Farm Business Debt: What You Need to Know
It is an unfortunate truth, but when it comes to Australian farmers, extreme weather conditions are a harbinger of tough economic times. As a firm proud to represent regional Queensland, it is always a sobering experience to have to advise a fifth-generation farmer on insolvency problems and the end of the family business.
Like many other States, Queensland has recognised the great wealth tied up in the regions, and the peaks and troughs that the climate can present to industries heavily reliant on near perfect weather conditions – enter the Farm Business Debt Mediation Act 2017 (Qld).
This Act sets up a program to force, wherever possible, disputes between the banks and farmers into alternative dispute resolution. This opportunity to mediate is important and revolutionary, as it forces the banks to face up (literally, face to face across a mediation table) to the human cost of their decision making on enforcement of farm debt loans.
In this article, we will look at some of the basic features of the scheme and how it all works in practice.
What is Farm Debt?
Farm debt (or, as it is called in the Act, farm business debt) is a loan that is taken out by a farmer for the purpose of running a farm, and where that loan is secured over the farm (typically by way of a mortgage).
As to what is included in the definition of running a farm, the net is cast wide: any agricultural, apicultural, dairy farming, horticultural, land-based aquacultural, pastoral, poultry keeping, viticultural or any other business that includes cultivating the soil, gathering crops or rearing livestock (this includes timber cutting).
In addition, the farm property that the debt can be secured against is reasonably wide-ranging: land on which the farm is run, any water allocation under the Water Act 2000 (Qld) that is used to run the farm or any vehicle, machine, tool or other equipment that is used to run the farm.
Does the Bank have to Mediate?
The Act applies unless the farmer is bankrupt, has had a creditors petition (the first step of making someone bankrupt) presented against them by someone other than the Bank, or is an “externally-administered body corporate” under the Corporations Act 2001 (Cth). Also, if you have resolved the dispute at mediation previously, then you can’t go back to mediation if you default on the resolution (in other words, if you go to mediation, settle with the Bank and then don’t carry out your side of the deal, then you don’t get a second go).
Otherwise, if the Act applies, then the Bank cannot enforce the mortgage without mediating, or seeking the permission of the Queensland Rural and Industry Development Authority (QRIDA).
The first step a Bank has to take under the Act is to give the farmer an enforcement action notice. This notice tells the farmer what the Bank is proposing to do, and gives the farmer an opportunity to ask for mediation – the time in which the farmer might ask for mediation must not be less than 20 business days after the farmer receives the enforcement action notice.
Once the farmer asks for mediation (called a request for mediation notice), the Bank has the opportunity to agree to, or refuse, mediation.
If the Bank agrees to mediation, the farmer has the right to request documents from the Bank related to the debt – these documents must be provided within 30 days of being requested.
At the same time, the farmer must give to the bank: the most recent Tax Return lodged with / prepared for the Australian Taxation Office; a listing of the farmer’s assets and liabilities; and the farmer’s cash flow projections for the coming year.
If either the Bank or the farmer refuses to, or fails to, provide the documents that are requested/required to be disclosed, that party has failed to undertake mediation in good faith.
QRIDA maintains a list of approved mediators for the parties to choose from – that list can be accessed at http://www.qrida.qld.gov.au/fbdm/finding-a-mediator.
Once the documents are exchanged and the mediator is appointed, then the mediation can proceed.
If agreement is reached at mediation, then the mediator will assist the parties to prepare a heads of agreement, which details what the outcome is, and what party is responsible for bringing it about. The heads of agreement is subject to a cooling off period of ten business days (or a longer/shorter period if the parties agree), where the farmer can pull out of the deal – if the farmer withdraws, then the bank is entitled to compensation for any steps that they had already undertaken under the agreement.
After mediation ends, the mediator has to give the parties a summary of the mediation, which, as it suggests, summarises what happened at mediation. This must be given within ten (10) business days of mediation finishing.
It is important that the parties remember that whatever happens at, or is said at, mediation is confidential – meaning it cannot be used in Court.
What happens if the Bank refuses?
If the Bank refuses to mediate, then one (1) of two (2) things can happen: either the Bank can apply to QRIDA for exemption from mediation before enforcing their security, or the farmer can apply to QRIDA to stop enforcement for a period of six (6) months.
QRIDA’s decision is reviewable, and the application must be made to the Chief Executive of QRIDA within 20 business days of notice of the decision being given.
Curiously, notwithstanding that the Act provides that the decision must comply with the Queensland Civil and Administrative Tribunal Act 2009 (Qld), the Act does not provide for review of decisions by farmers or Banks to the Tribunal. The Supreme Court has recently held that decisions of QRIDA are susceptible to judicial review (see Scriven v Queensland Rural and Industry Development Authority  QSC 176), however it must be kept firmly in mind the difference between judicial review in the Supreme Court, and review before the Tribunal – the Supreme Court does not look to the merits of the decision, merely the process by which the decision was reached. If the decision is wrong not because the decision maker made a misstep, then the Court cannot set the decision aside, not matter how wrong on the facts it is.
How much does it cost?
Each party is responsible for their own costs of mediating, and half of the costs of the mediator. Of the (at the time of writing) 26 registered mediators, the average hourly rate is $370 plus GST, with the average daily rate being $3,000 plus GST. That would mean that each party would be responsible for $185 plus GST per hour, or $1,500 plus GST per day.
As to what each party’s individual costs would be, that would depend on what assistance they required from their professional advisors as to the mediation.
What can I do to protect myself?
Experience tells us that there are two things that typically bring people unstuck in these situations: putting their head in the sand, or not keeping their financial/taxation affairs in order.
Bad news does not improve with time – that is a fact. The sooner you recognise that you are perhaps heading towards trouble with the bank, it is important that you take early advice from a solicitor and an accountant. Perhaps that way, the problem can be avoided before it arises.
As we said above, there are certain obligations on farmers applying for protection under the Act, including the disclosure of current financial documents. If you do not have these ready to go, it can easily prejudice your ability to protect yourself.
If you would like to discuss how the Act might assist you, or issues you are having with your financier more generally, you should contact our Dispute Resolution Team on 07 3009 6555 or 07 4617 8777.