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Farming: A Farm Debt Mediation Law is on its way

14 Nov 2019

The Farm Debt Mediation Bill is currently having its second reading in Parliament. It is not law yet, but it has already undergone some changes at the select committee stage since it was first introduced in May 2018 and it is probably worth us taking a look at, even before it becomes law, although aspects could still change before it becomes law.

Mediation is expected to become available under the service from 1 October 2020, next year.

The purpose of this new law is to even up the imbalance in power between the big banks and an individual farming client when things go wrong with debt repayments.

The point has been made that farmers are subject to many variables beyond their control, such as weather, disease, market forces and exchange rates; that farms typically have larger amounts of debt than other businesses and that farms are more than a business, they are also family homes.

It has been reported that both the New Zealand Bankers Association and Federated Farmers were supportive of this Bill.

According to the Ministry of Primary Industries the objectives of the Bill are to:

  • support farmers in financial distress in their involvement with secured creditors
  • make it possible to explore options for turning around a failing farm business
  • allow a farmer with an nonviable business to ‘exit with dignity’

At nearly $63 billion farm debt is a big-ticket item in New Zealand (June 2019 estimate).

Once this Bill gets the ‘Royal Assent’ lenders will have to offer mediation to farmers who default on their payments. It becomes compulsory (mandatory).

Farmers will be able request mediation at any time.

The mediator’s job is to mediate impartially for the purpose of arriving at an agreement for both the current arrangements and for the future conduct of their financial relationship.

The mediator will not arbitrate a dispute. They are not there to decide, one way or the other. Their role is to help the two parties reach a consensus.

Farmers may have an adviser present at the mediation session.

All information obtained during the mediation session is confidential and cannot be used as evidence in a court of law.

Mediation sessions are to be conducted with as little formality and technicality as possible and not be drawn out. They may be adjourned if the farmer is having difficulty with the length of the session.

A Mediation Agreement is produced by the Mediator which must be agreed by both sides and is binding.

The mediation is paid for equally by the lender and the farmer and is expected to be in the realm of $6,000 a time.

In the Explanatory note to the Bill it refers to “the recent mis-selling of Interest Rate Swaps (to farmers), which saw the Commerce Commission reach a settlement with affected banks, (which) points to a need for mediation ahead of any action under a security.” Settlements with three banks involved in the interest rate swaps market saw payments of around $25m to both farmers and the Commerce Commission back in 2015, although banks did not admit liability nor was their behaviour tested in court.

Before any farmer took part in a mediation exercise they should, of course, talk with their accountant and their lawyer about the new law. With any luck both these two professional advisers will be aware of their client’s situation well before mediation is an issue.

Hopefully farmers will see in this new legislation the community coming in behind them to provide a backstop for them should they be unable to make their financial commitments as they planned.

Keep asking great questions …

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