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The Perishable Agricultural Commodities Act (PACA) and Bankruptcy

PACA.jpgThe Perishable Agricultural Commodities Act (PACA), which was passed in 1930, regulates the sale of fruits and vegetables. PACA covers a wide variety of situations, including what happens in the event that a produce buyer goes bankrupt. The Act provides sellers with powerful tools to collect payments and also has major ramifications on the creditors that lend to businesses that are within the scope of the regulations. California is one of the nation's leading producers of fruits and vegetables and it is critical that creditors within the state understand how PACA might impact their rights. If you have any questions about PACA and bankruptcy, please contact an experienced San Jose business bankruptcy attorney for immediate legal assistance.

The PACA Trust and Creditor Priority

PACA was amended in the 1980s to alter the rights of the parties involved in buying, selling and financing the exchange of produce. Prior to the amendments, produce sellers were essentially last in line when it came to the priority of their creditor claim. In the event that a produce buyer became insolvent and went into bankruptcy, a produce seller was often unable to collect any payment. Congress was concerned that this could further harm the long-term stability of a notoriously unstable industry. Therefore, the PACA Trust was established to give stronger collection rights to produce sellers. Put simply, the PACA Trust gives sellers the priority rights to recover payment for any yet unpaid produce in the event that the buyer goes bankrupt. In the vast majority of industries, sellers are not entitled to that type of priority over other creditors. The PACA trust provides sellers with a unique and highly valuable collection tool.

How to Enforce PACA Trust Rights?

The PACA Trust provides unpaid produce sellers with several different potential remedies. Specifically, a seller may attempt to collect payment by:

  • Seeking a court order (injunction) that compels the insolvent produce buyer to maintain the trust, which will temporarily freeze the buyer's assets;
  • Attempting to get a court to institute a PACA claims action, which could lead to the liquidation of the non-compliant buyer;
  • Trying to take action against the corporate officers of the buyer, in an effort to hold them personally liable for their failure to make a payment; and
  • Looking to track down the buying company's assets that have already made their way into the hands of third parties.

Ultimately, participation in the PACA Trust offers produce sellers many extremely powerful collection rights. An experienced attorney can help your company enforce those rights to ensure that your business collects the money it deserves.

Contact Our Office Today

At Diemer, Whitman & Cardosi, LLP, our skilled San Jose creditors' rights attorneys have experience handling all types of creditors' rights claims. This includes PACA claims along with other trust-related claims. If you have questions about PACA collections, please contact our San Jose office today at 408-971-6270 to schedule a free review of your case. We represent creditors' rights in bankruptcy throughout the region, including in Santa Cruz and Monterey.

Sources:

https://www.ams.usda.gov/rules-regulations/paca/paca-trust

https://www.ams.usda.gov/rules-regulations/paca

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