Peril Continues for VeraSun Corn Suppliers
On December 2, the Delaware bankruptcy court handling the VeraSun matter declined to set a firm date for VeraSun to determine whether it would affirm or reject corn contracts. However, after the hearing, VeraSun’s counsel announced that all contracts for seven of its eight U.S. Bio plants requiring delivery through January 15, 2009 would be rejected.
The rejected contracts are for delivery to:
Albert City, Iowa
Central City, Nebraska
Hankinson, North Dakota
VeraSun further announced that it would reject all contracts requiring delivery to Welcome, MN through January 31, 2009.
Prior to the hearing, contracts requiring delivery to these plants were not being rejected. Contracts to other plants apparently are not affected.
VeraSun Corn suppliers have been asking numerous questions regarding whether they should sell their corn without having received notice of rejection of their contracts. That could be a huge mistake. Until the contracts are rejected, the corn supplier is under contract to sell to VeraSun even though VeraSun may later reject the contract.
What happens if a VeraSun Corn Supplier sells his corn prior to contract rejection?
Assume that a VeraSun Corn Supplier has a contract for February delivery to a VeraSun plant at $6.00 per bushel and chooses to sell the corn at the current price offered by the elevator of $3.00 per bushel. If the prices stay low, VeraSun will most probably reject the contract and the corn supplier will not suffer any ill consequences. However, if the price of corn flips and the price for February corn increases to $7.00 per bushel, where it was last February, VeraSun would have the option to assume the contract and if the corn supplier did not have corn to fill the contract, the corn supplier would have to pay VeraSun the difference of $1.00 per bushel -- the difference between the market price and the contract price. The VeraSun Corn Supplier would effectively receive only $2.00 per bushel, instead of the $3.00 per bushel he thought he would receive.
What can VeraSun Corn Suppliers do to have certainty?
VeraSun’s counsel is working with counsel for the VeraSun Corn Suppliers to establish a workable form for corn suppliers to use to submit copies of their contracts to VeraSun’s counsel in Chicago to request a prompt determination by VeraSun as to whether it will assume the contract, reject the contract, offer new terms or indicate that it is undecided. VeraSun’s counsel has indicated that it hopes to have the form agreed upon by Tuesday, December 9, 2008, so submissions can begin shortly thereafter. If the contracts are rejected, then a notice of rejection will be filed with the bankruptcy court and if no objections to the notice of rejection are filed the contracts will be rejected effective 10 business days after the notice of rejection is filed with the bankruptcy court in Delaware.
What can a VeraSun Corn Supplier with a rejected contract do?
If a contract is rejected, the supplier can file a proof of claim with the bankruptcy court in Delaware. It will be paid on a pro rata basis with all other unsecured claims provided that all claims with higher priority are first paid in full.
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.