April 12, 2016

Why Should Growers Consider Investing in a PACA License?

By: Tom Oliveri

Unfortunately, there is the rare Shipper, Freezer or Marketing Agent that goes out of business owing money to growers. Growers can avail themselves to the protections of the PACA Trust; however, in order for a grower to fully benefit under the PACA Trust, they must file a PACA Trust notice within a specific timeframe.     

There are two methods to file PACA Trust notices:  

(1) As a grower, there is no requirement to be licensed under PACA. However, as an unlicensed grower, one must file what is known as a Notice of Intent to preserve benefits under the Trust. It must be in writing and must include information which establishes the contract for delivery of the fresh fruit or vegetable items delivered to the shipper, freezer or marketing agent:

  • The names and addresses of the trust beneficiary, seller-supplier, commission merchant, or agent and the debtor, as applicable,
  • The date of the transaction, commodity, invoice price, and terms of payment (if appropriate),
  • The date of receipt of notice that a payment instrument has been dishonored (if appropriate), and
  • The amount past due and unpaid.
  • Timely filing of a notice of intent to preserve benefits under the trust will be considered to have been made if written notice is given to the debtor within 30 calendar days following failure to pay under the payment terms of the agreement. 

(2) As a Licensee, you may elect to use a preferable method of preserving trust benefits under the PACA Regulations. Your invoice or other billing statement may be utilized in the normal course of your billing to the, shipper, freezer or marketing agent must contain:

The statement: “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.”

By having a PACA license, a grower can immediately effectuate the trust notice and corresponding protection by having the above verbiage preprinted on their invoice or statement that is sent to their shipper, freezer or marketing agent versus having to manually file, along with the challenge of determining the precise dates when the written trust notice needs to be filed after the payment default date.

Once a business has ceased operations or filed bankruptcy, in many circumstances the time may have already lapsed to file a written PACA trust notice. That is why it is imperative that trust notices be filed correctly and in a timely manner. The best way to accomplish that proper filing is to be a PACA licensee, and have the correct PACA language on your invoice.

The annual cost of a PACA license is $995.00. It is a prudent business expense and built-in safety net in the event of a bankruptcy or insolvency. I would strongly advise that you consult with legal counsel to explore this option and then you put in place best practices for assuring that you execute on your timely notice on a routine basis.

Should you need any guidance concerning PACA trust notices or need additional information, or wish for me to review your invoice, please contact me directly at 949-885-2269 or TommyO@wga.com.