Farm Debt Mediation

If you are a farmer, from 1 July 2020, farm debt mediation may provide options for dealing with creditors.
Farm Debt Mediation

Dan recently called to talk about some issues he was having on farm. It’s been a tough season, and the bills are mounting up. Every day there are calls from creditors wanting to be paid, and the Bank Manager is coming out next week for a “chat”. Dan suspects the Bank is going to stop his overdraft. 

He’s not sure how the bills due on the 20th are going to be paid.  His line of credit at Farm Source has been stopped, and there is talk of the local grazier enforcing a security interest over Dan’s cows.

Dan’s situation is not unusual, but from 1 July 2020 the new Farm Debt Mediation Scheme will provide options for farmers in a similar position to Dan.

What is farm Debt Mediation?

The Farm Debt Mediation Act 2019 is designed to level the playing field between farmers and their creditors and provide support to farmers and other primary producers during times of financial stress. The Scheme applies to anyone in a primary production business including agriculture, horticulture, aquiculture and apiculture activities. 

Under the Scheme, once a debt is overdue, a secured creditor can not take enforcement action against a farming client without first engaging in a mediation process. Farmers can also request mediation with creditors at any time.

How does the Mediation Process work?

The Scheme is administered by MPI. Mediation is carried out by professionally trained and approved people, in a neutral environment. Once mediation is requested, the parties have twenty working days to advise if they will participate in mediation, and then a further sixty days to complete mediation (or longer if they both agree). 

What are the costs?

The costs of Farm Debt Mediation are estimated at $6,000.  Under the Act the farmer can only be required to pay a maximum of $2000 towards the costs of the Mediator, with the Creditor responsible for paying balance of the mediation costs over and above the $2000 farmer contribution.

What if someone refuses to go to mediation?

Both the creditor and farmer must participate in the process in good faith. Under the Act a creditor must have a “good reason” to decline to participate in mediation. If a farmer refuses to participate in mediation, the creditor can apply for an Enforcement Certificate. If a creditor refuses to participate, the farmer can apply for a Prohibition Certificate. If an Enforcement Certificate is in place, the creditor can take action to recover the debt without the need for further mediation. If a Prohibition Certificate is in place, the Creditor is prevented from taking further steps to recover the debt for a six month period (or such other period as contained in the Certificate).

Next steps: 

If you are a farmer, from 1 July 2020, farm debt mediation may provide options for dealing with creditors. You should make sure you are familiar with the process, and the timeframes involved.

If you are a secured creditor that provides goods or services to farmers, you  should ensure you properly understand how the scheme operates. Some creditor organisations may need to update terms of trade to cover off the Farm Debt Mediation Scheme requirements.

For further information on the Farm Debt Mediation Scheme, contact Sue Garmonsway at sue@gallie.co.nz

By
Sue Garmonsway
Director

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