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

FDMA Review 23 years on…

To ensure the Act reflects its original intent, the Farm Debt Mediation Act 1994 (NSW) (FDMA) is currently under review as part of the NSW Rural Assistance Authority’s (RAA’s) Strategic Plan 2015-2019.

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.
  • exclude 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.