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PACA Trust proposal could expand sellers' rights

by Tim Linden | June 09, 2010
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 rights.

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, No. 109).