The Farm Business Debt Mediation Bill 2016 (Qld) (FBDM Bill) was passed by the Queensland Parliament on 21 March 2017, with the legislation coming into effect on 1 July 2017. We assess the implications for lenders and farmers in Queensland, and examine Western Australia’s farm debt mediation regime in light of this new legislation.
The Australian Farm Debt landscape
More than 95 percent or farms in the broadacre sector are family owned and as such, debt is an important source of funds for working capital and investment.[1] Nationally, average broadacre debt more than doubled from 2000-01 to 2015-16 - mainly due to an increase in the average size of Australian farms.[2] Total rural debt increased to 69.5 billion as at September 2016.[3] Bank lending accounted for approximately 95 percent of the total institutional lending.[4] It is against this backdrop that the Queensland Parliament passed the FBDM Bill late last month.
Introduction of a new compulsory mediation process in Queensland
Prior to the passing of the FBDM Bill, Queensland operated under a voluntary farm debt mediation scheme implemented by the Queensland Farmer’s Federation and the Australian Bankers Association.
While many large lenders readily participated in this voluntary scheme, not all rural credit providers took part in the mediation process. The new Bill does not prevent farmers resolving issues informally with credit providers. However, the credit provider is prevented from taking enforcement action against a farmer without first entering into a mediation process unless they are in possession of an exemption certificate.
“Farm business debt” under the FBDM Bill is defined as an amount owed by a farmer that:
- was borrowed for the purpose of conducting a farming business; and
- is secured by a farm mortgage.
Importantly, loans and finance secured by farm machinery, livestock and farm infrastructure are not affected by the introduction of the new Bill as the definition of “farm mortgage” under the Bill only encompasses security over farming land and water allocations.
Under the new regime, when a farmer is in default of a farm mortgage, the credit provider must initially serve the farmer an enforcement action notice and provide them with a copy of the mediation information package.
The notice must state that the farmer may ask for mediation of the debt within 15 days of receipt of the notice. Where a farmer has asked for mediation with the credit provider, there is an obligation upon the credit provider to enter into mediation with the farmer. If the credit provider fails to mediate, the farmer may then apply for an enforcement suspension certificate.
If a farmer applies for this certificate, the Queensland Rural and Industry Development Authority must provide the financier with a show cause notice that requires the credit provider to provide reasons for any delays or refusal to mediate. It is expected that this requirement will act as a strong incentive for credit providers to resolve debt default issues by way of mediation.
Other States
The passing of the FBDM Bill brings Queensland into line with other mandatory mediation regimes operating in Australia such as those under the Farm Debt Mediation Act 1994 in New South Wales and the Farm Debt Mediation Act 2011 in Victoria, respectively.
There is currently no mandatory farm debt mediation process for farmers in South Australia. Tasmanian farmers are in a similar position, albeit support is offered through the Rural Financial Counselling Service Tasmania (RFCST). The RFCST provides confidential and independent assistance to primary producers, fishermen and small rural businesses that are suffering financial hardship. Voluntary farm debt mediation is one of the service offerings provided.
Western Australia’s Farm Debt Mediation Scheme
There are presently no moves afoot in Western Australia to follow in Queensland’s steps and impose similar mandatory mediation obligations on financial institutions.
The WA Farm Debt Mediation Scheme came into existence relatively recently in 2015 but, unlike Queensland, New South Wales and Victoria, in Western Australia, mediation is not mandatory.
The Farm Debt Mediation Scheme in WA (WA Scheme) is overseen by the Department of Agriculture and Food and administered by the Rural Business Development Corporation. The WA Scheme provides eligible farming applicants the opportunity to participate in mediation with their credit provider by mutual agreement, provided the farmer is willing to contribute to the costs of the mediation.
Eligibility for the WA Scheme is based on the applicant having operated a farming enterprise for at least five years, and is only available for commercial farming loans (term loans, overdrafts, bank bills, commercial bills and equipment finance debt).
Applications may be submitted by financial institutions or farming and pastoral businesses that can demonstrate they have attempted to address their concerns with the other party prior to the making of the application. The WA Scheme is less formal than the mandatory schemes and is designed as a low cost, non-legal process. While the WA Scheme provides a forum for the airing of grievances, mediators have little power to compel active participation.
Significance
The upshot of the passing of Queensland’s FBDM Bill is that credit providers will, in most circumstances, be unable to foreclose on farmers without first offering them debt mediation. By comparison, there is no power under the WA Scheme to compel parties to attend or participate in mediation.
[1] ABARES Farm Debt: Broadacre and Dairy Farms, 2014-15 to 2015-2016. Department of Water and Resources.
[2] Ibid.
[3] Ibid.
[4] Ibid.