The Business of Farming: What is PACA?

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Farming is a tough business. Weather, market volatility, tight lending requirements, reliable equipment and government regulations are just a few of the many issues that a farmer faces annually. The C. Scott Kirk Law Firm has some information on the Perishable Agricultural Commodities Act (PACA) that can help.

What is PACA?

PACA refers to the Perishable Agricultural Commodities Act of 1930. The purpose was to protect farmers from delayed payments or no payment. The law provided farmers some protection in the event of non-payment or bankruptcy.

What Products does PACA Protect?

The law only applies to perishable agricultural commodities. The statute defines a perishable agricultural commodity as “fresh fruits and vegetables of every kind and character, whether or not frozen or packed in ice.

How does PACA Work?

To create a trust, there must be property to transfer; a definite purpose and disposition of the property; a person to execute the disposition and purpose, and lastly, a beneficiary. Every transaction that is PACA qualified creates a trust.

How does a Farmer Create a PACA Transaction?

A farmer must place the distributor on notice that the transaction was subject to PACA within 30 days after the expiration of the time prescribed for payment as set in the regulations by the USDA, or as the parties may agree otherwise in writing before the transaction.

What Happens to a PACA Transaction in Bankruptcy?

First, the bankruptcy automatic stay does not prevent him from perfecting his PACA claim after the bankruptcy is filed. Second, PACA claim funds are generally not property of the bankruptcy estate. Third, because the funds are not property of the bankruptcy estate, the funds are not subject to the liens of secured creditors. Fourth, most courts have ruled that PACA proceeds are not subject to avoidance actions that may be brought by a bankruptcy trustee against other creditors.

During times of uncertainty and even in times of certainty, a farmer should always be sure that his perishable crop transactions are afforded the protections of PACA. The statute is the ultimate weapon for a farmer and should be used.

Dealing with with farming can be tough. If you have additional questions regarding PACA, contact C. Scott Kirk, Attorney at Law, PLLC by calling (252) 689-6249 to schedule your personal consultation. You can learn more at csklawoffice.com.