3-609

3-609. Financial condition of milk handlers;
security; recovery on default; definition

A. A handler shall not engage or continue in business and the associate director
shall deny, suspend or revoke any license issued to the handler under this chapter unless
the associate director is satisfied that the handler's financial condition reasonably
assures the ability to promptly pay producers for the milk the handler purchases. Before
the associate director issues or renews the license the handler must file with the
division financial statements for the handler's most recent complete fiscal year together
with the auditor's report issued by a certified public accountant registered in this
state. If the handler's fiscal year ends in the fourth quarter of the calendar year, the
associate director may extend the time for filing the financial statement for up to one
hundred twenty days. The handler shall also file interim financial statements within one
hundred twenty days following the end of the sixth month of the handler's fiscal year,
prepared consistent with the annual financial statement and certified by the handler's
chief financial officer, covering the first six months of the handler's fiscal year. The
associate director may require additional financial information or certificates at any
time. The financial statements:

1. Shall comply with generally accepted accounting principles.

2. Shall by separate certificate of the certified public accountant state the
handler's current ratio of current assets to current liabilities as of the end of the
handler's fiscal year. The certificate accompanying the interim financial statement
shall be signed by the handler's chief financial officer.

3. Are confidential and are not open for public inspection.

B. If the associate director either receives a certificate under subsection A,
paragraph 2 that shows a current ratio of current assets to current liabilities of less
than 1.2:1.0 or determines at any time that the financial condition of a handler does not
reasonably assure payment when due for milk the handler purchases, or if the handler
fails to pay for milk when payment is due as provided by applicable law or by agreement
between the handler and producer, the associate director shall require that the handler:

1. File a bond or other security acceptable to the associate director in an amount
not to exceed one hundred ten per cent of the sum reasonably anticipated to be due and
accrued at any time for the milk purchased by the handler. The security shall be payable
or assigned to the associate director for the benefit of producers damaged by the
handler's default in paying for milk.

2. Receive no milk on credit until acceptable security is filed.

C. On or before March 1 and September 1 of each year each handler shall provide
written notice to producers from whom it has purchased milk during the preceding six
months stating the financial basis on which the handler's license was issued and the type
and amount of security, if any, the handler filed under subsection B, paragraph 1. A
handler shall not receive a quantity of milk that will increase the amount due and
accrued from the handler above the amount represented as a basis for issuing the license
under subsection A without first notifying the associate director.

D. On request and on the producer's prior written agreement to maintain its
confidentiality, the associate director shall provide a producer with a copy of any
financial statement, information or certificate filed under subsection A by a handler
that has purchased milk from that producer.

E. A producer who has not been paid by a handler for milk when payment was due as
provided by applicable law or by agreement may file a verified proof of claim with the
division. On receipt of the claim or any other evidence of default, the associate
director, by order, may require all interested creditors to file verified proofs of claim
on or before a stated date or be barred from participating in any recovery under this
subsection. Notice of the order shall be posted on the handler's premises and published
once each week for three consecutive weeks in a newspaper of general circulation in the
affected area with the final notice being published at least thirty days before the last
date stated in the order for filing claims. On audit and investigation the associate
director shall allow or disallow each claim and, if allowed, include interest at the rate
of ten per cent per year from the date of default. The associate director shall mail
notice of the allowance or disallowance of each claim and if allowed, the rate of
interest that applies by certified mail to each claimant and to the handler and the
handler's surety. The associate director shall demand, collect and receive the amount
necessary to satisfy all allowed claims plus interest from the handler, the security
provided by the handler or the handler's surety or sureties. The director, on the
recommendation of the associate director, may also commence an action in superior court
in Maricopa county for that purpose. The associate director shall distribute all monies
received for satisfying the claims plus interest to the claimants, in full or pro rata as
the case may be. The associate director shall disallow:

1. Claims for the value of milk which were due and payable more than thirty days
before the associate director received the first claim or notice of default.

2. Claims covering transactions in which the producer has granted to the handler
any voluntary extension of credit in writing.

F. The associate director shall deny, suspend or revoke a handler's license for
failure to comply with any provision of this section. On request, the director shall
review any action by the associate director under this subsection.

G. The whole claim, including interest and any judgment for the claim, of any
person against a handler on account of milk sold or delivered to the handler is entitled
to the same preference in any insolvency or other creditor's proceedings as is provided
by any other statute to claims for labor. Two or more producers may file a consolidated
claim, and, when so filed, the preference is allowed on the amount due each
producer. This preference shall also be allowed in bankruptcy proceedings to the extent
permitted by federal law. This subsection does not affect or impair any other lien,
security or priority for the claim or judgment.

H. This section applies to producers in any state that sell milk to a handler that
is licensed by the division, but this section does not apply to the sale of milk in
interstate commerce to an out-of-state handler that is not licensed by the division.