The PACA trust provisions put sellers of fresh and frozen fruits and vegetables in a priority status in the event their buyers become insolvent or file for bankruptcy protection.
When a supplier sells produce to a buyer, the supplier becomes eligible to participate in the trust. The PACA trust provisions require that buyers maintain a statutory trust on fruits and vegetables received but not yet paid for. In the case of a business failure or bankruptcy, the debtor’s trust assets are not available for general distribution to other creditors until all valid trust claims have been satisfied. Because of this, suppliers that file for trust protection have a far greater chance of recovering money owed them when a buyer goes out of business.
United States District Courts have jurisdiction over actions by trust beneficiaries to enforce payment from the trust; and, actions by the Secretary of Agriculture to prevent and restrain dissipation of the trust. (“Dissipation means any act or failure to act that could result in the diversion of trust assets, or that could prejudice or impair the ability of unpaid produce suppliers, sellers, or agents to recover money owed in connection with produce transactions.”)
Preserving PACA Trust Rights
PACA Licensees may preserve their trust rights by giving notice to the debtor on the invoice. A licensee using this method must have the following wording, exactly as shown, on the face of the invoice:
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. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.
Sellers not licensed under the PACA, or those licensees that do not want to include the statutory wording on their invoices may use the following method:
A written notice must be provided to the buyer and must include a statement that it is a “notice of intent to preserve trust benefits,” and must include the names and addresses of the seller, commission merchant, or agent, and the debtor; the date of the transaction, commodity, invoice price, payment terms, and the amount past due and unpaid. Notification must be given within 30 days from the day payment was due, or from receiving notification that a timely submitted payment was dishonored. To qualify for trust protections, terms for payment cannot exceed 30 days from the date of acceptance of the product. Payment terms other than PACA prompt payment terms (usually 10 days) must be agreed upon by the parties to the transaction in writing before entering into the transaction.