farm debt mediation scheme miriam andrews, paul farrugia, and scott abel The Government has now announced its intention to proceed with the introduction of a bill to establish a farm debt mediation scheme, based in many respects on comparable New South Wales legislation. It is important for secured lenders to farming enterprises to consider in advance the implications of the bill and the necessary changes to product design, documentation, client relationship management and enforcement processes which may be required. The scheme is intended to provide for fair, equitable and timely resolution of farm debt issues with two key objectives: -For farmers and secured creditors to meet in an equitable manner to constructively and objectively explore options for business turnaround -To provide for a timely and dignified exit for those for whom few other options exist. In particular, parties will be required to engage in (or attempt to engage in) statutory mediation under the scheme before the creditor can take enforcement action in relation to farm property. Secured creditors and farmers are not required to reach agreement through mediation – if agreement cannot be reached, a secured creditor will be able to apply for an enforcement certificate from Ministry of Primary Industries (MPI) in order to proceed with enforcement action, provided that the secured creditor acted in good faith during the mediation. We expect that MPI will place considerable reliance on the report provided by the mediator, in determining whether the secured creditor acted in good faith. The scheme will be administered by MPI, who will be responsible for issuing enforcement and prohibition certificates, and for overseeing approved mediator organisations (who will in turn supervise authorised farm debt mediators). The key features of the scheme are summarised in the schedule attached to this note.
Notwithstanding the focus on bank lending to dairy farms in recent media reports in connection with the bill, it is important to note that the application of the scheme is not so narrowly confined. As drafted, the scheme will broadly apply to farming operations engaged in agriculture, horticulture and aquaculture (and associated primary production), and may be further expanded in the future by regulation (for example, to include forestry). The scheme will capture secured non-bank lenders and farm equipment financiers, but will not apply to unsecured creditors (including trade creditors and the IRD). Enforcement of security given by guarantors in relation to farm debt will also be subject to the scheme. Issues for consideration There are aspects of the bill which we consider could be improved upon during the Select Committee process: -The bill should distinguish between family owned and operated farms – whose interests the bill is primarily concerned to protect – and major corporate, institutional or listed farming operations, who are sophisticated counterparties which could reasonably be expected to have sufficient bargaining power to reach a negotiated solution with their secured lender, without the assistance provided by the scheme -Clarity as to the extent of the types of farming operations covered by the scheme (whether agriculture, horticulture or