While many companies do not have significant assets, two exceptions are grocery stores and restaurants. Regarding the former, Meuers comments, “When they go out of business, there’s a great probability of recovering money.” This is because produce is generally a small percentage of the business. “You can claim most of the assets as PACA trust assets even if only 20 percent may be from selling produce. If produce money is green, then everything purchased with the money turns green. So if [grocery retailers] buy Cheerios with money received from selling produce, the Cheerios become part of the PACA trust account.”
As powerful and effective as the PACA trust can be, however, Michael Erdman of Chicago-based Teeple, Leonard, and Erdman explains, “When multiple PACA trust beneficiaries are pursuing a buyer for payment, the norm in our experience is pro-rata distributions; unpaid sellers participating in a claims procedure process should not expect dollar-for-dollar recoveries.”
Amendola agrees and notes that, on average, the PACA trust claims procedure will take about six months from beginning to end, depending on the complexity of the case.
A NOTE ON PERSONAL LIABILITY
In many instances, a bankrupt company does not have sufficient assets to cover its trust claims. The law allows PACA creditors to pursue the buyer’s individual officers, directors, and shareholders in these cases.
Even if these individuals file for personal bankruptcy protection to avoid the debt owed to produce suppliers, the debt subject to the PACA trust can be exempted. Courts have held that individuals in a position to control trust assets are personally liable if they fail to perform their fiduciary responsibilities.
In some cases, a buyer strapped for money will pay obligations from trust assets to a non-PACA party, such as a bank. Here, too, produce sellers can sue for recovery by tracing the assets to the third party. A ‘disgorgement action’ is sometimes required to force repayment of money received through illegal or unethical business transactions.
CONCLUSION
“The sooner you bring the claim and enforce your rights, the better chance you have to recover money,” confirms Meuers. But the PACA trust claim procedure order, he notes, liquidates the business. “Many buyers are undercapitalized; are you going to recover more money by shutting them down? Or is it better to have them continue to operate and have a plan to pay you back? This is one of the first analyses that must be made.”
