Agriprocessors cattle sales may bite producers, sale barns

Iowa cattle producers and sale barns who sold cattle to a defunct Postville slaughterhouse before it filed for bankruptcy received some disturbing mail this week.

The trustee for the U.S. Bankruptcy Court in Cedar Rapids sent letters to producers and sale barns who sold cattle to Agriprocessors within 90 days of the company's bankruptcy filing. They were told that they have 10 days from the receipt of the letter to repay 80 percent of what Agriprocessors paid them for the cattle.

If the letter is ignored or the court does not receive a response, the court will move to recoup 100 percent of the Agriprocessors payment.

The bankruptcy code allows a trustee to recover payments made to a creditor within the 90-day period preceding the bankruptcy petition. The “claw back” rule is intended to prevent a debtor from giving preferential treatment to any creditor just before filing.

Tom Shipley, director of issues management and policy implementation for the Iowa Cattlemen's Association, said the organization has been in contact with about eight producers who received the letters. The repayment amounts range from $50,000 to $600,000.

Shipley said attorneys for the organization believe producers and sale barns can show the payment were not preferential, but rather fall under the “contemporaneous exchange” or “ordinary course of business” provisions of bankruptcy law.

Under “contemporaneous exchange,” a payment is made at the same time a product - in this case, cattle - is provided. Payments for “ordinary course of business” depend on industry payment practices and previous payment practices between the creditor and debtor.

The period in question appears to be sales made to Agriprocessors between mid-August and mid-November 2008.

Shipley said the Iowa Cattlemen's Association does not know how many producers or sale barns received the letters demanding repayment. He said most have a deadline of Thursday to repay the money, but attorneys for his organization are seeking an extension to Dec. 15.

Shipley said any producer or sale barn receiving a letter is asked to contact the Iowa Cattlemen's Association by phone at (515) 296-2266.