Law Offices of Edythe L. Bronston

PACA Receiverships
By Edythe L. Bronston and R. Jaon Read

For those receivers appointed to take possession of and run business having to do with agricultural goods, it is imperative that you first learn the ins and outs of the Perishable Agricultural Commodities Act, found at 7 U.S.C. §499a etseq. (PACA). This Act is the result of an exceptionally strong lobby, which was able to have enacted a statute which creates a trust to benefit the sellers of perishable agricultural commodities of every kind and character and any receivables or proceeds from the sale of such commodities or products. The receivables or proceeds must be held by the buyer for the benefit of all unpaid suppliers or sellers of any such commodities until those suppliers or sellers are paid in full.

The trust created by this statute gives PACA claimants even more rights then secured creditors, as the claimants take precedence over secured creditors.

Property impressed with a PACA trust is not even property of a bankruptcy estate and is unavailable for operations or distributions to creditors of a bankrupt company.

A PACA trust claimant is not subject to any requirement of tracing and, in fact, the statute contemplates the co-mingling of trust assets. The buyer has the burden of showing which is any assets are not subject to the trust. The only burden on the claimant is to prove the amount of the claim, the entitlement to PACA beneficiary status, and the existence of a pool of assets into which the produce-related assets have been co-mingled. Although not in this circuit, there is case law which states that the PACA trust is subject to a trust claimant’s statutory lien, even if the pooled assets did not exist until after the claimant’s transaction.

PACA trust claimants must take affirmative steps to qualify and to enforce their claim. To become entitled to trust beneficiary status, an unpaid seller must provide notice of an intent to preserve trust benefits, either by way of a notice sent after nonpayment, with information in sufficient detail to identify the transaction subject to the trust, or by providing such information on a bill or invoice statement that also includes a statutorily prescribed legend: “the perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by Section 5(c) of the Perishable Agricultural Commodities Act, 1930, (7 U.S.C. 499(e)(c)). The seller of these commodities retains a trust claim over these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.”

Upon taking possession of an agricultural entity or related business, it is imperative that separate accounts be set up: one for PACA trust assets and one for non-PACA trust assets. It is only from the non-PACA trust assets that administrative claims may be paid, unless a court order is obtained. As receivables come in and sales are made, it is further imperative that the proceeds be appropriately segregated. As checks are written, it is further imperative that they are appropriately characterized as administrative, non-PACA trust expenses (unless you have a court order authorizing payment of certain claims from the PACA trust account.

Once it has been established that assets exist, a claims procedure should be prepared and submitted to the receivership court for approval. That claims procedure should make a provision for notice to all creditors, and the form of such notice, publication of notice, claim form, a time table for (inaudible) (1) review of claims; (2) notice of insufficiency of claims; (3) last date by which insufficiencies can be cured; (4) notice of receiver’s acceptance or rejection of claims; and (5) hearing on the receiver’s suggested treatment of claims. Notice should be published in both a local newspaper and The Packer, a trade paper located in Lenexa, Kansas. Once notice has been given, the claims should be collected until the last date by which they can be filed, then reviewed for evidence as to whether the invoiced goods were, in fact, received, whether payment had been made on the invoice, whether the PACA notice provisions had been complied with, etc.

It makes sense to petition your appointing court for authority to file any receivable litigation in the receiver case or as related cases, so that the matters come before the court which is familiar with the case.