SB1693 96TH GENERAL ASSEMBLY

LRB096 08487 JDS 18607 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
SB1693

Introduced 2/19/2009, by Sen. Michael W. Frerichs

SYNOPSIS AS INTRODUCED:

240 ILCS 40/1-10
240 ILCS 40/25-10

Amends the Grain Code. Authorizes a claimant that is a lender to receive more than $1 million out of the Illinois Grain Insurance Fund if it meets certain requirements. Defines "lender". Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning warehouses.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Grain Code is amended by changing Sections 1-10 and 25-10 as follows:

(240 ILCS 40/1-10)

Sec. 1-10. Definitions. As used in this Act:

"Board" means the governing body of the Illinois Grain Insurance Corporation.

"Certificate" means a document, other than the license, issued by the Department that certifies that a grain dealer's license has been issued and is in effect.

"Claimant" means:

(a) a person, including, without limitation, a lender:

(1) who possesses warehouse receipts issued from an Illinois location covering grain owned or stored by a failed warehouseman; or

(2) who has other written evidence of a storage obligation of a failed warehouseman issued from an Illinois location in favor of the holder, including, but not limited to, scale tickets, settlement sheets, and ledger cards; or

(3) who has loaned money to a warehouseman and was to receive a warehouse receipt issued from an Illinois location as security for that loan, who surrendered warehouse receipts as part of a grain sale at an Illinois location, or who delivered grain out of storage with the warehouseman as part of a grain sale at an Illinois location; and

(i) the grain dealer or warehouseman failed within 21 days after the loan of money, the surrender of warehouse receipts, or the delivery of grain, as the case may be, and no warehouse receipt was issued or payment in full was not made on the grain sale, as the case may be; or

(ii) written notice was given by the person to the Department within 21 days after the loan of money, the surrender of warehouse receipts, or the delivery of grain, as the case may be, stating that no warehouse receipt was issued or payment in full made on the grain sale, as the case may be; or

(b) a producer not included in item (a)(3) in the definition of "Claimant" who possesses evidence of the sale at an Illinois location of grain delivered to a failed grain dealer, or its designee in Illinois and who was not paid in full.

"Class I warehouseman" means a warehouseman who is authorized to issue negotiable and non-negotiable warehouse receipts.

"Class II warehouseman" means a warehouseman who is authorized to issue only non-negotiable warehouse receipts.

"Code" means this Grain Code.

"Collateral" means:

(a) irrevocable letters of credit;

(b) certificates of deposit;

(c) cash or a cash equivalent; or

(d) any other property acceptable to the Department to the extent there exists equity in that property. For the purposes of this item (d), "equity" is the amount by which the fair market value of the property exceeds the amount owed to a creditor who has a valid, prior, perfected security interest in or other valid, prior, perfected lien on the property.

"Corporation" means the Illinois Grain Insurance Corporation.

"Daily position record" means a grain inventory accountability record maintained on a daily basis that includes an accurate reflection of changes in grain inventory, storage obligations, company-owned inventory by commodity, and other information that is required by the Department.

"Daily grain transaction report" means a record of the daily transactions of a grain dealer showing the amount of all grain received and shipped during each day and the amount on hand at the end of each day.

"Date of delivery of grain" means:

(a) the date grain is delivered to a grain dealer, or its designee in Illinois, for the purpose of sale;

(b) the date grain is delivered to a warehouseman, or its designee in Illinois, for the purpose of storage; or

(c) in reference to grain in storage with a warehouseman, the date a warehouse receipt representing stored grain is delivered to the issuer of the warehouse receipt for the purpose of selling the stored grain or, if no warehouse receipt was issued:

(1) the date the purchase price for stored grain is established; or

(2) if sold by price later contract, the date of the price later contract.

"Department" means the Illinois Department of Agriculture.

"Depositor" means a person who has evidence of a storage obligation from a warehouseman.

"Director", unless otherwise provided, means the Illinois Director of Agriculture, or the Director's designee.

"Electronic document" means a document that is generated, sent, received, or stored by electrical, digital, magnetic, optical electromagnetic, or any other similar means, including, but not limited to, electronic data interchange, electronic mail, telegram, telex, or telecopy.

"Electronic warehouse receipt" means a warehouse receipt that is issued or transmitted in the form of an electronic document.

"Emergency storage" means space measured in bushels and used for a period of time not to exceed 3 months for storage of grain as a consequence of an emergency situation.

"Equity assets" means:

(a) The equity in any property of the licensee or failed licensee, other than grain assets. For purposes of this item (a):

(1) "equity" is the amount by which the fair market value of the property exceeds the amount owed to a creditor who has a valid security interest in or other valid lien on the property that was perfected before the date of failure of the licensee;

(2) a creditor is not deemed to have a valid security interest or other valid lien on property if (i) the property can be directly traced as being from the sale of grain by the licensee or failed licensee; (ii) the security interest was taken as additional collateral on account of an antecedent debt owed to the creditor; and (iii) the security interest or other lien was perfected (A) on or within 90 days before the date of failure of the licensee or (B) when the creditor is a related person, within one year of the date of failure of the licensee.

"Failure" means, in reference to a licensee:

(a) a formal declaration of insolvency;

(b) a revocation of a license;

(c) a failure to apply for license renewal, leaving indebtedness to claimants;

(d) a denial of license renewal, leaving indebtedness to claimants; or

(e) a voluntary surrender of a license, leaving indebtedness to claimants.

"Federal warehouseman" means a warehouseman licensed by the United States government under the United States Warehouse Act (7 U.S.C. 241 et seq.).

"Fund" means the Illinois Grain Insurance Fund.

"Grain" means corn, soybeans, wheat, oats, rye, barley, grain sorghum, canola, buckwheat, flaxseed, edible soybeans, and other like agricultural commodities that may be designated by rule.

"Grain assets" means:

(a) all grain owned and all grain stored by a licensee or failed licensee, wherever located, including redeposited grain of a licensee or failed licensee;

(b) (blank);

(c) identifiable proceeds, including, but not limited to, insurance proceeds, received by or due to a licensee or failed licensee resulting from the sale, exchange, destruction, loss, or theft of grain, or other disposition of grain by the licensee or failed licensee; or

(d) assets in hedging or speculative margin accounts held by commodity or security exchanges on behalf of a licensee or failed licensee and any moneys due or to become due to a licensee or failed licensee, less any secured financing directly associated with those assets or moneys, from any transactions on those exchanges.

For purposes of this Act, storage charges, drying charges, price later contract service charges, and other grain service charges received by or due to a licensee or failed licensee shall not be deemed to be grain assets, nor shall such charges be deemed to be proceeds from the sale or other disposition of grain by a licensee or a failed licensee, or to have been directly or indirectly traceable from, to have resulted from, or to have been derived in whole or in part from, or otherwise related to, the sale or other disposition of grain by the licensee or failed licensee.

"Grain dealer" means a person who is licensed by the Department to engage in the business of buying grain from producers.

"Grain Indemnity Trust Account" means a trust account established by the Director under Section 205-410 of the Department of Agriculture Law (20 ILCS 205/205-410) that is used for the receipt and disbursement of moneys paid from the Fund and proceeds from the liquidation of and collection upon grain assets, equity assets, collateral, and guarantees of or relating to failed licensees. The Grain Indemnity Trust Account shall be used to pay valid claims, authorized refunds from the Fund, and expenses incurred in preserving, liquidating, and collecting upon grain assets, equity assets, collateral, and guarantees relating to failed licensees.

"Guarantor" means a person who assumes all or part of the obligations of a licensee to claimants.

"Guarantee" means a document executed by a guarantor by which the guarantor assumes all or part of the obligations of a licensee to claimants.

"Incidental grain dealer" means a grain dealer who purchases grain only in connection with a feed milling operation and whose total purchases of grain from producers during the grain dealer's fiscal year do not exceed $100,000.

"Lender" includes the person that extended credit to a licensee and also includes any person to which the original lender sold all or a portion of the original lender's interest in such extension of credit.

"Licensed storage capacity" means the maximum grain storage capacity measured in bushels approved by the applicable licensing agency for use by a warehouseman.

"Licensee" means a grain dealer or warehouseman who is licensed by the Department and a federal warehouseman that is a participant in the Fund, under subsection (c) of Section 30-10.

"Official grain standards" means the official grade designations as adopted by the United States Department of Agriculture under the United States Grain Standards Act and regulations adopted under that Act (7 U.S.C. 71 et seq. and 7 CFR 810.201 et seq.).

"Permanent storage capacity" means the capacity of permanent structures available for storage of grain on a regular and continuous basis, measured in bushels.

"Person" means any individual or entity, including, but not limited to, a sole proprietorship, a partnership, a corporation, a cooperative, an association, a limited liability company, an estate, a trust, or a governmental agency.

"Price later contract" means a written contract for the sale of grain whereby any part of the purchase price may be established by the seller after delivery of the grain to a grain dealer according to a pricing formula contained in the contract. Title to the grain passes to the grain dealer at the time of delivery. The precise form and the general terms and conditions of the contract shall be established by rule.

"Producer" means the owner, tenant, or operator of land who has an interest in and receives all or part of the proceeds from the sale of the grain produced on the land.

"Producer protection holding corporation" means a holding corporation to receive, hold title to, and liquidate assets of or relating to a failed licensee, including assets in reference to collateral or guarantees relating to a failed licensee.

"Regulatory Fund" means the fund created under Article 35.

"Related persons" means affiliates of a licensee, key persons of a licensee, owners of a licensee, and persons who have control over a licensee. For the purposes of this definition:

(a) "Affiliate" means a person who has direct or indirect control of a licensee, is controlled by a licensee, or is under common control with a licensee.

(b) "Key person" means an officer, a director, a trustee, a partner, a proprietor, a manager, a managing agent, or the spouse of a licensee. An officer or a director of an entity organized or operating as a cooperative, however, shall not be considered to be a "key person".

(c) "Owner" means the holder of: over 10% of the total combined voting power of a corporation or over 10% of the total value of shares of all classes of stock of a corporation; over a 10% interest in a partnership; over 10% of the value of a trust computed actuarially; or over 10% of the legal or beneficial interest in any other business, association, endeavor, or entity that is a licensee. For purposes of computing these percentages, a holder is deemed to own stock or other interests in a business entity whether the ownership is direct or indirect.

(d) "Control" means the power to exercise authority over or direct the management or policies of a business entity.

(e) "Indirect" means an interest in a business held by the holder not through the holder's actual holdings in the business, but through the holder's holdings in another business or other businesses.

(f) Notwithstanding any other provision of this Act, the term "related person" does not include a lender, secured party, or other lien holder solely by reason of the existence of the loan, security interest, or lien, or solely by reason of the lender, secured party, or other lien holder having or exercising any right or remedy provided by law or by agreement with a licensee or a failed licensee.

"Reserve Fund" means a separate and discrete fund of up to $2,000,000 held by the Corporation as set forth in Section 30-25.

"Successor agreement" means an agreement by which a licensee succeeds to the grain obligations of a former licensee.

"Temporary storage space" means space measured in bushels and used for 6 months or less for storage of grain on a temporary basis due to a need for additional storage in excess of permanent storage capacity.

"Trust account" means the Grain Indemnity Trust Account.

"Valid claim" means a request for payment under the provisions of this Code, submitted by a claimant, the amount and category of which have been determined by the Department, to the extent that determination is not subject to further administrative review or appeal. Each grain sale transaction and each storage obligation shall be considered a separate and discrete request for payment even though one or more requests are contained on one claim form or are filed with the Department in one document.

"Warehouse" means a building, structure, or enclosure in which grain is stored for the public for compensation, whether grain of different owners is commingled or whether identity of different lots of grain is preserved.

"Warehouse receipt" means a receipt for the storage of grain issued by a warehouseman.

"Warehouseman" means a person who is licensed:

(a) by the Department to engage in the business of storing grain for compensation; or

(b) under the United States Warehouse Act but participates in the Fund under subsection (c) of Section 30-10.

(Source: P.A. 92-16, eff. 6-28-01; 93-225, eff. 7-21-03.)

(240 ILCS 40/25-10)

Sec. 25-10. Claimant compensation. Within 30 days after the day on which a claim becomes a valid claim, a claimant shall be compensated to the extent of its valid claim as provided in this Section.

It is the express intent of this legislation that each undisputed portion of a claim shall be paid in accordance with the deadlines of this Code, even if there are disputed portions of the claim. For example, the amount of a valid claim calculated for an "unpriced obligation" shall be paid to the claimant despite the fact that claimant additionally seeks the amount for a "priced obligation".

Each claimant shall be compensated in accordance with the following provisions:

(a) Valid claims filed by warehouse claimants shall be paid 100% of the amount determined by the Department out of the net proceeds of the liquidation of grain assets as set forth in this subsection (a). To the extent the net proceeds are insufficient, warehouse claimants shall be paid their pro rata share of the net proceeds of the liquidation of grain assets and, subject to subsection (j) of this Section, an additional amount per claimant not to exceed the balance of their respective claims out of the Fund.

(b) Subject to subsection (j) of this Section, if the net proceeds as set forth in subsection (a) of this Section are insufficient to pay in full all valid claims filed by warehouse claimants as payment becomes due, the balance shall be paid out of the Fund in accordance with subsection (b) of Section 25-20.

(c) Valid claims filed by producers who:

(1) have delivered grain within 21 days before the date of failure, or the date of suspension if the suspension results in a failure, for which pricing of that grain has been completed before date of failure; or

(2) gave written notice to the Department within 21 days of the date of delivery of grain, if the pricing of that grain has been completed, that payment in full for that grain has not been made;

shall be paid, subject to subsection (j) of this Section, 100% of the amount of the valid claim determined by the Department. Valid claims that are included in subsection (c) of this Section shall receive no payment under subsection (d) of this Section, and any claimant having a valid claim under this subsection (c) determined by the Department to be in excess of the limits, if any, imposed under subsection (j) of this Section shall be paid only sums in excess of those limits to the extent additional money is available under subsection (d)(2) of Section 25-20.

(d) Valid claims that are not included in subsection (c) of this Section that are filed by producers where the later date of completion of delivery or pricing of the grain is within 160 days before the date of failure shall be paid 85% of the amount of the valid claim determined by the Department or $250,000, whichever is less, per claimant. In computing the 160-day period, the phrase "date of completion of delivery" means the date of the last delivery of grain to be applied to the quantity requirement of the contract, and the phrase "the later date" means the date closest to the date of failure. In addition, for claims filed by producers for grain sold on a contract, the later of the date of execution of the contract or the date of delivery of the grain covered by the price later contract must not be more than 365 days before the date of failure in order for the claimant to receive any compensation. In computing the 365-day period, the phrase "the later of the date" means the date closest to the date of failure, and the phrase "date of delivery" means the date of the last delivery of grain to be applied to the quantity requirement of the price later contract.

(e) Valid claims filed by producers for grain sold on a price later contract, for which the final price has not been established, shall be paid 85% of the amount of the valid claims determined by the Department or $250,000, whichever is less, per claimant, if the later of the date of execution of the contract or the date of delivery of the grain covered by the price later contract occurred not more than 365 days before the date of failure. In computing the 365-day period, the phrase "the later of the date" means the date closest to the date of failure, and the phrase "date of delivery" means the date of the last delivery of grain to be applied to the quantity requirement of the price later contract.

The execution of subsequent price later contracts by the producer and the licensee for grain previously covered by a price later contract shall not extend the coverage of a claim beyond the original 365 days.

(f) The maximum payment to producers under subsections (d) and (e) of this Section, combined, shall be $250,000 per claimant.

(g) The following claims shall be barred and disallowed in their entirety and shall not be entitled to any recovery from the Fund or the Trust Account:

(1) Claims filed by producers where both the date of completion of delivery and the date of pricing of the grain are in excess of 160 days before the date of failure.

(2) Claims filed by producers for grain sold on a price later contract if the later of the date of execution of the contract or the date of delivery of grain in reference to the grain covered by the price later contract occurred more than 365 days before the date of failure. In computing the 365-day period, the phrase "the later of the date" means the date closest to the date of failure, and the phrase "date of delivery" means the date of the last delivery of grain to be applied to the quantity requirement of the price later contract.

(3) Claims filed by any claimant that are based upon or acquired by fraudulent or illegal acts of the claimant.

(h) To the extent moneys are available, additional pro rata payments may be made to claimants under subsection (d) of Section 25-20.

(i) For purposes of this Section, a claim filed in connection with warehouse receipts that are possessed under a collateral pledge of a producer, or that are subject to a perfected security interest, or that were acquired by a secured party or lien holder under an obligation of a producer, shall be deemed to be a claim filed by the producer and not a claim filed by the secured party or the lien holder, regardless of whether the producer is in default under that collateral pledge, security agreement, or other obligation.

(j) The maximum payment out of the Fund for claimants under subsection (a) or , (b) of this Section shall be $1,000,000 per claimant and the maximum payment out of the Fund for claimants under subsections (c), (d), and (e) of this Section, combined, shall be $1,000,000 per claimant; however, notwithstanding any other provision of this Act, a claimant that is a lender may receive more than $1,000,000 out of the Fund if that lender has sold one or more participating interests in its loan to other lenders and produces satisfactory evidence that: (i) its recovery in excess of $1,000,000 out of the Fund is made on behalf of the other lender or lenders that have an interest in the loan; (ii) the recovery from the Fund would not exceed the actual financial interest held by the respective lender or lenders on behalf of which the recovery is sought; and (iii) no lender, whether it be the original lender or a lender that purchased a participating interest in the loan, shall in any event recover for its own account more than $1,000,000 out of the Fund in relation to a claim.

(k) The amounts to be paid to warehouse valid claimants and grain dealer valid claimants shall be calculated according to the following:

(1) Valid claimants who have warehouse claims, or who have grain dealer claims for grain sold, delivered but unpriced as of the date of failure, shall have "unpriced obligations", and to determine the per bushel value of these valid claims the Department shall use an average of the cash bid prices on the date of failure from grain dealers located within the market area of the failed licensee, and the cash bid price offered by the failed licensee on the date of failure, less transportation, handling costs, and discounts applicable as of that date.

(2) Valid claimants who have grain dealer claims for grain sold, delivered, and priced as of the date of failure shall have "priced obligations", and the price per bushel to be used in calculating the compensation due these valid claimants shall be that which has been agreed upon by the failed licensee and the claimant, less applicable discounts. For purposes of this item (2), a person has "priced" his or her grain if he or she has done those things necessary under the agreement to set, choose, or select a price for any portion of the grain under the agreement, without regard to whether he or she has received a check in payment for the grain, or could have received a check in payment for the grain, prior to the failure.

(l) Arrangements whereby a producer agrees with a licensee to defer receipt of payment of amounts due from the sale of grain are covered by this Code and are not to be considered loans by the producer to the licensee, despite payments to the producer as an inducement for the leaving of moneys with the licensee, unless the licensee has executed and delivered to the producer a promissory note covering those amounts.

(Source: P.A. 93-225, eff. 7-21-03.)

Section 99. Effective date. This Act takes effect upon becoming law.