LINCOLN, Neb. (DTN) -- The state of Nebraska has asked a federal bankruptcy court for permission to compensate farmers left unpaid by the Hansen-Mueller Co. failure, using funds from a $1 million surety bond paid to the state by the company under its grain dealer license.

The Nebraska Public Service Commission on Friday filed a procedural motion in the U.S. Bankruptcy Court in Nebraska, asking whether a stay that is in place as part of the company's ongoing Chapter 11 bankruptcy case includes a freeze on surety bond funds.

The PSC essentially requested permission to pay Nebraska farmer Brian Schafer about $492,000 owed to him by Hansen-Mueller, as well as about $50,000 owed to ARW Farms LLC, according to the court motion.

Although the motion filed by the PSC is procedural in nature, it does protect at least some farmers from having to get in line to file claims as unsecured creditors and only receive a fraction of what they're owed.

The PSC is asking for clarity from the court that the surety bond is not property of the bankruptcy estate, which would allow the state to pay farmers from the bond proceeds.

"While it is the PSC's understanding that surety bonds and the proceeds thereof are not property of the bankruptcy estates, out of an abundance of caution, the PSC files this motion to ensure that the automatic stay is inapplicable to the PSC's act of drawing down on the bond and paying the claims it finds valid," the PSC said in its motion.

At the end of October 2025, the PSC withdrew its complaint against Hansen-Mueller after the company paid 38 Nebraska farmers about $2.1 million for grain deliveries.

Schafer filed a motion with the bankruptcy court to find void contracts he had with Hansen-Mueller for corn deliveries by the end of next year. In addition, Schafer told the court he was not among the 38 farmers paid by the company in the deal with the PSC.

According to the Hansen-Mueller bankruptcy filing, there are a total of 87 creditors in Nebraska.

Under the Nebraska Grain Dealer Act, dealers are required to post surety bonds to obtain licenses. If payment terms are violated by the company, the Nebraska Public Service Commission can forfeit the bond and distribute it to valid claimants.

"Surety bonds are not property of a debtor's estate because they are 'essentially third-party beneficiary contracts," the PSC said in its court filing.

"The penal sum protecting certain specified classes of people who are harmed in specified ways in dealing with the contractor. The contractor is never entitled to the penal sum -- he never has a property interest in the bonds.'"

Read more on DTN:

"3 Companies Win Hansen-Mueller Auction," https://www.dtnpf.com/….

Todd Neeley can be reached at todd.neeley@dtn.com

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