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.
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