Principle #7 –
What’s super about these “super-priority” rights?
As a trust beneficiary, a produce seller has an interest in trust assets that is superior to nearly all other types of creditors. Consequently, a produce seller may file a civil lawsuit in U.S. federal court seeking a temporary restraining order (“TRO”) and judgment against a defaulting firm.
The granting of a TRO freezes the buyer’s bank accounts and seizes its accounts receivable and other trust assets until the seller is paid. Such TROs may be granted quickly, and sometimes without notice to the buyer.
What’s more, if the defaulting firm’s assets are not sufficient to fully pay the seller, the officers, directors, and shareholders of the defaulting firm may be held personally liable for breach of the fiduciary duty owed the produce seller, provided they were in a position to control disposition of trust assets.
Principle #8 –
The PACA trust in bankruptcy
The PACA trust also shines when a defaulting firm files bankruptcy. Because PACA trust assets are not part of the bankruptcy estate, they are paid to PACA trust beneficiaries before other creditors, even secured creditors.
In other words, PACA trust creditors “walk to the front of the line” in a bankruptcy proceeding and will often be the only creditors paid.
When the bankrupt company’s trust assets are not enough to satisfy all the PACA trust debt, the PACA trust creditors each receive their pro rata share of the available assets, and as previously mentioned, the officers, directors, and shareholders of the bankrupt firm may be personally liable for the shortfall. And even if the individual owners or directors file for personal bankruptcy, the obligation to pay the PACA trust creditors in full is mostly likely not dischargeable.
Understanding the fundamental concepts related to the PACA trust will serve as a good primer for the New Hire Academy’s session on this topic.
Look for a similar article in this department related to the session on Transportation Customs and Rules in the January 2014 issue of Blueprints.