In effect, the Act requires lenders to go through mediation with farmers before they are able to take any enforcement action (such as taking possession of property) under their mortgage agreements. Lenders must go through the process prescribed by the Act to enforce mortgages and any attempt to enforce a mortgage inconsistently with the Act will be void.
The Act defines farm debt broadly, being any debt incurred by a farmer and secured by a mortgage for the purpose of conducting a farming operation. However, it does not include:
A lender who wants to take an enforcement action to recover a farmer’s debt must give notice to the farmer, informing the farmer of its intention to take enforcement action, that mediation is available, and that the farmer has 21 days to request mediation.
If the farmer does not request mediation within 21 days of receiving a notice, the lender may take enforcement action to recover the farmer’s debt.
Farmers may also request mediation with the lender even where they have not received a notice from the lender. However, in such cases, lenders may refuse to participate in the mediation.
If a lender refuses to participate (or to continue to participate) in a mediation requested by a farmer who has defaulted on their loan, the farmer may apply for a ‘prohibition certificate’. A prohibition certificate stays in force for 6 months (or until mediation commences) and prevents the lender from taking any enforcement action against the farmer. It is up to the Small Business Commissioner to decide whether to grant a prohibition certificate.
If a farmer refuses to participate in mediation (or if the Small Business Commissioner determines that satisfactory mediation has already occurred), the lender may apply for an ‘exemption certificate’. An ‘exemption certificate’ means that the Act does not apply to the lender in respect of the particular debt, and therefore the lender is not required to participate in mediation with the farmer before taking enforcement action. Exemption certificates generally stay in place for three years. It is up to the Small Business Commissioner to decide whether to grant an exemption certificate.
Note that lenders are not obliged to reduce or forgive debts during mediation, and their failure to do so will not prevent the Small Business Commissioner from determining that satisfactory mediation has occurred.
Both parties must pay a fee to participate in mediation, though this fee may be reduced or waived by the Small Business Commissioner.
Mediation will be informal and as quick as practical, and may take place using electronic methods of communication (such as via telephone or video link) where convenient. Everything said during mediation is confidential and must not be disclosed without consent.
Lenders and farmers can be represented by a lawyer at mediation, and we recommend that you seek legal advice if you or a farmer you’ve lent to is at risk of defaulting or has defaulted on a farm debt, if you have sent or received a notice, or if you are attending mediation.
Johnston Withers Lawyers have been representing rural clients for over 30 years and with many of our lawyers hailing from the country, we have a unique expertise in the law as it relates to life on the land.
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