16 June 2010 18:12 [Source: ICIS news]
ST. LOUIS, Missouri (ICIS news)--US ethanol producers in financial distress should try to keep their plants going even if it means entering bankruptcy, rather than shut down the plants and see their resale value fall because of the halt, a legal expert said on Tuesday.
"You will get a better price if you keep operating," said Janet Jacobs of law firm Stoel Rives, which operates across the US and has renewable energy and agribusiness practices.
"Even if the inevitable happens and you go into Chapter 11 [bankruptcy protection], you will be in a better position to negotiate with creditors," Jacobs told the annual Fuel Ethanol Workshop in St. Louis, Missouri.
The perceived value of an idled plant was much lower than one still in operation, because the potential buyers would not be able to tell what issues lay ahead, she said, adding that the sellers need to "showcase" their asset.
While "there are deals out there for motivated buyers with cash", Jacobs warned that purchasers need to be careful dealing with financially distressed assets because the creditors could undo transactions as much as six years after the event.
In particular, buyers should make sure that they get evidence that they are paying a fair price for the asset, and that any creditors owed debts by the seller receive their share of the sale proceeds.
"Don't let the shareholders walk away with the money," Jacobs said.
If possible, buyers should set aside 10-15% of the purchase price in an escrow account to deal with any future claims, she said.
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