This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
A typical Florida produce distributor sale looks clean on the surface. Picture a family-built wholesale operation — a refrigerated warehouse off the interstate, a dozen trucks, long relationships with growers in Homestead and Immokalee, and a customer list of restaurants and grocery chains that pays like clockwork. The buyer’s lender loves the receivables and wants them in the borrowing base on day one. The quality-of-earnings work comes back fine. Everyone is arguing about working capital pegs and non-competes, and nobody has asked the one question this industry demands: how much of what we are “buying” is actually held in trust for somebody else?
PACA puts a trust on the produce — and on everything the produce becomes
The Perishable Agricultural Commodities Act is Depression-era federal law with modern teeth. Anyone buying or selling wholesale quantities of fresh or frozen fruits and vegetables in interstate commerce generally needs a PACA license from the USDA under 7 U.S.C. § 499c. But licensing is the boring half. The interesting half is 7 U.S.C. § 499e(c): when a dealer receives produce, the statute impresses a trust — automatically, with no filing — on that produce, on products derived from it, and on the receivables and proceeds generated by its sale. The trust exists for the benefit of unpaid produce suppliers who preserve their rights, which most do with a single sentence of statutory language printed on every invoice. It is a floating, non-segregated trust: the seller’s whole inventory-and-receivables pool is the trust res, and the unpaid grower does not need to trace which crate of tomatoes became which invoice.
Courts enforce this seriously. The trust generally primes even a secured lender’s perfected blanket lien on the same collateral — which is why produce-industry lending has its own subculture of intercreditor caution, and why the receivables the buyer’s lender wanted in the borrowing base may be, in a real sense, spoken for. A distributor with $2 million of receivables and $800,000 of unpaid grower invoices is not holding $2 million of free assets. It is holding a trust corpus first and corporate property second.
Why the buyer of the business inherits the problem
Here is how this usually shows up in a deal. The buyer structures an asset purchase, assumes it takes the inventory and receivables free of the seller’s unsecured debts, and plans to let the seller wind down its own payables. That mental model works for ordinary trade debt — especially in Florida, which repealed its bulk sales law decades ago. It does not work for trust assets. Property impressed with the PACA trust stays impressed with it in the hands of a transferee unless the transferee took for value without notice of the breach — the familiar bona fide purchaser standard. A buyer who closed on the warehouse inventory and receivables after reading a diligence file listing seven figures of aged grower payables will have a hard time wearing the no-notice halo. Unpaid suppliers can and do pursue trust assets, and the people who received them, when the seller’s entity turns out to be an empty shell after closing.
So the working rule for produce deals is simple to state: treat preserved produce payables the way you treat secured debt. They get paid at closing from the purchase price, escrowed against, or expressly assumed and priced — never left behind on a handshake that the seller “will take care of its vendors.” The flow-of-funds memo should show grower payoffs the same way it shows lien payoffs, and for the largest suppliers a payoff letter is worth the awkwardness of asking. The UCC search will find the bank; it will not find the trust. Only the payables aging and the invoice terms will.
There is a second, quieter PACA issue in the people. The statute restricts licensees from employing individuals who were “responsibly connected” to a company that failed under PACA — principals of firms with unpaid trust judgments carry that status with them. If the plan is to keep the seller’s general manager, or the seller himself, running procurement for the buyer, diligence should confirm nobody in the org chart drags a PACA employment restriction into the buyer’s license. And the license itself does not travel: PACA licenses are not transferable, so an asset buyer needs its own license issued before it starts trading, not discovered missing in week two.
Florida adds its own license, and its own bond
Layered under the federal regime is a state one that catches deals people miss. Sections 604.15 through 604.34, Florida Statutes, require anyone buying agricultural products from Florida producers for resale — paying by check, on terms, or any deferred basis — to hold a dealer in agricultural products license from the Florida Department of Agriculture and Consumer Services. The license is issued per location, renewed annually, and, critically, conditioned on posting security under section 604.20: a surety bond or certificate of deposit sized to purchase volume, running from $5,000 up to $100,000. The FDACS licensing FAQ lays out the mechanics. The bond is not decorative: an unpaid Florida grower can file an administrative complaint with FDACS, and a confirmed claim gets paid from the dealer’s bond. It is a small, state-level cousin of the PACA trust — another pool of protection for producers, another compliance item that must exist on day one.
For the closing checklist that means three sequencing items. First, the buyer’s own FDACS dealer license and bond need to be applied for early enough that closing does not beat the license — the application, the fee, and the surety underwriting all take real calendar time. Second, the seller’s bond and license history are a diligence read: complaints against the bond are a window into how the target actually treats its growers, which is a proxy for how the growers will treat the new owner. Third, if the deal is an asset purchase, the parties should confirm how Florida sales tax treats the transferred assets — the trucks and equipment ride on the occasional-sale analysis that Florida asset deals always deserve.
The produce deal checklist, in prose
Pull it together and the produce-distribution acquisition gets four extra workstreams that a generic distribution deal does not have. First, quantify the trust: aged payables to produce suppliers, invoice terms showing preserved trust language, and a closing mechanic — payoff, escrow, or assumption — that clears it. Second, license the buyer: PACA license at USDA, dealer license and bond at FDACS, both issued before the first truck rolls under new ownership, with diligence on any “responsibly connected” history in the team that stays. Third, paper it: representations that the seller holds its PACA and chapter 604 licenses, has paid produce suppliers in the ordinary course, and has no pending trust claims, bond complaints, or USDA disciplinary matters — backed by an indemnity that survives long enough to matter, since trust claims surface on the growers’ timeline, not the buyer’s. Fourth, brief the lender: the borrowing base and the intercreditor assumptions should acknowledge that receivables tied to unpaid produce are trust assets first, collateral second.
None of this makes produce distribution a bad business to buy. Florida’s geography guarantees the industry, the relationships are durable, and a distributor that pays its growers on time has already told you most of what you need to know about its character. The point is narrower: in this industry, the working capital is wearing someone else’s trust, and the price of ignoring that is writing the same check twice.
If you are buying or selling a produce distribution business in Florida, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
