Perishable Agricultural Commodities Act (PACA)

PACA provides a means for collecting debts, resolving disputes and contracting to buy or sell produce. PACA provides a way to collect debts through the creation of a PACA trust.

What is PACA?

PACA is the Perishable Agricultural Commodities Act is a federal law that applies to anyone who works in the produce industry. This law was enacted to ensure that produce companies follow certain rules when it comes to fair dealing and the necessity to obtain a license to engage in this type of business. There can be violations of PACA that can result in penalties for the license holders. PACA also provides a means for collecting debts, resolving disputes and contracting to buy or sell produce. PACA provides a way to collect debts through the creation of a PACA trust.

What is the PACA trust?

The PACA trust is a remedy for produce sellers to obtain payment on undisputed amounts owed for produce sales in or to the U.S. The PACA trust does not cover sales to Canada or other countries. If there is a legitimate dispute resulting in non-payment, then dispute resolution proceedings are used rather than the PACA trust.

The PACA trust consists of a buyer’s produce-related assets, such as inventory and receivables.

The trust allows a seller, which has preserved its trust rights, to have its lawyer file a case in federal court and obtain a freeze on the trust assets of a non-paying buyer by showing there is no dispute the money is owed, and the trust assets are being dissipated.

Under the trust, produce suppliers are paid from the proceeds of their produce before any other creditor. This means produce sellers, who preserve their trust rights, have priority over all other creditors, including banks with security interests on produce-related assets.

The law does not require the produce-related assets be held in a separate account by the buyer. Rather, the trust floats over all the produce-related assets of the buyer until all qualified produce suppliers are paid in full.

Mr. Malady has worked on a number of PACA cases in the federal courts of the Eastern District of Pennsylvania and the District of New Jersey.