Enhanced superpriority for farmers – Lenders beware

July 6, 2023 | Kenneth R. Rosenstein, Victor Cornea

Lenders beware, Canada is one step closer to establishing a framework that will provide significant enhanced protections for suppliers of perishable food items. Bill C-280, or the Financial Protection for Fresh Fruit and Vegetable Farmers Act (the “Act”), has passed the Second of Three Readings in the House of Commons.

If brought into force, the Act will amend the Bankruptcy and Insolvency Act (the “BIA”) and the Companies’ Creditors Arrangement Act (the “CCAA”), and operate to establish an expanded superpriority deemed trust which will secure payment for supplies in the event that a purchaser of perishable products becomes bankrupt, is subject to a receivership or otherwise applies to the court for approval of a compromise or an arrangement.

The Act follows the model in the United States under the Perishable Agricultural Commodities Act (“PACA”) and provides that the perishable fruits and vegetables sold by a supplier to a purchaser, as well as the proceeds of sale of those fruits and vegetables, are held in trust by the purchaser for the supplier.

The Act currently provides that perishable fruits or vegetables, as well as the proceeds of sale, are deemed to be held in trust by the purchaser for the supplier, where:

    1. the supplier has included in their invoice a notice, or has otherwise given notice within 30 days of the receipt by the purchaser of the perishable fruits or vegetables, 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 purchaser has 30 days or less to pay the entire balance owing to the supplier; 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.

Both the BIA and the CCAA currently define “proceeds of sale” as proceeds from the sale by the purchaser of the perishable fruits or vegetables that are subject to the trust, whether or not those proceeds have been kept by the purchaser in a separate account or have been combined with other funds and therefore the Act will now capture receivables and not just the goods/inventory supplied to a secured lender’s borrower; and define “perishable fruits or vegetables” to include perishable fruits and vegetables that have been repackaged or transformed by the purchaser to the extent that the nature of the fruits or vegetables remains unchanged.

Consequently, this enhanced superpriority deemed trust will prime a secured lender’s security and further limit the amount of credit otherwise available to borrowers who purchase, package and/or distribute perishable products. So although it may give suppliers greater protection, it may result in a loss of credit available for their customers/borrowers to purchase their products.

Should you have any questions or concerns, please feel free to reach out to a member of Miller Thomson’s Financial Services group.


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