Farm Debt Mediation Bill

The Farm Debt Mediation Bill (No 2) (Bill) has recently been introduced to Parliament in response to rising debt levels in the New Zealand farming sector.  The farming sector is particularly vulnerable to conditions outside of their control, such as weather, market price volatility, pests and diseases and the impact of enforcement in the farming sector is often far-reaching given secured assets would often extend to the family home and personal effects.

If enacted, the Bill will introduce a farm debt mediation scheme based in many respects on the equivalent regime in New South Wales (Scheme) to be administered by the Ministry of Primary Industries (MPI).  Under the Scheme, secured creditors (including non-bank lenders) of farm debt would generally need to offer mediation to farmers before taking enforcement action over any farm property.

Set out below are some of the key features of the proposed Scheme:

• Applies to farm debt: Being debt incurred in farm businesses that are solely or principally engaged in agriculture (including sharemilking), horticulture and aquaculture (including an activity involving primary production in connection with any of those activities).  Wild harvest fishing and the hunting and trapping of animals are specifically excluded.  The Scheme will extend to existing debt incurred prior to the passing of the Bill into law, unless enforcement action has already been commenced at that time.
• Extends to farm property: Being property used in connection with farming business(es) (such as land, tractors and other equipment, or livestock), including farm property provided by a guarantor.
• General moratorium on enforcement action: This includes any action taken to enforce security over farm property, including acceleration of a farm debt repayment, appointment of a receiver and taking possession of any farm property.
• Mediation: Mediation can be initiated by the farmer at any time, or alternatively by the creditor when the farmer is in default.  There is a presumption that the costs of mediation will be shared 50/50 between the creditor and the farmer, unless the parties agree otherwise.
• Timeframe: Mediation must be concluded within 60 working days, unless the parties agreed on an extension.
• Mediation agreement: If the parties have failed to enter into a mediation agreement setting out the agreed actions for future management of the farm debt, then a creditor can apply for an enforcement certificate from the MPI (discussed below).  If the parties have entered into a mediation agreement, the creditor may still take enforcement action within 3 years from the time the agreement is entered into in accordance with the terms and restrictions in the mediation agreement.
• Cooling off period: If a mediation agreement is entered into, the farmer has a 10 working day cooling off period in which it can cancel the mediation agreement.
• Enforcement certificate: A creditor must obtain an enforcement certificate from MPI before taking any enforcement action over farm property. The MPI may issue an enforcement certificate where it is satisfied that either the farmer has declined to mediate, or the creditor has acted in good faith throughout the mediation.  Once issued, an enforcement certificate will be effective for three years, during which time the farmer cannot initiate mediation in respect of the same debt, and the creditor is free to enforce its securities.
• Prohibition certificate: A farmer may apply to MPI for a prohibition certificate to prevent a creditor from taking any enforcement action for a period of six months.  The MPI may issue a prohibition certificate where either the creditor has refused to participate in mediation or it is of the view that the creditor did not exercise good faith when participating in the mediation.
• Exception to the moratorium: A creditor may commence enforcement action (without having regard to any prohibition certificate, enforcement certificate or mediation agreement in place) where the farmer is subject to an insolvency proceeding at the time.  With regards to the appointment of a receiver, an ‘insolvency proceeding’ will only be triggered where a receiver is appointed over the whole, or substantially the whole, of the farmer’s assets.
• No contracting out: There is no contracting out of the Scheme.
• Guarantors: The Scheme also applies to guarantees given by a person or entity in respect of farm debt.  This means that where a personal guarantee is given in relation to farm debt, a creditor cannot take enforcement action in relation to any security granted by that guarantor over farm property until it has complied with the provisions of the Scheme.

Submissions on the Bill are open until 17 August 2019, and a copy of the Bill can be found here:

Farm Debt Mediation Bill (No 2)

If enacted in its current form, the provision of the Bill relating to the approval of mediators and mediation organisations will come into effect on 1 February 2020, with the rest of the Bill coming in to force on 1 October 2020.

We will keep you posted as the Bill progresses, but please get in touch with a member of the Banking and Finance team if you would like to discuss the Bill further, or would like any assistance with submissions.

Business Law team

Gerard Dale, Claire Evans, Graeme Crombie, Evelyn Jones, Anna Ryan, Joelle Grace,  Peter Orpin, Ellen Sewell, Matt Tolan, Carlo Wan, Kristina Sutherland, Jacob Nutt, Whitney Moore, Alex Stone, Ben Cooper, Lisa Catto