1. As used in this section, “failure” means any of the following involving a licensed or unlicensed grain warehouseman:

(1) An inability to financially satisfy claimants;

(2) A public declaration of insolvency;

(3) A revocation of license with outstanding grain storage obligations;

(4) Refusal to redeliver stored grain where a good faith dispute does not exist;

(5) Neglect to apply for license renewal without first settling all outstanding grain storage obligations;

(6) Denial of license renewal application; or

(7) Voluntarily surrendering a warehouse license without first settling all outstanding grain storage obligations.

2. As used in this section, “grain or grain-related assets” involving a failed warehouseman means any of the following:

(1) All grain owned or stored, including grain in transit shipped by the failed warehouseman, but not yet paid for;

(2) Grain held on storage in the name of or for the account of the warehouseman at any other warehouse;

(3) Proceeds from the sale of grain due or to become due;

(4) The equity less any secured financing directly associated therewith in assets in hedging or speculative margin accounts held by commodity exchanges or agents representing the exchanges, and any moneys due or to become due less any secured financing directly associated therewith from any transactions on the exchanges;

(5) Any other unencumbered funds, property, or equity in funds or property, wherever located, that can be directly traced to the sale of grain by the failed warehouseman, provided both that the funds, property, or equity in funds or property shall not be considered to be encumbered unless the encumbrance results from good and valuable considerations advanced by any secured party on a good faith basis and that the encumbrance is not the result of the taking of funds, property, or equity in funds or property as additional collateral for an antecedent debt.

3. A lien shall exist on all grain and grain-related assets of a failed warehouseman in favor of any of the following:

(1) Depositors, including lenders, who possess negotiable warehouse receipts covering grain owned by the warehouseman; and

(2) Depositors who possess written evidence of ownership disclosing a storage obligation of the warehouseman.

4. The lien which shall secure all claims described in subsection 3 of this section shall arise at the time of commencement of the storage obligation, or when funds are advanced by the lender, and shall terminate when the liability of the warehouseman to the claimant is discharged, provided that the priority of each lien among the respective claimants shall not relate to the date the claim arises. The lien claims of all claimants shall be considered to be assigned by operation of this section to the department of agriculture, and in the event of a failure and subsequent liquidation, the lien shall transfer over to assets or proceeds of assets either received or liquidated by the department of agriculture.

5. In the event of a failure, the director shall enforce the lien claims and allocate the proceeds as follows against all grain and grain-related assets for the benefit of the following:

(1) Depositors, including lenders, who possess negotiable warehouse receipts covering grain owned by the warehouseman;

(2) Depositors who possess written evidence of ownership disclosing a storage obligation of the warehouseman.

6. In the event that any adversary proceeding is commenced to recover grain or grain-related assets upon which the lien imposed in this section is imposed and the department declines to enter the proceeding, the director, upon application to him by any claimant, shall assign to the claimant the applicable lien to permit the claimant to pursue his lien in the adversary proceeding to the extent the action will not delay the resolution of the proceeding, the prompt liquidation of the assets, or the ultimate distribution of the assets to all claimants.