Section 126.47. Milk contractors; security.

 

(1)   Security required.

(a) A milk contractor shall file security with the department, and maintain that security until the department releases it under sub. (7) , if all of the following apply when the department first licenses the milk contractor under s. 126.41 (1) :

1. The milk contractor reports more than 150,000 hundredweight of milk under s. 126.41 (6) (bg) .

2. The milk contractor files an annual financial statement under s. 126.44 (1) and that financial statement shows negative equity.

(b)

1. In this paragraph, “ estimated default exposure" means 75 percent of the following:

a. If the milk contractor reports unpaid milk payroll obligations under s. 126.41 (6) (b) 1. and (9) (a) , the highest amount of unpaid milk payroll obligations, reported under s. 126.41 (6) (b) 1. or (9) (a) , that the milk contractor had at any time during the last 12 months.

b. If the milk contractor reports monthly milk payroll obligations under s. 126.41 (6) (b) 2. and (9) (b) , the highest amount of milk payroll obligations, reported under s. 126.41 (6) (b) 2. or (9) (b) , that the milk contractor incurred in any month during the last 12 months.

2. A milk contractor shall file security with the department, and shall maintain that security until the department releases it under sub. (7) (am) , if all of the following apply:

a. The milk contractor's last annual financial statement under s. 126.44 (1) shows negative equity, a current ratio of less than 1.25 to 1.0, or a debt to equity ratio of more than 2.0 to 1.0.

b. The milk contractor's estimated default exposure exceeds $20,000,000.

(3)   Amount of security.

(a) Except as provided in par. (b) , a milk contractor who is required to file or maintain security under sub. (1) shall at all times maintain security in an amount equal to at least 75 percent of the following:

1. If the milk contractor reports unpaid milk payroll obligations under s. 126.41 (6) (b) 1. and (9) (a) , the highest amount of unpaid milk payroll obligations, reported under s. 126.41 (6) (b) 1. or (9) (b) , that the milk contractor had at any time during the last 12 months.

2. If the milk contractor reports monthly milk payroll obligations under s. 126.41 (6) (b) 2. and (9) (b) , the highest amount of milk payroll obligations, reported under s. 126.41 (6) (b) 1. or (9) (b) , that the milk contractor incurred in any month during the last 12 months.

(b) A milk contractor who is required to file or maintain security only under sub. (1) (b) shall at all times maintain security equal to the milk contractor's estimated default exposure, as defined in sub. (1) (b) 1. , less $20,000,000.

(4)   Form of security. The department shall review, and determine whether to approve, security filed under this section. The department may approve only the following types of security:

(a) Currency.

(b) A commercial surety bond if all of the following apply:

1. The surety bond is made payable to the department for the benefit of milk producers and producer agents.

2. The surety bond is issued by a person authorized to operate a surety business in this state.

3. The surety bond is issued as a continuous term bond that may be canceled only with the department's written agreement or upon 90 days' prior written notice served on the department in person or by certified mail.

4. The surety bond is issued in a form, and subject to any terms and conditions, that the department considers appropriate.

(c) A certificate of deposit or money market certificate, if all of the following apply:

1. The certificate is issued or endorsed to the department for the benefit of milk producers and producer agents.

2. The certificate may not be canceled or redeemed without the department's written permission.

3. No person may transfer or withdraw funds represented by the certificate without the department's written permission.

4. The certificate renews automatically without any action by the department.

5. The certificate is issued in a form, and subject to any terms and conditions, that the department considers appropriate.

(d) An irrevocable bank letter of credit if all of the following apply:

1. The letter of credit is payable to the department for the benefit of milk producers or producer agents.

2. The letter of credit is issued on bank letterhead.

3. The letter of credit is issued for an initial period of at least one year.

4. The letter of credit renews automatically unless, at least 90 days before the scheduled renewal date, the issuing bank gives the department written notice, in person or by certified mail, that the letter of credit will not be renewed.

5. The letter of credit is issued in a form, and subject to any terms and conditions, that the department considers appropriate.

(5)   Department custody of security. The department shall hold, in its custody, all security filed and maintained under this section. The department shall hold the security for the benefit of milk producers and producer agents.

(6)   Additional security.

(a) The department may, at any time, demand additional security from a milk contractor if any of the following applies:

1. The milk contractor's existing security falls below the amount required under sub. (3) for any reason, including depreciation in the value of the security, increased obligations to milk producers or producer agents, or the cancellation of any security filed with the department.

2. The milk contractor fails to provide required information that is relevant to a determination of security requirements.

(b) The department shall issue a demand under par. (a) in writing. The department shall indicate why additional security is required, the amount of security required, and the deadline date for filing security. The department may not specify a deadline for filing security that is more than 30 days after the date on which the department issues its demand for security.

(c) A milk contractor may request a hearing, under ch. 227 , on a demand for security under par. (b) . A request for hearing does not automatically stay a security demand.

(d) If a milk contractor fails to comply with the department's demand for security under this subsection, the milk contractor shall give written notice of that fact to all milk producers and producer agents from whom the contractor procures producer milk in this state. If the milk contractor fails to give accurate notice under this paragraph within 5 days after the deadline for filing security under par. (b) has passed, the department shall promptly notify milk producers and producer agents by publishing a class 3 notice under ch. 985 . The department may also give individual notice to those milk producers or producer agents of whom the department is aware.

(e) If a milk contractor fails to comply with the department's demand for security under this subsection, the department may do any of the following:

1. Issue a summary order under s. 126.85 (2) .

2. Suspend or revoke the milk contractor's license.

(7)   Releasing security.

(a) The department may release security filed under sub. (1) (a) if any of the following applies:

1. The milk contractor reports not more than 150,000 hundredweight of milk under s. 126.41 (6) (bg) for at least 2 consecutive years and the milk contractor pays the fund assessment installment amount that would have been required of the milk contractor if the milk contractor had been a contributing milk contractor on the date when the most recent installment under s. 126.46 was due.

2. The milk contractor's annual financial statement under s. 126.44 shows positive equity for at least 2 consecutive years and the milk contractor pays the fund assessment installment amount that would have been required of the milk contractor if the milk contractor had been a contributing milk contractor on the date when the most recent installment under s. 126.46 was due.

(am) The department may release security filed under sub. (1) (b) , except for any amount of security that the milk contractor is required to file because sub. (1) (a) applies to the milk contractor, if the milk contractor files 2 consecutive annual financial statements under s. 126.44 showing that the milk contractor no longer has negative equity, a current ratio of less than 1.25 to 1.0, or a debt to equity ratio of more than 2.0 to 1.0.

(c) The department may release security to the extent that the security exceeds the amount required under sub. (3) .

(d) The department may release security if the milk contractor files alternative security, of equivalent value, that the department approves.

(e) The department shall release security if the milk contractor has gone out of business and paid all milk payroll obligations in full.

2001 a. 16 ; 2003 a. 38 , 238 , 320 ; 2005 a. 253 ; 2009 a. 296 .