debtor in possession

Levelland ethanol plant seeks OK for processing pact

An Omaha-based biofuels company and Levelland’s ethanol plant have worked out a tolling agreement to allow the facility to come back online in time for this fall’s grain harvest and operate at capacity.

The proposal has already come under fire from the plant’s main secured creditor, which has asked U.S. Banktuptcy Judge Robert Jones to hold off on setting a hearing on the proposal until the end of the month because of concerns that the plan would surrender control of the plant to a business that’s not a party to the bankruptcy.

As first reported on lubbockonline.com Tuesday, Levelland/Hockley County Ethanol filed a motion Tuesday in U.S. Bankruptcy Court seeking expedited approval of the agreement with Tenaska BioFuels, a subsidiary of Tenaska Energy, to put the plant back to work. It closed in December.

The plant’s owners filed a Chapter 11 petition with the U.S. Bankruptcy Court April 27, seeking protection from creditors while operating the plant as debtor in possession.

A “tolling agreement” is similar to a rental arrangement. In this case, Tenaska would supply grain, natural gas and “denaturants” — chemicals that make ethanol poisonous — and then market the ethanol and distilled grains the facility produces.

The initial agreement would run through December 2014.

Under the agreement, the plant would receive the net sales as processing fees for the work minus a fee in the range of 2.5 percent to 3.5 percent to Tenaska on the ethanol sales.

While Tenaska would take the finished products to market, the plant would retain approval rights on the contracts and prices Tenaska buys grain and supplies and at which it will sell the ethanol and distilled grains. The pleading describes the agreement’s terms as either meeting industry standard or more favorable to the plant.

“The net effect is equal to approximately $10 million of post-petition working capital without an adverse effect on the secured lenders position,” the filing states.

Debtor In Possession Jargon Term Related To Bankrupt Debtors

A debtor-in-possession (DIP) refers to person or company that has formally declared bankruptcy but nevertheless allowed by the bankruptcy court to remain in possession of assets in which creditors have a valid claim or legal right. Naturally, in allowing this leeway, the courts also impose strict responsibilities on the DIP. Nonetheless, it allows the debtor an opportunity to best resolve the situation, both for themselves and creditors. In practice, DIP status is mostly granted to corporations rather than natural persons.

A company in the USA that continues managing its businesses under Chapter 11 is a DIP. In this situation, the company is required to submit a reorganization plan. It is permitted to continue managing without the supervisory oversight of a bankruptcy trustee. In effect, the court allows it to act as its own trustee in bankruptcy.

A debtor that files for bankruptcy is, in effect, seeking protection from creditors by the legal system. The rights available to a bankrupt debtor, including a DIP, usually vary between different jurisdictions. It is usually recommended that parties affected by these situations seek specialist legal advice.

In certain circumstances, a DIP may not only continue to manage and operate assets under claim by creditors, they may even purchase them from those creditors at market value. Courts are particularly likely to approve such purchases if the DIP can substantiate the assets are necessary for the ongoing viability of the business and hence vital for the eventual repayment to creditors.

Bankruptcy law has evolved over many, many years. It exists to protect debtors as well as creditors. Initially, the law was all about protecting the rights of creditors. Over the years, the evolution has been such that debtor rights have generally increased. Bankruptcy law can be traced back several hundreds of years to the early Florentine merchants in fifteenth century Italy. In those days, when enterprises failed, creditors had the upper hand. The law was firmly behind them. Little opportunity was given to debtors to recover from their default situation. Indeed, they were often goaled with no right of appeal.

In defense of food, an eater's manifesto [additional copies -- 2]

In Cold Blood

Democracy in America

A Wrinkle in Time

Reading Lolita in Tehran, a memoir in books