The Farm Debt Mediation Act 2011 (Vic) (the Act) has been in operation for some two years and is in large part modelled on New South Wales legislation which has been operative since 1994. Since the commencement of the Act in Victoria, over 180 mediations have taken place with 95% of those mediations resulting in a settlement agreement between the parties.
With the exception of New South Wales, there have not been any similar legislative changes in any other Australian states. However, in Queensland in 2008 various rural groups and a number of banks (including the top four) executed a public agreement referred to as the Queensland Farm Finance Strategy and Farm Debt Mediation Scheme (the Scheme) which, similar to the Act, requires banks to initiate third party mediation prior to commencing enforcement procedures against farmers in default of loan facilities. Whilst there has been some government support for a nationally consistent approach to farm debt mediation, to date the process exists only on a state by state basis.
The overriding purpose of the Act and the Scheme is to encourage creditors to mediate with farmers before enforcement procedures are triggered as a result of a default by a farmer on a mortgage or loan facility. Pursuant to the Act mediations can be initiated by either a creditor or a farmer, however in most instances it is the creditor who commences the mediation process. In Victoria, for example, the mediation is conducted by the Victorian Small Business Commissioner and the fees associated with the mediation are very reasonable as they are partially subsidised by government funds.
The farm debt mediation schemes only apply to parties who are solely or principally engaged in a farming operation. The schemes do not extend to hobbyfarmersor people who own rural properties but do not actively farm that land.
The sole reason creditors trigger the mediation process under the Act is usually because there are concerns about a farmer’s capacity to service a facility and / or the value of the equity securing the loan. In these circumstances, it is crucial that primary producers arrive at the mediation fully prepared.
The benefit of the mediation process is that it provides farmers an opportunity to explain what is or has impacted on their capacity to service a farm debt and to seek to agree an outcome which will enable the farmer to avoid the facility being closed out by the financier and the potential risk of enforcement proceedings being initiated. It is recommended that primary producers engage legal representation for the purposes of mediation, however, assistance can also be obtained from rural financial counsellors and accountants.
Anything that is spoken under the umbrella of the mediation process is privileged and confidential and can not be used by either party against the other in future legal proceedings. For primary producers preparing to attend mediation the following tips are crucial to ensuring the mediation is successful:
- Seek legal representation or representation via an accountant or a rural financial counsellor.
- Take time to consider the outcome you want to achieve from the mediation and outcomes you would be prepared to accept. If you anticipate that the bank will require an immediate payment of outstanding arrears consider how you intend to meet this obligation.
- Be prepared. Ensure your financials and cash forecast for at least the two financial years forward are up to date and accurate and can be explained to the representatives of the bank at the mediation. Ideally, a short written statement setting out your position is a good way to settle the issues in your own mind.
- Be prepared to tell the bank what your intentions are with respect to the loan.
- Expect that the mediation process could take the best part of a day and that the bank will be looking to finalise an agreement with respect to any loan facility as part of the mediation process.
- Remember there is always scope for a mediation to be adjourned or reconvened at a later date if it becomes apparent that the parties will not be able to resolve the issues within the allocated timeframe.
- Don’t be afraid to ask for concessions or waiver of penalty rates or fees which may have been applied to an account in default.
- Don’t enter into a settlement agreement with the bank that you are unable to satisfy. These agreements are binding and in most circumstances contain default clauses which require a farmer to surrender their property to the creditor in the event that there is a breach of the agreement. The process of surrender is a much simpler process for a bank than having to take possession via the usual legal route.
If a bank or financier is satisfied that a farmer has the financial capacity to continue to service a loan and / or to pay it out within a reasonable timeframe, in most circumstances they are often prepared to give leeway to farmers to enable this to happen.
In Victoria, for example, once mediation has taken place, creditors can apply to the Small Business Commissioner for an exemption certificate under section 15 of the Act. A similar exemption process exists in New South Wales and Queensland. If such an exemption is granted a creditor is entitled to commence debt recovery actions through the normal legal channels. The Commissioner can elect not to grant an exemption certificate if they consider that the creditor has refused to mediate or failed to mediate in good faith.
If you are served with a farm debt mediation notice by a creditor, do not ignore it. To do so can be fatal to your livelihood and your farm. Agreeing to mediate and attending the mediation well prepared and cognisant of your financial capacity is crucial to a successful outcome.