One of the main advantages of purchasing a business out of bankruptcy is that the process can be quick, orderly and predictable. Yet, recently, the United States Department of Agriculture (“USDA”) has challenged the ability of debtors that are produce vendors to sell their businesses quickly unless they fully satisfy their obligations under the Perishable Agricultural Commodities Act (“PACA”). In doing so, the USDA has sought to elevate the claims of all produce suppliers to priority status in contravention of the priorities in the Bankruptcy Code. Purchasers and sellers of produce-related businesses in bankruptcy must both take additional precautions to ensure the sale is consummated without unexpected costs or delays.
Overview of PACA -
PACA is a federal statute enacted in 1930 that establishes requirements for entities seeking to operate in the produce industry. It requires, among other things, that every dealer of “perishable agricultural commodities” be licensed by the Secretary of Agriculture, 7 U.S.C. § 499c(a), and that produce vendors “make full payment promptly” for any produce purchased in interstate and foreign commerce, 7 U.S.C. § 499b(4).
Originally published in Metropolitan Corporate Counsel on April 18, 2015.
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