Court Finds that Agricultural Supply Liens Do Extend to Proceeds.

The debtors ran a feeding-to-finish pig operation. Two creditors held security interests in the debtor’s livestock and after acquired property. A farm service company provided feed for many of the debtors’ hogs. The creditors and the feed supplier had properly filed financing statements. Six months before the debtors filed for Chapter 12 bankruptcy protection, they sold hogs, and the $209,412.24 proceeds were placed into escrow. After the debtors filed their action, the creditors and the supplier all claimed first priority status in the proceeds. The creditors argued that an Iowa Code §570A.5.agricultural supply lien (which was what the feed suppler asserted) extended only to the livestock, not to the proceeds. As such, they argued that the supplier had no interest in the proceeds of the sale of the livestock. This pre-petition sale, they argued, was different from those cases where a court had ordered livestock sold and the proceeds distributed. Although it found the creditors’ arguments persuasive, the court ruled (in this case of first impression) that an agricultural lien does extend to proceeds. The court found that this position best supported the intent of the legislature to encourage a fluid feed market and remove an incentive to suppliers to race to the court house for repossession of livestock. The court also found consistently with In re Shulista, 451 B.R. 867 (Bankr. N.D. Iowa 2011) and In re Big Sky Farms, Inc., No. 12-01711, Adv. No. 13-09038, 2014 Bankr. LEXIS 1725 (Bankr. N.D. Iowa April 18, 2014) that agricultural supply liens are limited to the 31-day look back period prior to filing a financing statement. The court denied motions for summary judgment, finding that genuine issues of material fact existed as to whether the feed supplier had an agricultural lien on the proceeds of the hogs that were actually sold. The supplier could only claim a lien on the proceeds from those pigs fed by the supplier’s feed and for amounts not already reimbursed.  In re Schley, No. 10-032522014, Bankr. LEXIS 1724 (Bankr. N.D. Iowa Apr. 18, 2014).

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