A bond guarantees payment if a company has an obligation to pay a debt but fails to pay it. Usually a bond is posted by an insurance company, although a company or individual can post cash or securities.
There are four (4) kinds of bonds under PACA:
- An Employee Bond for employing a restricted person
- A Licensee Bond for restricted persons to obtain a PACA license
- An appeal bond in a PACA reparation case
- A bond to file a reparation complaint by a nonresident of the United States
Employment and licensee bonds are addressed below because they are necessary as a result of enforcement action by PACA. Appeal bonds and nonresident complaint bonds are addressed under PACA Reparation Cases.
To employ a restricted person, the employer must post a bond in an amount set by PACA for four (4) years and nine (9) months. The amount of the bond is based on information furnished by the employer about the volume and kind of business the employer conducts and the duties of the employee.
Once a bond amount is set, the bond requirement can be satisfied either with cash or by posting a bond from an approved insurance company.
The bond is forfeited (meaning the money is paid to an unpaid produce seller) if the employer does not pay money determined to be owed to a produce seller in a PACA Reparation Case.
The bond secures any nonpayment by the employer, regardless whether the restricted employee caused the nonpayment. So bonding companies usually require the employer to fully collateralize the bond, in the form of cash or other property, in addition to paying a yearly premium.
The bond can be terminated if the employee no longer works for the licensee. However, the bond must stay in effect for nine (9) months from the date of termination because nine (9) months is the time within which a PACA Reparation Case can be filed against the employer. If a PACA Reparation Case is filed, the bond remains posted until the case is resolved.
PACA officials can also require an increase or decrease in the bond amount if the nature of the business changes or the volume of business increases or decreases.
This type of bond is required for a restricted person to obtain a license. PACA officials set a bond amount based on the volume and type of business the licensee intends to conduct. The amount is usually greater than the amount for an employee bond. This bond is for three (3) years and nine (9) months, and insurance companies require full collateralization.
The bond is forfeited if the licensee does not pay money owed to another produce company as determined in a PACA Reparation Case.
There is a second type of license bond for persons adjudicated or discharged as bankrupt within three (3) years of applying for a license. As a condition to granting a license, PACA can require such an applicant post a bond in an amount that assures the business will be conducted without violations and will cover any reparation awards.