Pick of the Patch: Sage Advice About Super Priorities for Fresh Produce Suppliers

Did you know that blueberries were Canada’s top fruit export in 2023?^[1] Canada produces a wide array of fresh fruit and vegetable produce, with farm gate values of $1.34 billion and $1.59 billion, respectively.^[2] In 2023, the farm gate value of dry onions alone was $160.4 million.^[3]

Recent legislative changes have significant implications for suppliers and purchasers of fresh produce, along with their respective lenders. Both the Bankruptcy and Insolvency Act (“BIA”) and the Companies Creditors’ Arrangement Act (“CCAA”) were recently amended to effectively provide a super priority deemed trust in favour of suppliers to secure payment for perishable fruit and vegetables where the purchaser is subject to a bankruptcy, insolvency or receivership proceeding.

These provisions build on existing provisions in the BIA. The BIA already contained provisions that permit suppliers to repossess goods that have not been paid, provided that, amongst other things, demand for such repossession is made within 15 days of the purchaser’s bankruptcy or receivership filing.^[4] Practically, however, repossession is not realistic in the case of perishable items. The BIA also sets out that farmers, fishermen and aquaculturists have a super priority claim to the sale proceeds of the realization for unpaid inventory, provided that i) the inventory was delivered within the 15-day period preceding a bankruptcy filing or a receivership appointment; and ii) a proof of claim was filed within 30 days of the bankruptcy or receivership filing.^[5]

Expanded Trust Protections for Unpaid Produce

The new provisions provide even greater protection for fresh produce and vegetable suppliers. Where a purchaser of perishable fruit and vegetables has not paid for them, this produce along with any proceeds of sale are deemed to be held in trust by the purchaser for the supplier if:

1. the supplier provided notice, whether on its invoice or otherwise within 30 days of the date the purchaser received such goods, advising the purchaser of the supplier’s intention to exercise its rights to be a beneficial owner of the perishable fruits or vegetables and the proceeds of sale in case the purchaser becomes bankrupt, subject to a receivership, or applies to court to sanction a compromise or an arrangement;
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 the entirety of the invoice when due.^[6]
   

As these provisions are relatively new, it remains to be seen how they will be applied and interpreted in practice. In particular, both the BIA and CCAA define “perishable fruits or vegetables” to include those “that have been repackaged or transformed by the purchaser to the extent that the nature of the fruits or vegetables remains unchanged.”^[7] It remains to be seen if fruits and vegetables that are processed, such as making them non-perishable goods through canning, or otherwise transformed, such as by cooking, fermenting or juicing, would fall within the scope of these provisions. The latter is particularly relevant given the size of the restaurant industry.

Further, these amendments also provide that the proceeds of sale of such fruits and vegetables are subject to a deemed trust once the supplier has provided the prescribed notice and the amounts outstanding remain unpaid.^[8] This trust would apply whether or not the proceeds were accounted for separately or have been commingled.^[9] This may raise some practical implications of how such proceeds will be accounted for where the produce is processed or commingled with other products from multiple suppliers. As well, this may come into tension with the rights of lenders to cash sweep the accounts of borrowers.

Practical Implications for Lending and Enforcement

It remains to be seen how the court will interpret these provisions. However, lenders may heed well to review, and potentially amend, their current lending arrangements, such that proper covenants are in place to protect their interests when lending to either a supplier or a purchaser of such goods. This may include more robust reporting provisions, among other things. In the case of suppliers of fresh produce, this may include invoice sampling to ensure that proper notice has been provided. In the case of purchasers of fresh produce, this may include closer tracking of amounts that could be subject to a deemed trust separately.

These provisions may also impact the steps that may be taken in an enforcement and realization scenario. Lenders may wish to seek advice before sweeping cash, or applying set-off rights, of purchasers of fresh produce, to minimize the risk of having the funds clawed back in an insolvency scenario. Where the exposure to the lender is significant, the appointment of a receiver or a monitor may be beneficial in tracking the proceeds to avoid any potential breach of trust claims.

The Financial Services Group at Aird & Berlis LLP regularly acts for a broad range of lenders and borrowers, as well as court officers, debtors and creditors in restructuring and insolvency matters. Please contact the authors or a member of the group if you have questions or require assistance.

*Shanaya Harjai is a 2025 summer student at Aird & Berlis LLP.

[1] Canada, Agriculture and Agri-Food Canada, Statistical overview of the Canadian fruit industry 2023, (Ottawa: Government of Canada) <https://agriculture.canada.ca/en/sector/horticulture/reports/statistical-overview-canadian-fruit-industry-2023>, last accessed 22 May 2025.