Accounts Receivable Loan

PACA Trade Accounts

Secured agricultural accounts receivable loan provides certain types of, livestock, or poultry dealers should be aware that there are three main sources of super-priority liens directly affecting these industries. All three can subordinate the lender financing receivables. The three acts are the Perishable Agricultural Commodity Act, the Packers and Stockyard Act and the Poultry Producer Financial Protection Act. Each imposes a super-priority lien in favor of the trade creditors of dealers of fruits and vegetables, livestock producers and poultry dealers. The Perishable Agricultural Commodity Act, (PACA) grants a super-priority lien status in favor of trade creditors who supply perishable agricultural commodities to dealers of fruits and vegetables. This statute imposes a trust fund on all assets of the borrower which has purchased fruit and vegetables from any supplier and has failed to pay for them within 30 days after receiving the goods and receiving proper notice under the act.

Even if choate, this lien primes a prior secured lender on receivables, on its commodity inventory collateral and non commodity inventory if the proceeds were commingled, and on previously made payments to the lender if the lender had actual knowledge of the existence of the PACA trust, such as reviewing the invoices with the statutory notice, at the time that the payments were received. Finally, the lien can prime funds in a checking account, if the bank had knowledge of the PACA Trust.

The Packers and Stockyard Act imposes a trust in favor of its suppliers on the assets of a livestock packer, which may spring into a super priority lien when a packer fails to pay for livestock, such as cattle, sheep, or horses. The act has identical notice provisions to PACA and has spawned identical case law concerning the nature of the lien and the lien's priority as against receivables and other property of the packer. The only significant difference: the packer must have annual purchases of over $ 500,000 to fall within the provisions of the act.

The Poultry Producer Financial Protection Act is also identical to PACA as to the nature of the lien, the lien's priority and its effect on property of the dealer. It has a lower floor of $ 100,000 in annual purchases. Lenders have few defenses to claims under PACA or its progeny. In a typical example, a secured lender finances receivables in a PACA-controlled industry. If the borrower fails to pay its suppliers, these PACA trade creditors may sue and seek the appointment of a receiver, which will collect the receivables for the benefit of the trade creditors.

The secured lender will be primed, to the extent of the amount of all PACA trade accounts. Because PACA is dependent on the prompt notices by the trade creditors, lenders may be able to defeat PACA claims based on an untimely notice. The lender can also argue that the account debtor was not within the class of dealers as defined in the statute.

PACA will only apply if the borrower's customer is a defined dealer. A dealer is defined as a person who purchases the agricultural goods solely for sale at retail, and purchases in excess of either $ 230,000 (PACA), $ 500,00 (Packers and Stockyards Act), or $ 100,000 (Poultry Producer Protection Act) in perishable agriculture goods per calendar year. The courts have been quite generous in interpreting this definition, and in a recent case, a restaurant was held to be a dealer of agricultural goods.

Account Receivables