New Laws Force Banks To Mediate With Queensland Farmers Before Foreclosing On Farmland
The State Government has introduced new mediation laws in Queensland to provide an alternative solution for farmers when struggling to comply with their bank’s mortgage terms. This is a great alternative from having to engage in expensive and drawn out legal battles that could lead to their financial ruin!
What is Mediation?
Mediation is the attempt to settle a legal dispute through active participation of a third party (appropriately qualified and independent mediator) who works to find points of agreement and encourage those in conflict to agree on a fair result.
The new law
The Farm Business Debt Mediation Act 2017 (Qld) came into effect in Queensland on 1 July 2017. Prior to this new Act, there was only a ‘voluntary’ farm debt mediation scheme. While most large Banks participated in this voluntary scheme, not all rural credit providers took part in the mediation process which was detrimental to many farmers.
Under the new laws that came in on 1 July, 2017, all Banks and financial institutions who have loaned monies for “farm business debt” must now offer to engage in mediation with the farmer and act in good faith to efficiently and fairly resolve matters relating to the debt owed, prior to taking enforcement action against the farmer.
What is “Farm business debt”?
It is an amount owed by a farmer that –
Was borrowed for the purpose of conducting a farming business, and
Is secured by a mortgage over land.
What loans are excluded from the new Mediation laws?
Because of the definition of “farm business debt”, any monies borrowed by a farmer that are secured by farming machinery, farm infrastructure, crops or livestock, etc, are not covered by this mandatory mediation requirement.
This means that for these debts, if a farmer cannot repay the loan in accordance with the loan terms, the bank does not need to enter into mediation with the farmer before taking enforcement action which may include:
Selling the machinery etc that is held as security, or
Taking action against the farmer personally and appointing a liquidator or trustee in bankruptcy to recover the monies owed.
What is the process under the new Mediation regime?
If a farmer is in default under their mortgage or is at risk of defaulting (ie. Behind in making payments, taking out other loans without the bank’s consent or altering or devaluing the farm that is used as security), the Bank must now issue the farmer with a Notice. The farmer then has a period of time to provide a reply to this notice and both parties then make arrangements to appoint a mediator.
What if the Bank fails to offer Mediation?
If the Bank fails to offer mediation with the farmer, then the farmer can stop the Bank from taking further action against them by applying to QRIDA (formally QRAA) for an Enforcement Suspension Certificate.
Who pays?
Each party bears their own costs of the mediation and contributes to half of the mediator’s costs.
How can your solicitor help?
If you or your family is in a situation where you need to negotiate with your bank on amending the terms of your loan agreement, you can request your solicitor to assist with this process along with your accountant.
The solicitor’s job in the mediation process is to assist and advise the farmer and discuss and explain legal options raised to ensure the farmer is fully informed on all options offered by the Bank. In addition to attending the mediation with the farmer, the solicitor would also assist in drafting and reviewing the terms of settlement that are reached between the farmer and the Bank to ensure all terms required by the farmer that have been agreed to by the Bank are included in the written agreement.
Summary
For situations such as these, it is important to obtain legal and financial advice as early as possible and prior to entering into any arrangement with your Bank to ensure you are fully informed of exactly what the agreement requires you and the Bank to do.
This mandatory mediation regime brings Queensland in line with New South Wales and Victoria for Banks to mediate with farmers on debts owed prior to foreclosure. South Australia, Tasmania and Western Australia are yet to make their mediation processes mandatory.
If you are interested in finding out more, please do not hesitate to contact us to discuss further.
At McKays, we have our own team of experienced commercial lawyers that can assist you with negotiating with your Bank if you are having difficulty in complying with the mortgage terms.