The Agricultural Credits Act 1928 ("ACA 1928") enables a farmer to grant an Agricultural Charge to a bank over all his farming stock and other agricultural assets, but not the land he farms.
An Agricultural Charge can be a fixed charge, a floating charge or both. However, any assets obtained by the farmer after the creation of the Charge will only be subject to a floating charge. Only a registered deposit taking bank or the Bank of England can take an Agricultural Charge.
A floating charge is automatically converted to a fixed charge if:
- the farmer is made bankrupt
- the farmer dies
- the partnership which charged the assets to the bank, is dissolved
- the bank serves a ‘crystallisation notice’
- the farmer retires
If an Agricultural Charge is created within three months of a bankruptcy application against the farmer and he is subsequently made bankrupt on that application, the Agricultural Charge will be unenforceable unless it can be shown the farmer was solvent at the time the Charge was granted.
Until crystallisation of the floating charge into a fixed charge, a judgment creditor is entitled to enforce against assets subject to a floating charge. An Agricultural Charge over crops has priority over any fixed charge.
A fixed charge over any livestock extends to any offspring born after the Charge was granted, and over any plants extends to any plant which is substituted for that specified in the Charge.
A bank which holds a fixed Agricultural Charge is entitled:
- to repossess the charged property in the event of a default, sell it and use the proceeds to pay off the amount due under the Charge. Any surplus must be paid to the farmer.
- to receive the proceeds of sale of any of the charged assets, any insurance monies in relation to the charged property, or compensation which the farmer receives in relation to destroyed crops or livestock whilst the Charge is enforceable.
If the bank holds a floating charge, it has the same rights in relation to proceeds of sale, insurance monies and compensation as it would have under a fixed charge.
It is a criminal offence for a farmer to fail to account to the bank for any proceeds of sale - however, the bank does not have any remedies against third parties who have received the proceeds unless they were aware of the obligation to pay the bank. Knowledge of the existence of the Agricultural Charge is not enough to constitute sufficient knowledge.
An Agricultural Charge will give banks the express right to appoint a Receiver in the event of default, as defined in the Charge. The Charge will ordinarily give the Receiver wide powers to deal with and dispose of charged property. If in the unusual event that the Charge does not contain such power, the bank will have a statutory powers conferred by s.101(1)(iii) Law of Property Act 1925 to appoint a Receiver. In those circumstances, the limited powers of the Receiver to collect and account for rent are set out in s.109 LPA 1925.
The Agricultural Charge will give the Receiver power to deal with the assets which are subject to the Charge. Ordinarily, the Agricultural Charge will give the Receiver powers of sale, to run a farming business, to complete developments and to borrow. As an Agricultural Charge does not cover land, it does not give a Receiver power to occupy or sell the land.
The Receiver does not have to be a Licenced Insolvency Practitioner and is entitled to be paid 5% of the money received, or as otherwise set out in the Charge.