CANADA - In a recent post, Western Growers' Bryan Nickerson shared a guest contribution from June Monroe and Elise O’Brien of Fennemore Law. It reads as follows:

At long last, Canada passed Bill C-280, the Financial Protection for Fresh Fruit and Vegetable Farmers Act, amending Canada’s Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act to provide new protections for suppliers of perishable fruits and vegetables. The new law was modeled after the trust provisions found in the United States’ Perishable Agricultural Commodities Act (“PACA”), which creates a statutory trust for the benefit of unpaid suppliers of perishable agricultural commodities.

After years of advocating for a PACA-like financial protection mechanism, Canadian fresh produce organizations and industry members believe that this new law will not only provide stability and support to the Canadian fresh produce industry, but also pave the way for the USDA to restore Canadian produce sellers’ preferential access to the USDA’s dispute resolution services. In October 2014, the USDA rescinded “reciprocity” under PACA which previously allowed Canadian produce companies to utilize the USDA’s dispute resolution services in the same manner as U.S. based companies. When reciprocity ended, Canadian produce companies, like other foreign companies, were required to post a surety bond for double the amount of the claim when they made a formal reparation complaint. The USDA previously cited that Canada did not have a “dispute resolution system comparable to the U.S. system” and it was speculated that the lack of a trust protection program in Canada similar to the PACA trust provisions was also a factor in reciprocity revocation.

Under the new law, and subject to a supplier complying with certain notice and payment term requirements, perishable fruits and vegetables and the resulting sales proceeds are to be held in trust by a purchaser for the supplier if a purchaser has not paid the supplier for those perishable fruits and vegetables by the invoice due date and becomes bankrupt, subject to receivership, or applies for court-sanctioned financial arrangements. This ensures that fresh produce suppliers become a priority creditor with beneficial trust ownership of the produce inventory and sales proceeds, reducing financial risk in the agricultural food supply chain. Should the purchaser fail to settle the balance by the due date, the trust comes into effect, preventing these assets from being absorbed into the purchaser’s general or bankrupt estate. Suppliers can also seek court intervention if disputes arise regarding their rights under the new law.

The new law covers sales of perishable fruits and vegetables between a supplier and a purchaser, which includes perishable fruits and vegetables that have been repackaged or minimally transformed by the purchaser to the extent that the nature of the fruits or vegetables remains unchanged. To reap the benefits of the new law and have inventory or sales proceeds deemed to be held in trust, all of the following must occur:

1. The supplier must include in their invoice to the purchaser a notice, or give a separate notice within 30 days of the receipt of the perishable fruits or vegetables, in the prescribed form and manner, informing the purchaser of their intention to avail themselves of their right as beneficial owner of the perishable fruits or vegetables and the proceeds of sale in case the purchaser becomes bankrupt or subject to a receivership;
2. The supplier must have payment terms of 30 days or less stated in their invoice requiring a purchaser to pay the entire balance within terms; and
3. The purchaser, trustee or receiver does not pay to the supplier the entire balance owing when it becomes due as provided in the invoice.
4. No “prescribed form and manner” has been published or otherwise established by the Office of the Superintendent of Bankruptcy or other designated agency. As a result, the realization of produce suppliers’ trust rights under the new law may be delayed until publication of a prescribed form noticing a purchaser of a produce supplier’s trust rights.

While there is much to celebrate with the passage of C-280, for now, produce suppliers must wait for the fruits of the new law to ripen. In the meantime, U.S. produce suppliers can join the Canadian Fruit and Vegetable Dispute Resolution Corporation (DRC) to access the DRC’s dispute resolution services with Canadian buyers who, under Canada’s Safe Food for Canadians Regulations, are required to maintain a DRC membership.