannot give our members legal advice, we do want members to understand what the Demand Letters mean to them. As you know, on December 31, 2008, VeraSun and many of its affiliates filed Chapter 11 bankruptcy cases in the Bankruptcy Court in Delaware. Under the U.S. Bankruptcy Code, a debtor such as VeraSun may file suit to recover transfers and payments made to creditors within 90 days before the bankruptcy case is filed, under certain circumstances.
The principal behind these Preference Claims is that, in the run-up to a bankruptcy, the debtor may pick and choose which creditors it pays. The Bankruptcy Code therefore gives a debtor (or its trustee) tools for recovering payments which benefited certain creditors to the detriment of all creditors as a whole.
The deadline for VeraSun to file complaints to recover on its Preferences Claims will be October 31, 2010. Therefore the Demand Letters appear to be intended to settle the Preference Claims before VeraSun is required to file suit.
Members should note that there are a number of defenses to Preference Claims. These include (a) that the payments received by a creditor were in the “ordinary course of business” between the debtor and the creditor or were made under “ordinary business terms;” and (b) that after receiving any payment, the creditor provided “new value” to the debtor through selling new goods or providing new services on unsecured credit. These defenses may help reduce or eliminate a creditor’s exposure to Preference Claims.
The Demand Letters note these defenses, but do not appear to have given any credit to them in the “settlement offer.” We strongly encourage members to contact bankruptcy counsel to help you review any defenses you may have before you accept any settlement offer.
There are a number of local firms with bankruptcy practices that may be able to help you. One firm that is already representing corn suppliers in the VeraSun case is: STOEL RIVES LLP; 33 South Sixth Street, Suite 4200, Minneapolis, MN 55402; Phone: (612) 373-8810, Attn: Jon Miesen.
We spoke to bankruptcy specialists at Stoel Rives when MGFA began to hear about the Demand Letters this morning. They advise that, no matter who you may engage to help you respond to the Demand Letters, you will need to gather certain information. This information includes: (a) any contracts you had with VeraSun, (b) a two-year account receivable history starting October 31, 2008 and going back to October 31, 2006 (the history should include invoice or contract numbers, check or wire numbers, due dates, and paid dates); (c) any invoices or payments that were outstanding but unpaid on October 31, 2008; and (d) a copy of any proof of claim that you may have filed in the VeraSun Bankruptcy.
