Your farm had a great harvest and you sold more than three-quarters of your produce to 82Z Mart. It will be the biggest payday in your farm’s history, but you haven’t received payment yet. Then you hear 82Z Mart filed for bankruptcy and will soon be out of business. Now your big payday looks like it may never happen. What can you do?
One of the most significant actions a supplier can take is to preserve and pursue trust rights through the U.S. Department of Agriculture (USDA) Perishable Agricultural Commodities Act (PACA) Trust. Although it does not guarantee you will receive your money in every circumstance, it is an essential tool to help produce sellers receive the money they are owed.
How can USDA’s Agricultural Marketing Service (AMS) help?
The PACA Division of the Fair Trade Practices Program regulates fair trading practices for produce businesses subject to PACA, including buyers, sellers, commission merchants, dealers, and brokers within the fruit and vegetable industry.
What is the PACA Trust?
The Trust provides priority status to sellers of fresh and frozen fruits and vegetables if a produce buyer’s business fails. In the event that a buyer becomes insolvent or files for bankruptcy protection, other creditors cannot be paid from the indebted buyer’s trust assets until all valid Trust claims have been satisfied.
How does it work?
When a supplier sells produce to a buyer operating subject to PACA, the supplier becomes eligible to participate in the Trust, whether licensed or not. The Trust requires that buyers maintain a statutory trust on fruits and vegetables received but not paid for.
In other words, buyers must ensure they have the money available to cover the cost of their debt—what is owed for the produce they have received from the seller.
In the case of a business failure or bankruptcy, a buyer’s trust assets will not be available for general distribution to other creditors until all valid PACA Trust claims have been satisfied. Sellers, however, must properly preserve their PACA Trust rights for each transaction to pursue those rights later.
Preserving Trust Rights
Recently, AMS amended PACA regulations to provide greater direction on how to preserve PACA trust rights for growers and other principals who employ a selling agent. The final rule amending these regulations was published in the Federal Register on February 6, 2018 and went into effect March 8, 2018.
