February 15, 2017
Authored by: Leah Fiorenza McNeill
Most restructuring practitioners are aware, either vaguely or through punishing experience, of the power of PACA creditors. PACA (or the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a et seq. for those who hate brevity) requires that buyers of produce hold such produce – and their proceeds – in trust for the benefit of produce sellers. General creditors of the produce buyer receive nothing, even if they hold a lien on the buyer’s assets, until produce sellers are paid in full on any valid PACA claims (including their interest and attorneys’ fees in most instances).
But sometimes, or many times, the PACA trust assets needed to pay produce sellers are not present. Accounts must be collected, by use of employees, lawyers, collection agents, or other parties. Inventory must be preserved and then sold, incurring further costs. In short, assets to pay PACA claims don’t magically appear, and if no one is paid to pound the pavement to sell that inventory and collect those funds, nothing will be collected, and nobody gets paid.
The Bankruptcy Code