A provision that allows sellers to extend payment terms beyond 30 days
without jeopardizing their PACA Trust rights has been proposed by the U.S.
Department of Agriculture, with comments due by Aug. 9.
Matthew McInerney, executive vice president of Western Growers Association
in Newport Beach, CA, applauded the proposal, which he said came from the
USDA's Fruit & Vegetable Industry Advisory Committee.
"I applaud them for recognizing the common practices that occur in our
industry with regard to payment schedules and proposing this amendment as
a solution," he told The Produce News. "I have not had the time to analyze the
proposal fully, but the intent is critically important for our industry."
He said that WGA will examine the provision closely and will submit
comments in support of the concept by the deadline.
When the Perishable Agricultural Commodities Trust Act was passed more
than 25 years ago, it was designed to put sellers of fresh fruits and vegetables
in a top-priority position in the event of a bankruptcy by a buyer of their
products, such as a retailer or wholesaler.
The law has many provisions, but one requires that buyers remit payment for
product in a timely fashion and that a contract between the buyer and seller
cannot extend the payment terms beyond 30 days.
Mr. McInerney said that over the course of time, some courts have ruled that
even an oral acceptance of extended payment terms can invalidate the PACA
Trust. This proposal would allow the seller to enter into a payment agreement
on a default invoice of up to six months without giving up his or her PACA
Mr. McInerney said that currently, a seller is put into the position of having to
file a lawsuit to preserve its PACA Trust status if a buyer officially defaults on
the payment of an invoice by going beyond 30 days.
He said that this provision would give sellers the flexibility to work with
buyers who have outstanding bills older than 30 days.
"This proposal is consistent with the original intent of the PACA Trust," said
Mr. McInerney. "The original goal was to protect the seller when a buyer files
bankruptcy, not to invalidate PACA Trust claims through a technicality."
Specifically, after a payment default, this proposal will allow a "seller, supplier
or agent ... to enter into a written scheduled payment agreement for payment
of the past-due amount while maintaining its trust eligibility. The length of
such an agreement for payment of the past due amount, while still
maintaining eligibility for trust protection, could not extend beyond 180 days
from the default date."
The proposal was published June 8, 2010, in the Federal Register (volume 75,