Introduction
The Farm Debt Mediation Act 2011 (Vic)
(Act) came into operation on 1 December 2011. The
Act covers all farm mortgages in Victoria (including mortgages over
part of a farm, certain farm machinery and water shares) and makes
it compulsory for creditors to offer mediation to farmers before
taking possession or other enforcement action under a farm
mortgage. Failure to comply with the scheme can result in a
creditor being unable to commence enforcement action for a period
of up six months and may lead to criminal prosecution. Lenders
should be aware of their obligations under the scheme and implement
processes and procedures to ensure those obligations are met.
The scheme
The Act prohibits creditors from taking any enforcement action
in respect of a farm mortgage unless the creditor has provided the
farmer/debtor with the option to mediate. Creditors holding an
interest in, or power over, any farm property, which secures the
obligations of a farmer (as debtor or guarantor) are now required
to give the farmer 21 days' notice of their intention to commence
enforcement action. The notice must state that:
(a) the creditor intends to take
enforcement action under the farm mortgage;
(b) under the Act, mediation between the farmer and the creditor is
available; and
(c) the farmer has 21 days from the date of service of the notice
to request mediation with the creditor in respect of the farm
debt.
If a farmer does not respond to an offer to mediate within the
21 day notice period, the creditor may begin commencement action in
the ordinary manner.
If a farmer elects to proceed to mediation, the creditor must,
by written notice, agree or refuse to mediate. If the farmer
is not in default, a refusal to mediate will not give rise to any
claim against the creditor or any other consequence under the Act.
However, creditors should not refuse to mediate with a farmer who
is in default, because this may result in the creditor being issued
with a 'prohibition certificate' that prohibits the creditor from
commencing enforcement action for a period of up to six months. To
avoid being issued with a prohibition certificate, creditors should
ensure that they:
(a) respond to a request for
mediation within 21 days;
(b) do not unreasonably delay entering into the mediation;
(c) mediate in good faith; and
(d) do not refuse to continue in the mediation.
Farmers may initiate mediation even if they are not in default,
and even if they have not been served with a notice from the
creditor. The obligations on the creditor are the same regardless
of which party initiates the process.
The mediation
The mediation process is managed by the Victorian Small Business
Commissioner, and is required to be conducted as expeditiously and
with as little formality and technicality as proper mediation of
the debt permits. Parties may be represented by a lawyer or other
such appropriate person, and must each pay a fee of $195 per
session.
Settlements agreements are binding. If no settlement is reached,
creditors may obtain an 'exemption certificate' enabling them to
immediately commence enforcement action. An exemption certificate
will not be issued if the creditor is deemed to have mediated in
bad faith.
Consequences of contravention
Any enforcement action commenced by a creditor in contravention
of the Act is void and may give rise to criminal proceedings
against the creditor (including against the directors if the
creditor is a company).
Comment
The Farm Debt Mediation Scheme has significant consequences for
lenders in the farming sector and we recommend that lenders become
familiar with their obligations under the Act. We recommend also
that lenders review their portfolios to identify loans caught by
the agreement and update their recovery procedures to ensure they
comply with their obligations under the Act.
Please contact us if you have any questions or concerns relating
to your obligations under the scheme or require any assistance in
preparing the prescribed forms/notices.
Authored by: Lachlan Currie, Cornwall
Stodart