The Canadian Grain Commission (CGC) is pursuing a new approach to help farmers get paid for grain they delivered to financially troubled ILTA Grain, which if successful, could be used in future under similar circumstances.
“What we’ve negotiated here is a new way to protect grain producers,” Remi Gosselin, head of CGC communications, said in an interview Sept. 6. “Our view is that grain belongs to producers and the funds from liquidated inventories belong to producers.”
To that end, last month the CGC was able to get an escrow account set up to hold the proceeds earned from the sale of ILTA’s grain inventory. Whether farmers get that money is still being discussed between the CGC and the British-headquartered multinational bank HSBC, which has first dibs on ILTA’s grain, according to court documents.
In the past secured creditors, which usually doesn’t include farmers, got those proceeds. But the CGC contends under the Canada Grain Act, farmers still own the grain if they haven’t been paid and should be able to get it back or receive the money from its sale.
If the CGC’s argument is upheld, it will complement its existing producer protection program, which requires licensed grain companies to post security with the CGC to cover farmer liabilities, Gosselin said.
In the meantime, the CGC continues to assess claims from farmers who say they weren’t paid by ILTA, Gosselin said in an interview Sept. 19.
“We don’t want to jump to conclusions on how much is going to be claimed by producers,” he said. “We don’t want to prejudice that process.”
Once all the claims have been carefully considered the CGC will release how much farmers were owed and whether or not the security covered it all.
Why it matters: If successful the CGC bid to have farmers receive funds from grain inventory sales would set a valuable precedent that could contribute to better farmer protection.
In July ILTA Grain, primarily a pulse and canary seed buyer and exporter, was granted protection keeping creditors at bay, as court-appointed monitor PriceWaterhouseCoopers oversees the company’s effort to find a buyer and/or sell assets.
The goal of creditor protection is to avoid receivership or bankruptcy so a struggling company can either recover or sell assets, providing the best result for creditors.
In its second report to the court dated Aug. 1, PriceWaterhouseCoopers estimates ILTA had $224 million in assets and $152 million in liabilities, including $14 million owed to farmers, presumably mostly for grain they delivered, but weren’t paid for.
The creditors’ list estimates Manitoba businesses are owed $417,412. Based on creditor names, three Manitoba farm corporations are owed an estimated $166,354.
The list shows most of the farmers owed money are in Saskatchewan.
PriceWaterhouseCoopers’ second report has both good and bad news for farmers. While farmers are owed an estimated $14 million, ILTA posted $12 million as security with the CGC, to cover what farmers are owed.
But the report also says the CGC has primary elevator receipts from farmers who are owed $2.9 million. That means the $12 million ILTA posted is more than enough to cover it. But what about the other $11 million farmers are owed?
Industry sources say the gap is probably twofold. One is much of the grain farmers weren’t paid for is canary seed, which isn’t one of the 20 crops covered under the grain act. As a result canary seed producers are ineligible for any of the $12 million overseen by the CGC.
The other possibility is some farmers are ineligible because they don’t have the proper receipts, or they failed to report not being paid to the CGC soon enough.
To qualify farmers must get a primary elevator receipt when they deliver grain. Then they have 90 days to get a cheque and 30 days to cash it.
If the CGC succeeds in transferring the proceeds from the sale of ILTA’s grain to unpaid farmers, the same criteria would apply, Gosselin said.
The CGC hasn’t made the case before that unsold grain held by a financially troubled company belongs to unpaid farmers because the companies immediately went into receivership and assets dispersed, he said.
“What’s unique about this arrangement is that it allows ILTA Grain and PriceWaterhouseCoopers to continue to liquidate the (grain) inventory while preserving the right of producers with respect to certain portions of the inventory and it also prevents future producer liabilities,” Gosselin said. “We have reinstated ILTA Grain’s licences with the condition that ILTA cannot purchase grain from, or receive grain from, or otherwise incur liabilities to, grain producers. This agreement was continent upon placing the nearly $3 million in the escrow account.”
PriceWaterhouseCoopers’ report says the CGC, HSBC and Farm Credit Canada, secured creditors owed $48 million and $87 million, respectively, are discussing who gets the money from escrow.
Officials from HSBC declined to comment when contacted by the Co-operator.
“I can’t speculate on future actions that we might take, but certainly our main interest is producers get paid for their (grain) deliveries,” Gosselin said.
“If a dispersement agreement can’t be agreed to by all parties, all parties have agreed the matter will be referred to the court.”
If farmers do get the money in escrow it could be a precedent for future cases, Gosselin said. It would also provide another source of compensation if posted security is inadequate.
Asked if it might result in grain companies having to post less security Gosselin said: “Not at this time.”
Could it in the future?
“I can’t speculate on that,” he said.
In the last 35 years the CGC has dealt with 24 grain company failures with posted security covering 94 per cent of what was owed to farmers, Gosselin said.
“In most cases it has been 100 per cent. There has been a couple of exceptions to that, but in most cases it has been 100 per cent.”
Canary seed growers left out
It doesn’t matter how much security ILTA Grain posted with the Canadian Grain Commission to cover what it owes farmers, those who delivered canary seed won’t see a penny.
That’s because canary seed isn’t one of the 20 crops covered under the Canada Grain Act and therefore is ineligible to security overseen by the CGC.
But ILTA Grain’s financial woes have revived questions about adding canary seed to the Canada Grain Act and the CGC producer protection program.
“The ILTA thing is reverberating through the entire grain industry,” Kevin Hursh, executive director of the Canaryseed Development Commission of Saskatchewan, told the Manitoba Co-operator this summer.
Hursh said he has spoken with farmers owed thousands of dollars for canary seed and he suspects some might want canary seed added to the grain act.
Historically canary seed farmers generally supported keeping the crop outside the act thinking it might discourage buyers if they had to be CGC licensed and post security. But most buyers now are already licensed by the CGC for other crops so the extra cost connected to canary seed would be minimal, Hursh said.
“I do sense that perhaps the attitude has changed among producers this time around, but we need to gauge that and see what comes out at the annual meeting (in January),” he said.
Canary seed is a much bigger crop in Saskatchewan than Manitoba, where last year just under 1,600 acres were covered by crop insurance.