In 2006 a total of 74 investors signed letters of credit (L/Cs) for Central Illinois Energy's (CIE's) proposed ethanol project in the US.

Now the shareholders stand to lose US$5 million since construction work at the Canton plant shut down and the firm filed for bankruptcy in December last year.

Project costs

The investors thought they were putting money into a project that in 2001 was going to cost around US$40 million. The project was delayed for several reasons and by the time construction began in 2006, the project costs had already spiralled up to US$94 million.

By the time CIE filed for Chapter 11 bankruptcy in December 2007, more than US$130 million had been spent on the plant. Even then, construction had not been completed and contractors refused to work on the plant because they had not been paid.

L/C solution

In 2006, CIE approached shareholders and asked them to sign L/Cs to help remedy the company's financial problems. CIE board members also signed L/Cs themselves.

The company told some shareholders who signed L/Cs that they would be cashed in only if there was no other financing available for the project and the money would be repaid with plant proceeds once ethanol production started.

No recourse

Now the L/Cs have been called in and the investors have lost a minimum of US$29,000. The biggest L/C to help finance the project totalled US$552,000, according to court records.

The attorney hired to handle the bankruptcy said because the L/Cs were investments akin to stock CIE is not liable for the money.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.