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Farm Debt Mediation Scheme more than meets the sty

Jenna Riddle

A new mediation scheme will apply to farm debt from 1 July 2020.  The scheme will require lenders to offer mediation before they can enforce farm debt.

Key Points

What is the Farm Debt Mediation Scheme?

The Farm Debt Mediation Act 2019 (the Act) encourages farmers and lenders to address farm debt issues early and fairly by engaging in mediation.  The Act only applies to farm debt, which is:

    1. money borrowed by a farmer for the business; and
    2. secured over assets used in the farm business.

Agriculture, horticulture, and aquaculture and other businesses that primarily produce unprocessed goods (including sharemilkers) and their related activities are all covered by the Scheme. Forestry, mining and farm support businesses, like shearing contractors, are not.  Lifestyle farms are also excluded from the scheme.

Lenders must offer to mediate and must apply for an enforcement certificate before they can enforce the debt. 

Farmers can request to mediate at any time and the lender can only decline for good reason.  If the lender declines mediation, the farmer can apply for a prohibition certificate from MPI preventing the lender from enforcing the debt for 6 months.     

What does mediation cost?

Farmers cannot be required to pay more than $2,000.00 towards the mediator’s costs – which means the lender will need to pay the balance.  A lender must also pay its own costs and cannot add mediation costs on to the debt.[1]  

How does the Scheme work?

Either the lender or the farmer can request mediation – but the lender can only request mediation if the farmer is in default.  Requests for mediation must be in writing and must be in a particular form (which will likely be determined by MPI before the Act comes into force).

The steps in the mediation process are:

    1. The parties appoint an authorised mediator;
    2. The parties formally agree how the mediation will run and where the costs will lie.[2] This is called a mediation agreement. 
    3. Mediation is conducted according to the mediation agreement.
    4. The mediator does not have the power to decide any matter[3] and at mediation the parties are free to make any agreements between them.  Neither party is obliged to reach an agreement, but must mediate in good faith.   
    5. The mediator then provides a mediation report to MPI and the parties.

What is discussed or agreed at mediation will depend on the particular circumstances.  The farmer and the lender might discuss varying the term of the loan, interest rate or providing the opportunity to the farmer to sell assets before enforcement action is taken.  However, farmers should understand that lenders do not have to agree to vary the loan or agree to any other proposal. 

If the farmer and the lender(s) reach agreement at mediation this is recorded in a settlement agreement. However, there is a cooling off period (of 10 working days) during which the farmer can cancel the mediation agreement.[4] There is no cooling off period for the lender, who is bound by what was agreed in the settlement agreement.

If the farmer and the lender(s) do not reach an agreement at mediation, the lender will need to apply for an enforcement certificate from MPI before they can take enforcement action.

If the lender does not mediate in good faith, the farmer can apply to prevent enforcement of the debt for 6 months. 

Things for farmers to remember…

 

We have an experienced team of lawyers who can help prepare you for and represent you at mediation, or give further advice about the farm debt mediation scheme.  Please get in touch if we can help you. 

 

Thanks to Rebecca Crawford, Law Clerk, for her contribution to this article.

 

 

 

[1] Sections 23, 58.

[2] Section 22.

[3] Section 24.

[4] Section 32, 33.