Lenders in the agricultural sector need to become aware of new obligations prescribed by the Farm Debt Mediation Act 2011 (Vic) (Act) as all farm mortgages in existence will be covered by the Act.

The Act, which received assent in Victoria on 6 September 2011, will impact creditors that want to take enforcement action to realise a farm mortgage after 1 July 2012 (the likely commencement date).  

Purpose of the Act

The overarching purpose of the Act is to provide a framework which supports the efficient and equitable resolution of farm debt disputes.

The Act is largely modelled on the NSW equivalent legislation in place since 1994.

Mediation

From 1 July 2012 (or from an earlier proclamation date), a creditor, that is, a person to whom a farm debt is being owed by a farmer (either as debtor or guarantor and can include a corporation), will be required to provide the farmer with 21 days’ written notice before taking any enforcement action.

Enforcement action in relation to a farm mortgage is defined in the Act as taking possession of property under the mortgage or any other action to enforce the mortgage, including the giving of any statutory notice or the continuation of any enforcement action which may have been commenced before 1 July 2012.

The written notice must inform the farmer that mediation between the farmer and the creditor is available.

The farmer will have 21 days following the receipt of such notice to notify the creditor that the farmer requests mediation.

Additionally, a farmer who is liable for a farm debt may request mediation with a creditor at any time, whether or not they are in default.

A creditor can either agree or refuse to mediate, however a creditor who refuses to mediate after a farmer who is in default requests mediation risks being issued with a prohibition certificate.

A creditor to whom a prohibition certificate has been issued will be prevented from taking any enforcement against a farmer for a period of up to 6 months. Conversely, there is no risk to creditors who refuse to mediate with a farmer who is not in default. 

Exemption Certificates

A creditor may apply to the Small Business Commissioner for an exemption certificate to begin enforcement proceedings if:

  • the farmer is in default under the farm mortgage; and
  • the Small Business Commissioner has not issued a prohibition certificate; and
    • the farmer has refused to mediate; or
    • a mediation has proceeded as far as it reasonably can but failed to resolve the dispute; or
    • three months have lapsed and despite the creditor’s attempts to mediate in good faith, a satisfactory mediation has not taken place. 

Office of the Small Business Commissioner

The Victorian Office of the Small Business Commissioner is charged with administering the mediation of farm debt disputes under the Act.

The fees fixed by the Small Business Commissioner in respect of each mediation session will not exceed $611.00. The fee must be paid by each party to the mediation before each mediation session commences. 

Comment

Lenders should also note that parties may not contract out of the obligations under the Act and that enforcement action taken by a creditor otherwise in compliance with the Act is void.

In our view, if a creditor formed the view that the farmer was doing something that could impact on the value of the security property and wanted to take steps to preserve the status quo before taking enforcement action under the mortgage, the creditor could bring an originating motion in the Supreme Court seeking a preservation or preventative type order and then take the necessary steps under the Act. Any such injunctive action would not, in our view, be void.