Farm Debt Mediation Bill update

Tuesday 5 November 2019

Authors: Tim Fitzgerald and Timothy Shiels

​​​​The Farm Debt Mediation Bill has been reported back from Select Committee, with a number of important changes to the scope of the proposed regime. A copy of the Committee's report (including its proposed amendments) is attached here.

Who does the regime apply to? A change to the definitions

The Bill is intended to make mediation a compulsory step before lenders may enforce their security concerning certain farm debt. A key question is which debts are intended to be included in the regime.

The Bill originally defined farmer as “a person who is solely or principally engaged in a primary production operation". As we noted in our June 2019 article, this definition risked being both over- and under-inclusive. It would have resulted in mediation being compulsory for large, well-resourced, and sophisticated borrowers, but not for small borrowers who did not have primary production as their principal operation, regardless of the purpose of the relevant debt.

The Committee has made clarifying amendments, which adjust the balance of the definition without making any ​fundamental changes. It confirmed that its intention generally is for the Bill to apply to anybody with a direct interest in “farm debt", but that the regime is not intended to apply to hobby or lifestyle farms, secondary processing operations, or contractors. To achieve that balance:

  • The Committee has amended the definition of “farmer". A “farmer" is now anybody engaged in a primary production business, even if it is not their “sole or principal" activity. It includes all principal debtors associated with the debt, whether or not the particular debtor is engaged in the relevant business.

  • The Committee amended the definition of “farm debt" to refer to the new concept of “primary production business". This definition specifically excludes contractors providing materials and labour to farmers, and allows the Minister to propose regulations to exclude other businesses or categories of business in the future.

These changes clarify the scope of the regime. They confirm that the regime will apply to most “farm debts", regardless of the size or sophistication of the borrower, the ownership arrangements of the group, or the level of involvement of each principal debtor in the farm business.

When does the regime apply? The meaning of “enforcement action" and early mediation

As introduced, mediation was only automatically triggered following default, though farmers were able to request mediation at an earlier stage. In our June article, we welcomed this inclusion as an improvement over previous proposals.

The Committee has taken this approach even further. Now, a creditor must accept a farmer's earlier request for mediation unless there is good reason not to. If creditors decline to participate without good reason, this may be evidence of the creditor not participating in good faith when they later seek to enforce the security interest.

What about guarantors?

The Committee has also amended the provisions concerning guarantors. The Bill now proposes to prevent lenders from enforcing security over property held by guarantors, regardless of whether it is “farm property", until the compulsory mediation regime has been complied with in respect of the principal debtors.

Please get in touch with the contacts listed or your usual Bell Gully advisor for more information about the proposed new regime.​


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Tim Fitzgerald

    Partner Auckland
  • David Friar

    Partner Auckland
Related areas of expertise
  • Agribusiness
  • Restructuring and insolvency
  • Banking and finance
  • Property finance
  • Litigation and dispute resolution