Introduction
After 20 years, the sun is setting on the Queensland Farm Debt Mediation Scheme under the Queensland Farm Finance Strategy.
The Queensland Government has plans to replace the existing mediation scheme with a compulsory legislative regime. The non-mediation aspects of the Strategy will be unaffected.
The Farm Business Debt Mediation Bill 2016 was introduced into the Queensland Parliament on 30 August 2016. As stated in the Explanatory Notes, the major policy objective of the Bill is to:
"provide a process for the efficient and equitable resolution of farm business debt matters between mortgagees and farmers".
While the proposed mediation process is similar to the existing Scheme, the devil will be in the detail. Significantly, the obligation to mediate will now apply to all providers of farm business debt.
The new regime will not affect existing settlement agreements under the Scheme. The Bill also does not prevent farmers from resolving disputes with financiers either informally or by Court action.
The Government has proposed a commencement date of 1 July 2017.
What is it about?
At the core of the proposed legislation is a requirement for financiers to go through a mediation process prior to the enforcement of security over farm land (including related water allocations).
Prior to enforcing a mortgage, a mortgagee must give notice to the farmer allowing him / her to ask for mediation in respect of the farm business debt. A farmer may also take the first step by asking for the mortgagee to engage in mediation – even if the farmer is not in default.
Mediations are proposed to be conducted by registered mediators and the scheme will be administered by the new Queensland Rural and Industry Development Authority (QRIDA) – which will replace the current Queensland Rural Adjustment Authority (QRAA).
Why mediate?
As expected, mediation is intended to bring about an agreement between the farmer and the mortgagee relating to the farm business debt.
The agreement may be recorded in a heads of agreement prepared by the mediator and signed by the parties.
Is it compulsory for the mortgagee?
Mediation is compulsory if the mortgagee intends to enforce its mortgage.
If the mortgagee fails to mediate (or to do so in good faith) QRIDA may issue a certificate prohibiting enforcement of the farm mortgage for a period of up to 6 months.
What does the mortgagee need to do to enforce its mortgage?
In order to enforce a farm mortgage a mortgagee must obtain a certificate from QRIDA.
The Bill sets out the grounds upon which a certificate may be issued by QRIDA. Generally this will require a "satisfactory" mediation to have taken place. A certificate may also be issued if a farmer has refused to mediate.
QRIDA's certificate will be required even where the parties have entered into a heads of agreement following mediation
Does satisfactory mediation mean that the mortgagee must forgive debt?
The Bill sets out the criteria for determining whether a farmer or mortgagee has failed to mediate - including a failure to act in good faith or by unreasonably delaying the mediation.
The Bill also provides that the failure of a mortgagee to forgive debt does not, of itself, show that the mortgagee has not attempted to mediate in good faith.
Are there any issues that mortgagees should be aware of?
Some of the issues that emerge from the draft bill include:
Consistency with other States - terminology
The Bill is based on the New South Wales Farm Debt Mediation Act 1994.
However, those familiar with the NSW Act will find the terminology in the Queensland Bill somewhat confusing.
For example, the NSW legislation uses the term "exemption certificate" to refer to a certificate obtained by the farmer to prohibit the mortgagee from taking enforcement action. The Queensland equivalent is an "enforcement action suspension certificate".
"Exemption certificate" is used in the Bill to describe the certificate that must be obtained by the mortgagee before it takes enforcement action.
Compliance with multiple pieces of legislation
The NSW Act covers security over farm machinery. The Bill only extends to farming land and water allocations.
The explanation for this exclusion is that enforcement action with respect to financed farm machinery in Queensland is governed by the Credit (Rural Finance) Act 1996.
This means that any enforcement action proposed to be taken with respect to a farmer's entire enterprise may need to comply with separate regimes under separate Acts.
Disclosure of documents
The Bill gives a farmer the right to request information from a mortgagee - including documents relating to the farmer's default and any action taken by the mortgagee in relation to the default.
While confidentiality provisions apply to any documents provided for the purposes of the mediation, and while such documents are not admissible in any civil, criminal or administrator proceedings, the potential disclosure of sensitive documents may raise issues for mortgagees.
Exemptions from the application of the legislation – externally administered company
Exemptions from the scope of the proposed regime include those situations where the farmer is bankrupt (if an individual) or subject to external administration (if a company).
This exemption does raise the question of whether a mortgagee, given the restricted application of the Bill to farm land and water allocations, could appoint a receiver under a general security agreement (as opposed to a mortgage) and bring the exemption into effect.
What happens next?
Parliament has referred the Bill to the Finance and Administration Committee for detailed consideration. The Bill will be treated as a cognate Bill with the Rural and Regional Adjustment (Development Assistance) Amendment Bill.
Written submissions to the Committee are requested by 29 September 2016. Regional hearings will be held in early October. The Committee is expected to report on both bills by 28 November 2016.
As such, significant amendments could be made to the Bill.
We will keep you updated.
Bill and Explanatory Memorandum
Copies of the Bill and the Explanatory Memorandum can be obtained from the Queensland Parliament website. https://www.parliament.qld.gov.au/work-of-assembly/bills-and-legislation/current-bills-register
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
