26 May 2017

From 1 July 2017, the Farm Business Debt Mediation Act 2017 (Qld) will require mortgagees to offer to engage in mediation with mortgagor farmers before commencing any enforcement action to recover outstanding farm business debts.

The Act has considerable scope and can apply in circumstances where a mortgagee might not necessarily anticipate the Act will apply.

Background

The Act seeks to mitigate the adverse impact of external factors (such as climate, market fluctuations and access to credit) on mortgagor farmers’ debt obligations by preventing mortgagees from taking enforcement action until they have provided the mortgagor farmer with a reasonable opportunity to engage in satisfactory mediation.

The new regime

Under the new regime, mortgagees must:

  • offer to the mortgagor farmer the option of pursuing mediation before commencing any enforcement action (including by way of taking possession, exercising power of sale or giving a statutory enforcement notice);
  • take part in the mediation in good faith if the mortgagor farmer opts to pursue mediation; and
  • not enforce the mortgage in contravention of the Act.

The Act assumes that the involvement of an independent mediator to assist the parties to engage in a structured and confidential negotiation process will improve the prospect of the parties reaching agreement on outstanding debt issues. Parties must bear their own costs of the mediation and share equally the cost of the mediator.

The Act prohibits ‘contracting out’ of its provisions as well as waiver, or purported waiver, of mortgagor farmers’ rights under the Act. However, the Act will not prevent mortgagor farmers and mortgagees resolving disputes informally through negotiation.

Who is affected?

The new regime applies to ‘farm business debts’ – amounts borrowed by farmers for the purpose of conducting a farming business and that are secured by a farm mortgage.

A farm mortgage is a mortgage secured over farm property. Farm property means:

  • land on which a farmer carries on a farming business;
  • water allocations; and
  • vehicles, machines, tools and other things of a type used to carry on a farming business.

A farmer includes, among other things, a person whose sole or main business is a ‘farming business’ and a person who is the owner of land the subject of a sharefarming agreement.

The definition of farming business is extensive and covers a range of activities.

These broad definitions mean the Act can apply in circumstances where a mortgagee might not necessarily anticipate.

The Act will not apply in circumstances where the mortgagor farmer is bankrupt or subject to a creditors’ petition, is a corporation in external administration, or where the parties have already entered into a heads of agreement as a result of a mediation that took place under the previous Queensland Farmers’ Federation regime.

Satisfactory mediation

The mortgagee is required to ensure a ‘satisfactory’ mediation takes place in circumstances where a farmer has requested and made attempts to engage in mediation in good faith.

Mediation will be considered satisfactory under the Act if:

  • the mortgagor farmer and mortgagee enter into a heads of agreement;
  • the mediation proceeds as far as it reasonably can with the mortgagor farmer and the mortgagee having participated in good faith, but not having entered into a heads of agreement; or
  • the mediation meets certain other criteria that may be prescribed by regulation.

QRIDA exemption certificate

The scheme will be administered by the new Queensland Rural and Industry Development Authority (QRIDA), which will take over certain functions of the current Queensland Rural Adjustment Authority.

A mortgagee can only take steps to enforce a farm mortgage debt if QRIDA has issued the mortgagee with an exemption certificate. QRIDA will issue exemption certificates if the applicant mortgagee satisfies certain prescribed criteria in the Act, including where satisfactory mediation has taken place or where a mortgagor farmer has refused to mediate.

An exemption certificate will be required even where the parties have entered into a heads of agreement following mediation.

Consequences of non-compliance

Mortgagees who take enforcement action in contravention of the Act may face a penalty of 100 penalty units (currently $11,000).

If such non-compliant enforcement action is taken by a corporation, an executive officer of that corporation may also face penalties. In any event, such enforcement action will be of no effect.

Additionally, QRIDA may issue a suspension certificate prohibiting the mortgagee from taking enforcement action for a period of up to six months or until a satisfactory mediation has taken place.

Comments

The Act imposes a mandatory mediation framework for the resolution of farm business debts that affords considerable protection to mortgagor farmers and places consequences for non-compliance on mortgagees.

The new Act contains subtle differences to the equivalent interstate legislation.

The broad definitions of ‘farm property’, ‘farmer’ and ‘farm business’ mean that mortgagees need to be alert to any hint of farming activity that could bring a mortgage within the ambit of the Act.

Given the impending commencement date of 1 July 2017, it is important for mortgagees to acquaint themselves with the new regime to avoid taking enforcement steps in contravention of the Act. Similarly, farmers should be aware of their rights under the Act.

If you would like further information about these issues, please contact Rocco Russo or Graham Roberts of our litigation and dispute resolution team on 07 3231 2444.

 

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.