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The Bankruptcy StrategistLJN NewslettersNewsSections

The Mighty Sword of PACA in Bankruptcy

By Andrew L. Turscak, Jr.
November 22, 2011

Over their years of doing business, most suppliers of goods encounter situations involving distressed customers who have slid into bankruptcy. While savvy vendors have developed what are often quite effective strategies to minimize the harm resulting from these encounters, it is inevitable that even the most sophisticated supplier will get burned from time to time. Among the unhappy consequences often associated with a customer's bankruptcy are, among others, preference liability, large general unsecured claims, and being left to cope with the uncertainty of a customer's ongoing viability during and after its bankruptcy.

Of course, Congress has seen fit to alleviate some of these consequences over time. One prominent example was the creation of the 20-day administrative expense claim for sellers of goods received by a debtor during the 20 days prior to its bankruptcy filing. 11 U.S.C. ' 503(b)(9). Another notable example is the Bankruptcy Code's grant of administrative priority to so-called “gap period” claims. See 11 U.S.C. ” 502(f), 507(a)(3). Still another is the Code's recognition and preservation of a creditor's setoff rights under applicable state law.

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