3 September 2018 marked the commencement of the Farm Debt Mediation Act 2018 (SA) (Act), to be administered by the South Australian Small Business Commissioner (Commissioner). The Act enshrines in law mandatory farm debt mediation, bringing South Australia into line with its eastern state counterparts – New South Wales, Victoria and Queensland.
The object of the Act, as set out in section 3, is to:
“…provide for the efficient and equitable resolution of farm debt disputes by requiring creditors to provide farmers with the opportunity to have the disputes referred to mediation before the creditors are able to take possession of property or other enforcement action under farm mortgages“.
In other words, creditors cannot proceed with enforcement action in relation to a farm mortgage unless they have first given farmers an opportunity to participate in mediation.
Farm debt, relevantly, means a debt incurred by a farmer for the purposes of the conduct of a farming operation secured wholly or partly by a farm mortgage.
A farm mortgage includes an interest or power over farm property (including farm machinery and certain water rights).
Enforcement action, in relation to a farm mortgage, means the taking of possession of property under the mortgage or any other action to enforce the mortgage.
What does this mean for creditors?
Under the Act, a creditor who wishes to commence enforcement action against a farmer in relation to a farm mortgage must first issue a notice in an approved form telling the farmer that the creditor intends to take enforcement action, that mediation is available and giving the farmer an opportunity to request mediation within 21 days.
If the farmer fails to respond to the notice or does not request mediation, the creditor can commence enforcement in the usual way. If, however, the farmer requests mediation the creditor may agree to it or refuse.
It is worth noting that a farmer who is liable for a farm debt may request mediation even if a notice by the creditor has not first been provided.
If the creditor agrees to mediation, it must notify the Commissioner so that an independent mediator can be appointed.
Where mediation has been requested, the creditor must not take enforcement action in respect of the farm mortgage unless an exemption certificate (issued by the Commissioner pursuant to the Act) is in force. Any enforcement action taken in breach of these provisions is void by virtue of the Act.
An exemption certificate may be obtained by the creditor where:
If the creditor refuses mediation, it must give notice to the farmer in the approved form. If the farmer is not in default, there are no repercussions to the creditor under the Act arising from the refusal.
However, if the farmer is in default, the farmer may apply to the Commissioner to issue the creditor with a prohibition certificate. Such a certificate prohibits a creditor from commencing enforcement action while it is in force, and expires 6 months after the day of issue or on the day the parties enter into mediation (whichever is earlier).
For advice on the farm debt mediation process and obligations generally pursuant to the Act, please contact us.
All prescribed forms can be found on the Commissioner’s website https://www.sasbc.sa.gov.au/farm-debt-mediation/forms-for-mediation-2