On 3 May 2018, the Farm Debt Mediation Amendment Bill 2018 (NSW) (the Amendments) was passed. The Amendments make several significant changes to the Farm Debt Mediation Act 1994 (NSW) (FDMA), including to its structure, scope of application and the procedure for the enforcement of farm debts.
The Amendments will come into effect on proclamation, on a date to be confirmed.
Why is the FDMA being amended?
The FDMA was introduced in 1994 to provide for the efficient and equitable resolution of farm debt disputes. It recognises the need for farm businesses to be able to negotiate a financial solution, in circumstances where they can fall into financial hardship due to the risky environment they operate in, which is subject to the vagaries of weather, drought and downturn.
The Amendments are the ninth in the FDMA’s history and come following a review by the NSW Rural Assistance Authority (the Authority), which administers the FDMA.
The purpose of the Amendments is to:
- ensure the FDMA continues to operate according to its objectives; and
- begin the move towards national harmonisation of farm debt mediation legislation.
What changes are occurring to the FDMA?
The Amendments make some significant changes to the FDMA. Most notably, the Amendments:
- clarify the applicability of the FDMA to farm debt matters and that the FDMA does not apply to restructured farm mortgages where mediation pursuant to the FDMA has previously taken place;
- add new definitions and extend the scope of existing definitions within the FDMA – including, ‘mediation’, ‘farm machinery’ and ‘farming operation’.
- create new offences relating to unauthorised enforcement action with penalties to apply;
- change the procedure for the enforcement of debts, accreditation of mediators, and conduct of mediation sessions (including the costs of mediation);
- replace the requirement to enter into a Heads of Agreement following a successful mediation, with a requirement to enter into a binding mediation agreement and replacing a 14 day cooling off period with a 10 business day cooling off period that can be waived or varied by agreement; and
- create an internal review process for decisions relating to prohibition certificates, exemption certificates, and mediator accreditation by the Authority.
What does this mean for you?
At a general level, creditors and farmers should be aware of the FDMA’s new scope, as the Amendments will:
- protect a broader range of primary producers, including on-farm and offshore aquaculture and farm forestry, which do not currently have the protection of the FDMA; and
- extend coverage to a broader range of farm mortgages, as the definition of ‘farm machinery’ is now more expansive and includes any secured farm machinery commonly used on farms, such as vehicles, machines and other implements.
On a practical level, creditors and farmers should be alive to:
- the incentives for early mediation as a farmer will be entitled to ask a creditor to mediate before they default on their loan, and if they later default on their loan a creditor will still need to provide one mandatory invitation to mediate before taking enforcement action;
- the new procedures for enforcing farm debts, including the provisions for the service of notices under the FDMA (such as permitting service by email) and the more flexible and clearer timeframes for responding (within 20 business days after receiving a notice or request);
- the right the Authority will have to require farmers and creditors to provide the necessary information to enable it to determine if the FDMA applies;
- their right to access an internal review of certain decisions made by the Authority to be conducted by a person not substantially involved in the original decision; and
- the FDMA’s new protections against the enforcement of farm debts before mediation. Now more than ever, creditors must fully appreciate their obligations to comply with the FDMA and to engage in mediation under the FDMA before enforcing farm debts. Once the Amendments come into effect, a failure to do so will result in a penalty for a maximum sum of $55,000 for individual creditors and $275,000 for corporation creditors for taking unlawful enforcement action.