While many people may have heard of this Act in recent years, they are often unaware of the true scope of this act and how it applies to a wide range of businesses in the rural sector, and not just to banks. Since 1 July 2020, this Act requires many rural businesses to mediate with a farmer in good faith before you attempt to recover security or appoint a receiver for any unpaid debts.
As always there are some key details that need to be considered, firstly around what businesses are covered in the Act. If you run a business that: (1) supplies services or sells good or products to farmers; (2) on credit or deferred payment; (3) takes security for the amount owed for that service or products; and (4) that security is over farm property, then you options for recovering your debt may be impacted by this Act.
In addition to this, it’s important to note that the Act defines “farmer” widely – meaning any person engaged in a primary production business. “Farm property” is also wide – meaning any property used in connection with the primary production business or related activities of the farmer. So the Act will cover security taken over farm vehicles, farm plant, machinery infrastructure etc, livestock, as well as farmland itself.
So – if a farmer has defaulted on payment, then to enforce your security over “farm property” you will first need an “enforcement certificate”. These are issued by the Ministry of Primary Industries (MPI), but only if a farmer has declined to mediate or where you have mediated in good faith but no agreement was reached. The certificate lasts for 3 years, during which time you can take steps to enforce your security over the farmer’s farm property. On the other hand, farmers can prevent any enforcement action for 6 months if they have obtained a “prohibition certificate” through MPI, which they can get if a creditor either declines to mediate or does not mediate in good faith.
Because all creditors can only request mediation once the farmer has defaulted under the terms of supply, it might be a good time to review your supply terms to lower the threshold of what constitutes a default.
The Act requires mediation within 3 months of a request to mediate. You have 20 working days to reply to a farmer’s request to mediate – failure to respond is treated as declining to mediate. You can then select a mediator but from a panel of 3 nominated by the farmer. During the process the farmer’s mediation costs are capped at $2,000, and creditors will have to meet the balance (which will almost certainly exceed $2,000).
The Act doesn’t prevent creditors from seeking repayment of the debt (by way of demand or even summary judgment). But if chasing the debt is getting nowhere, and you need to take enforcement action, you need to ensure that you understand and follow the mediation process and requirements set out in the new Act.
Article kindly supplied by Jonathan Power of Tavendale and Partners