The Farm Debt Mediation Act 2019 introduces a new mandatory mediation scheme
The Farm Debt Mediation Bill (No 2) received Royal Assent on 13 December 2019 and is now the Farm Debt Mediation Act 2019. This Act introduces a mandatory farm debt mediation scheme which will become operational from 1 July 2020.
This Act was introduced in response to rising levels of rural debt (up to approximately $63 billion in 2019) and to remedy the significant power imbalance between farmers and lenders through the introduction of a mandatory farm debt mediation scheme (Scheme) administered by the Ministry for Primary Industries (MPI).
In general terms, the Scheme will require creditors (even non-bank creditors) with security interests in farm property to engage in mediation with farmers before taking any enforcement action in relation to that debt.
It is anticipated that the Scheme will help such parties to meet and resolve their issues in a constructive, equitable, and timely manner or, at the very least, to help provide a dignified exit for farmers left without other options.
What types of debt will the Scheme apply to?
Broadly speaking, the Scheme will apply to farm debts where there has been lending to a farmer for the purposes of farming and that lending is secured over farm property. It should be noted that for the purposes of the Scheme:
- Farming is defined as any “primary production business”, which are businesses that primarily produce unprocessed materials (inclusive of agriculture, horticulture, and aquaculture). Lifestyle farming, wild harvest fishing, hunting, and mining are specifically excluded from the ambit of the Scheme.
- Farm debt means a debt incurred solely or principally for the purpose of conducting a primary production business and wholly or partly secured over farm property.
- Farm property is property “that is used for or in connection with the primary production business or related activities of the farmer” and may include farmland, buildings, livestock, crops, and farming equipment and machinery.
- Farmer is defined as “a person who is engaged in a primary production business” as well as any “principal debtor under a debt that was incurred solely or principally for the purpose of conducting a primary production business”. As a result, any party subject to a farm debt, even those who do not farm themselves (such as guarantors, trustees, spouses or partners of farmers), is captured by the Scheme.
How will the Scheme apply?
Creditors captured by the Scheme will not be able to take any enforcement action (such as appointing a receiver, taking possession of farm property, or filing a notice of claim) under the relevant security interest until an enforcement certificate has been obtained.
Enforcement certificates, which are valid for 3 years, are issued by the MPI if the farmer declines to mediate or where the creditor has participated in the mediation process in good faith.
Prohibition certificates, which are valid for 6 months, are issued by the MPI if the creditor declines to mediate or where the creditor did not participate in the mediation process in good faith.
An enforcement certificate cannot be issued whilst a prohibition certificate is in force, and vice-versa.
Enforcement and prohibition certificates are issued on the basis of the mediation process which is as follows:
- Creditors will be able to request mediation once the farmer is in default provided a prohibition certificate is not in force, whilst farmers under a farm debt will be able to request mediation at any time provided an enforcement certificate is not in force.
- The relevant party will have 20 working days to reply to such a request upon receiving it and failing to do so will be treated as declining to mediate.
- Creditors will then be required to select a mediator from a panel of three accredited mediators nominated by the farmer. The parties must then mediate in good faith and, unless otherwise agreed, have a maximum of 60 working days from the date of the mediation request to complete the mediation process.
- Mediation proceedings are confidential and the farmer will not be required to pay more than $2,000 towards the costs and related expenses of the mediator.
- Any mediation agreement reached by the parties is binding, though there is no requirement that the parties reach an agreement.
- Farmers will, if so desired, have ten working days in which to cancel a mediation agreement by giving written notice to the creditor.
As an exception to the above, the Act also provides a mechanism for creditors to protect the value of the secured assets where there is an ‘event of urgency’ (broadly meaning that the farm property subject to the security interest has been or will be destroyed, endangered, removed, sold or damaged). Creditors will be required to make an application to the High Court and may be allowed to appoint a receiver where the Court is satisfied that there is an ‘event of urgency’ and that the appointment of a receiver is necessary or desirable to safeguard the interests of the creditor.
Want to know more?
If you have any questions about the Farm Debt Mediation Act 2019, please contact our specialist Rural, Banking or Commercial teams.