Lawmakers Target Bankruptcy Law

Legislation Helps Farmers in Chapter 11 Battles

Todd Neeley
By  Todd Neeley , DTN Environmental Editor
Connect with Todd:
New legislation slated to be introduced in the United States Senate next week would change where Chapter 11 bankruptcies could be filed. (Photo by Michael Coghlan)

WASHINGTON (DTN) -- On Oct. 11, 2008, one of the nation's largest ethanol producers, VeraSun Energy, filed for Chapter 11 bankruptcy protection. The action left thousands of farmers who sold corn to the South Dakota company's ethanol plants at a loss.

What compounded those losses, attorney Joseph A. Peiffer said, is the producers he represented were faced with VeraSun filing bankruptcy in the state of its incorporation, Delaware.

Though legal, the move by VeraSun left many Iowa farmers facing the prospects of having to fight a legal battle in a distant state. This made it costly and logistically difficult for farmers to succeed.

Peiffer, now a shareholder in Ag and Business Legal Strategies based in Hiawatha, Iowa, has drawn the attention of Washington lawmakers who next week are set to introduce a bill in the United States Senate that would forbid companies from filing bankruptcy in states of their incorporations.

"My clients had grain delivery contracts with the 26 VeraSun ethanol and biodiesel plants in the six Midwest states where the plants were located," Peiffer said.

"None of the plants were physically located in Delaware, nor was the headquarters of any VeraSun company located in Delaware. However, because the first company to file its Chapter 11 bankruptcy was organized in the state of Delaware, all the affiliated companies could file their cases in Delaware. I recall the frustration that each of my clients expressed with having to participate in a bankruptcy in Delaware instead of where the contracts were to be performed."

Sens. John Cornyn, R-Texas, and Elizabeth Warren, D-Mass., are set to introduce the Bankruptcy Venue Reform Act of 2018 next week.

According to the text of the bill obtained by DTN, bankruptcy law allowed entities to file for Chapter 11 in a wide range of court venues.

"The wide range of permissible bankruptcy venue options has led to an increase in companies filing for bankruptcy outside of their home states, or the district in which their principal place of business or principal assets are located, a practice known as forum shopping, and has resulted in a concentration of bankruptcy cases in a few districts," the bill says.

"Bankruptcy forum shopping prevents small businesses, employees, retirees, creditors, and other important stakeholders from fully participating in bankruptcy cases that will have tremendous impacts on their lives, communities, and local economies, and deprives district courts of the United States of the opportunity to contribute to the development of bankruptcy law in their jurisdictions."

The new legislation would eliminate the place of incorporation as a proper venue, and the affiliate rule that allows companies to file a Delaware affiliate first in Delaware and then the rest of the cases in Delaware.

Currently, bankruptcies can be filed in several places. That includes the state of organization of the company, the district where a company has significant business assets or conducts business, or in the district where a parent or an affiliate has filed bankruptcy.

"I suspect the next ethanol, packing plant, grain elevator, or dairy bankruptcies will be filed far from Iowa if this bill is not passed," Peiffer said.

VeraSun filed for Chapter 11 bankruptcy protection as a result of getting caught on the wrong side of volatile corn prices in the summer of 2008, according to reports VeraSun filed with the U.S. Securities and Exchange Commission. Thousands of farmers who supplied grain to the company's ethanol plants were unable to recover their losses.

Sen. Cornyn said in a statement, "Closing the loophole that allows corporations to 'forum shop' for districts sympathetic to their interests will strengthen the integrity of the bankruptcy system and build public confidence. I urge my colleagues to support this bipartisan, common-sense solution to ensure equal access to the courts in bankruptcy proceedings."

Sen. Warren said in a statement, "Workers, creditors, and consumers lose when corporations manipulate the system to file for bankruptcy wherever they please. I'm glad to work with Sen. Cornyn to prevent big companies from cherry-picking courts that they think will rule in their favor and to crack down on this corporate abuse of our nation's bankruptcy laws."

Todd Neeley can be reached at

Follow him on Twitter @toddneeleyDTN


Todd Neeley

Todd Neeley
Connect with Todd: