Ruling Aids Factoring Firms in Agricultural Industry


Financial firms that factor agricultural accounts receivable won a big victory last week that should help sustain the crucial liquidity that such firms provide to agricultural brokers and, indirectly, to growers.

The Ninth Circuit Court of Appeals ruled on June 4 that the statutory trust provisions of the Perishable Agricultural Commodities Act (PACA), which can render valueless the agricultural accounts receivable a lender holds as collateral for a loan, do not apply in cases in which the receivables have been factored by a financial institution, rather than taken as security.

This ruling is good news for financial institutions and the whole agricultural commodities supply chain, said Doug Thorpe, the Perkins Coie attorney who successfully argued the case. It means that PACA cannot force a factor who sets up an agreement properly to disgorge to growers the proceeds of receivables it holds if the broker from whom it factored the receivables goes bankrupt.



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