After six months of intense work the Canadian Grain Commission (CGC) has wrapped up its biggest claim for a compensation case in history.
Two hundred and twenty-two ‘eligible’ farmers will get all they were owed — $11.1 million — following ILTA Grain going into creditor protection last summer. Cheques were issued Jan. 6.
That’s the good news. The bad news is 49 ‘ineligible’ farmers won’t be compensated at all and have collectively lost $1.5 million.
“Unfortunately there is nothing we can do for them,” Remi Gosselin, the CGC’s head of communications, said in an interview Jan. 6. “The message we have given since time immemorial is make sure you get paid. Cash your cheque immediately (after delivering grain). If you don’t cash your cheque you are lending your money to the grain company.”
Of the 49 farmers left holding the bag, 36 had not acted within the timeline for taking nonpayment complaints to the CGC, and 13 had delivered canary seed, a grain not covered under the Canada Grain Act and therefore ineligible for compensation under the CGC’s Safeguards for Grain Farmers Program.
Based on information from ILTA’s court-appointed monitor PricewaterhouseCoopers, 44 farmers were owed $2.1 million on canary seed they delivered, but weren’t paid for.
Twenty crops are covered under the act, including the major ones such as canola, wheat and soybeans.
Protection farmers have under the act against payment defaults is limited. Farmers must submit their claims for compensation for unpaid grain within 90 days of delivering to a CGC-licensed primary elevator or grain dealer, or within 30 days from the date the cash purchase ticket or cheque was issued, whichever is less.
In addition to time limits and crop eligibility, to be eligible for CGC compensation farmers must deliver grain to a CGC-licensed primary elevator or grain dealer.
CGC-licensed elevators and grain dealers are obliged by law to post security to cover farmer liabilities for delivered grain. However, even though licensees are required to report their liabilities regularly to the CGC, and the CGC on occasion conducts audits, sometimes grain companies fail to post enough security to cover their liabilities.
“The performance of our program… has been 94 per cent payouts with 24 failures since 1982,” Gosselin said.
“The largest case we had before ILTA was Newco Grain in 2012. In that case we have 144 eligible claimants who received $3 million. It ended up as 95.1 per cent payout. In this (ILTA) case it’s a 100 per cent payout.”
The fact that in the ILTA case canary seed growers alone lost $2.1 million underscores how big a hit they took, Gosselin said.
The CGC is willing to consider adding canary seed to the act if that’s what growers want, Gosselin said.
“If it were added the sector would be subject to requirements under the act, including official grain-grading standards and licensing requirements (for buyers),” he said.
In 2002 and 2005 most canary seed growers wanted canary seed to remain outside the act and therefore ineligible for CGC protection.
“Now a lot of handlers who are also moving other grains are also moving canary seed (and post security with the CGC for those grains),” Gosselin said. “So the argument that it would cost more to the sector (to have canary seed under the act) probably doesn’t hold as much as it did back then.”
The ILTA case is also notable because for the first time the CGC was able to convince affected parties to set up an escrow fund for the proceeds earned from selling grain ILTA held in inventory, but hadn’t paid farmers for.
“Our view is that grain belongs to producers and the funds from liquidated inventories belong to producers,” Gosselin said in an interview Sept. 6, 2019.
Atradius, the insurance company ILTA purchased a policy from to cover farmer liabilities, agrees. Of the $11.1 million Atradius transferred to the CGC for payouts to eligible farmers, $2.9 million of it represents the amount of money still in the escrow fund, court documents the firm filed in the Supreme Court of British Columbia Dec. 30, 2019 show.
In that document Atradius argues that since it included the $2.9 million in its payment to the CGC, Atradius is entitled to $2.9 million still in escrow, not the HSBC bank, one of ILTA’s secured creditors.
While normally secured creditors get first access to assets when a company fails, Atradius argues under the Canada Grain Act and regulations farmers have first access to their grain when they haven’t been paid for it.
“The grain was acquired by ILTA in a manner that substantially breached the statutory requirements under the CGA (Canada Grain Act) and CGR (Canada Grain Regulations)… ” Atradius states in reference to its claim ILTA, contrary to the act, didn’t issue some farmers with the proper receipts after they delivered grain.
“The rights of the unpaid producers are proprietary in nature and Atradius, as subrogee of the unpaid producers, therefore has a proprietary right to the disputed funds that cannot be compromised in these proceedings.”
The Legal Dictionary defines a subrogee as the person or entity that assumes the legal right to attempt to collect a claim of another (subrogor) in return for paying the other’s expenses or debts which the other claims against a third party.
Gosselin declined to comment on the escrow issue as it is still before the courts. However, he restated the CGC believes delivered grain that hasn’t been paid for remains the property of the farmer who delivered it.
Should the courts rule against Atradius, it could make posting security more expensive for grain companies. Now grain inventory can offset some of the security companies have to post.