Posted on Leave a comment

Farm debt: Banking royal commission tipped to move on agribusiness mediation

Bloomberg

The banking royal commission is being urged put an end to the patchwork of state-based mediation schemes for agribusiness customers and establish a single national body for working through disputes with banks.

The move would deliver the time-poor inquiry headed by Commissioner Kenneth Hayne an easy win, with the current state-by-state system enjoying few supporters.

National Farmers Federation policy director Tony Mahar said the existing system, which only guaranteed farmers in Victoria, NSW and Queensland with access to a formal mediation service, was inadequate.

“It’s fragmented and unhelpful, what we need is a national approach for farmers and financial institutions.”

The Hayne royal commission is believed to be aware of the disjointed approach to mediation, drawing attention to the problem by dedicating two pages of its recent report on features of the Australian financial system to the issue, including the $68.6 billion in farm debt held by the big four banks.

The plights of farmers were not however specifically mentioned during the opening statements made by Commissioner Hayne and senior counsel assisting Rowena Orr, which signaled the royal commission would seek to explore misconduct in the home loans and consumer credit segments.

The idea of a national body has failed to get traction and was last seriously considered in 2014 when a drought and the ban on live exports conspired to put many farms under. Nationals leader Barnaby Joyce compelled the banks to attend a crisis meeting at the time and sketch out a workable solution.

Mr Maher said that a great deal of work had been done on the subject over the years, it had broad support among stakeholders and it was something the government should be able to deliver.

The establishment of a national farm debt mediation scheme was most recently recommended by the select committee on lending to primary production customers, which delivered its final report in December 2017.

It recommended a scheme based on the NSW model with a $10 million ceiling on loan amounts.

Australian Banker’s Association CEO Anna Bligh has also thrown her support behind a nationwide mediation scheme to resolve issues that crop up between farmers and their banks quickly and fairly.

“It shouldn’t matter whether you’re a farmer in Cootamundra, NSW or the Western Australian wheat belt you should be treated equally and have the same access to financial mediation” Ms Bligh said.

The newly established Australian Financial Complaints Authority (AFCA) which replaces both the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT) will have a ceiling for loans under dispute of $5 million.

This is a significant increase from the ceiling of $2 million FOS was previously subject to. Data from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) shows that a ceiling of $5 million would cover 99 per cent of loans in the rural sector.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has been critical of the banks for trying to cap the size of loans defined as small business loans and therefore eligible for mediation rather than more expensive legal proceedings.
Mr Mahar said if agriculture exports were to reach a target of $100 billion per year then processes needed to be established for when farms get into difficulty.

“We recognise that banking and farms are always going to be partners and nationally consistent approach will underpin this,” Mr Mahar said.

In the meantime,  while you wait for the Government to nationalize the Mediation system, if you need help now, contact us with the form below to arrange for a private and  confidential free consultation as to whether private mediation can help you with your Farm or Banking debts.

Source : Australian Financial Review

Posted on Leave a comment

Farm Debt Mediation Reforms: Has the farm house been spared?

The Farm Debt Mediation Scheme makes it compulsory for banks and other creditors to offer mediation to farmers before commencing debt recovery proceedings on farm mortgages.

A farmer has 21 days to respond to an offer to mediate, otherwise the creditor can commence action as normal.

Farm debt mediation is a structured negotiation process where a neutral and independent mediator assists the farmer and the creditor to try to reach agreement about current and future debt arrangements.

The mediator’s role is to facilitate the discussion and they will not provide advice on the matters in dispute.

Mediation is a simple, voluntary and confidential process that is quick, accessible and affordable.

The scheme is administered by the Department of Economic Development, Jobs, Transport and Resources (DEDJTR) and further information can be sought from the Farm Debt Mediation Officer on 136 186. Mediations will be provided through the Victorian Small Business Commission.

This scheme applies only to:

  • farm mortgages covering a farm (or part of a farm), farm machinery or a water share (within the meaning of the Water Act 1989).
  • farmers, defined as: ‘a person (whether an individual person or a corporation) who is solely or principally engaged in a farming operation’. This includes people who own land cultivated under a share-farming agreement, or the personal representatives of a deceased farmer.
  • Guarantors to a farm mortgage need to be fully informed and involved in the process.

It is recommended that farmers seek assistance from their local Rural Financial Counsellor, Solicitor, Accountant or some other appropriately qualified person. These people can assist farmers to prepare for mediation, attend the mediation session with farmers, and help with any actions that need to be undertaken after the mediation session.

In Victoria the FARM DEBT MEDIATION ACT 2011 – SECT 1 Purpose states:

“purpose of this Act is to provide for the efficient and equitable resolution of farm debt disputes by requiring a creditor to provide a farmer with the option to mediate before taking possession of property or other enforcement action under a farm mortgage.”

In Queensland the new regime provides mortgagees must:

  • offer to the mortgagor farmer the option of pursuing mediation before commencing any enforcement action.(including by way of taking possession, exercising power of sale or giving a statutory enforcement notice);
  • take part in the mediation in good faith if the mortgagor farmer opts to pursue mediation; and
  • not enforce the mortgage in contravention of the Act.

In NSW after 23 years there is a review by the NSW Rural Assistance Authority’s (RAA’s) in their Strategic Plan 2015-2019 of the Farm Debt Mediation Act 1994 (NSW) (FDMA).

The review is part of the RRA’s initiative in partnership with the Australian Government to nationalise farm debt mediation, whilst driving economic growth within the industry and community.

The FDMA allows debtors in default of a farm mortgage to engage in facilitated mediation with creditors before the creditor takes enforcement action to recover the debt, allowing for the ‘efficient and equitable resolution of farm disputes.’(Section 3 FDMA)

What is Under Review?

The proposed changes impose strict obligations upon farmers to comply with the FDMA’s prescribed operation, yet eliminates some burdensome procedural requirements.

The proposed main changes are to:

  • expand the definition of “farmers” to include guarantors with an interest in an affected farm mortgage to be notified of and possibly attend mediation proceedings;
  • change the definition of “farm” so that it may be expanded to protect a broader range of farmers under the Australian New Zealand Standard Industrial Classification 2006 (ANZSIC), which excludes fishing, hunting and trapping from the FMDA.
  • The Review also proposes new guidelines requiring farmers to demonstrate they are principally involved in primary production.
  • exclusion of machinery such as motorbikes, quadbikes cars and trucks may no longer form the subject of debt mediation, as the law doesn’t currently exclude machinery that serves multiple purposes.

Other important changes include the proposed elimination of the requirement to establish a mediation claim in multiple jurisdictions, as well as the introduction of “show cause” notices and periods when answering to allegations made by creditors and lodging exemption periods. The law may also be amended so as to not apply to farm mortgages that are secured by a guarantor that is subject to a bankruptcy petition. It has also been suggested that the FDMA be clarified to ensure that subsequent mediations are not needed for a farmer’s default under agreements giving effect to the mediation, such as a contract or mortgage document.

The FDMA may also specify the methods in which a mediator is to be chosen to be prescribed by regulation, and may require the provisions of mortgage documents and correspondence to either the mediator or creditors during proceedings.

What does this mean for farmers?
The ability of guarantors to be notified and participate in mediation may relieve the burden upon farmers to claim protection of the FDMA by establishing the Act applies.

Farmers may be limited to which farm debts can be mediated, with certain machinery excluded.

The farmer may have new thresholds and requirements to establish they are a primary producer or involved in Agriculture, Aquiculture or Forestry and Logging as part of the ANZSIC Code.

Under the proposed changes, If the subject of the farm debt covers land in multiple states, farmers may no longer be required to submit claims in multiple jurisdictions.

Farm mortgages that are solely secured by a guarantor who is subject to a bankruptcy petition is unable to gain protection under the FDMA.

Farmers may no longer have the responsibility of nominating a mediator to which the creditor must agree.

What does this mean for practitioners?

Lawyers need to encourage their clients to respond promptly in proceedings as the right of famers to respond to allegations made by the creditor under s 11 within 28 days may become a legal requirement.

Lawyers may need to assist their client in effectively showing cause in order to submit an exemption period, which stays proceedings for 6 months.

Lawyers also need to be aware if their client defaults on agreements that give effect to the mediation under the proposed changes, that a subsequent mediation may not be required.

Accurate records of all correspondence and relevant mortgage documents should be kept as they be required by the mediator and/or creditor during proceedings.

Despite the changes which may appear to limit the ability of farmers to mediate their debt, mediation is overall a relatively inexpensive and efficient process. Between 12 February 1995 and 30 December 2016, the RAA reported that out of the 1659 ‘satisfactory mediations’ that have been undertaken under the FDMA, 1487 mediations resulted in parties reaching an agreement. This is an agreement rate of 90%.

Ultimately it is worth being aware of proposed changes to ensure that farmers are aware of their rights and obligations in mediating their debts, resulting in efficient and quick resolutions.

So when it comes to Farm Debt and Mediation, it makes sense to talk to an accredited mediator under the National Mediation Accreditation System,  someone who is registered with the Mediator Standards Board and has professional training on how to help manage and mediate such disputes if you find yourself in such a situation, you have 21 days to act.

Sources:
Danny Jovica : Mediator Accredited under NMAS/MSB/AMA.

Barraket Stanton

Copper Grace Ward

Agriculture Victoria