By Harriet Behar
On July 8, 2021, Pipeline Foods, a grain buyer, processor, and marketer of organic and non-GMO grains declared bankruptcy.
They delivered grain but weren't paid & wouldn’t be paid by Pipeline Foods
They had outstanding delivery contracts with the bankrupt company who wouldn’t be able to pay
Approximately one year after the bankruptcy, some farmers who received payment for delivered grain started to receive “clawback” letters
demanding they send back all payments within 21 days.
Unfortunately, a farmer can’t protect themselves from future clawbacks within their contracts, nor specify that if the grain buyer enters bankruptcy, the contract would be null and void.
Farmers argued the payments were made “in the ordinary course of their business relationship” and also stated the payment received was not “preferential payment treatment.”
These two phrases are important, and at least one farmer wrote a letter back to the Pipeline Foods using these phrases stating they would not be returning any money. Almost a year went by without a response.
Another farmer hired an attorney to cut the amount demanded in the clawback letters
SETTLEMENTS
IGNORED THE LETTER
One farmer represented himself in bankruptcy court after ignoring the letter, but his case was dismissed
ARGUED CASH PAYMENTS
Cash payments, including those wired to banks, may not be clawedback according to one farmer’s experience
While Pipeline Foods appeared to be a dynamic & growing business, their rapid growth was a warning sign.
To grow the business in their early years, they offered the highest price in the market to attract growers. This also caused them to incur debt that would ultimately be their undoing.
Know the rules and protections of both the state where the grain was produced and delivered so you can protect yourself.
Some states have indemnity funds to protect farmers. Review your state’s limits and requirements before you enter into contracts.