Back

Farm Debt Mediation

20 July 2021

1 July 2021 was the first anniversary of the Farm Debt Mediation Act 2019 fully coming into force. It’s now an opportune time to be reminded how the Farm Debt Mediation Scheme operates.

The purpose of the Act is to provide parties to a Farm Debt with the opportunity to use mediation before enforcement action is taken[1]. It’s compulsory for a creditor to comply with the Farm Debt Mediation Scheme before they can take action under a Farm Debt.

Farm Debt is defined in simple terms as a debt incurred by a farmer (whether as principal debtor or guarantor) for the purpose of conducting a primary production business or related activity, and is secured by a security interest in farm property. Importantly the Act does not apply to unsecured farm debt.

Request for Mediation

Following a default by a farmer, a creditor must request mediation prior to taking any enforcement action under a Farm Debt. A farmer may request mediation at any time.

After receiving a request for mediation the other party has 20 working days[2]to state whether they agree to mediate.

If a farmer declines mediation a creditor may apply for an enforcement certificate within 10 working days of mediation being declined. This certificate remains in force for 3 years and allows a creditor to take enforcement action within that period.

If a creditor declines mediation a farmer may apply for a prohibition certificate. A prohibition certificate remains in force for 6 months and prohibits a creditor from taking enforcement action within that period.

The Mediation

If a request for mediation is accepted then the farmer must nominate a panel of 3 authorised mediators of which the creditor must accept one. The parties must enter into a mediation agreement within a reasonable time and proceed to mediation as soon as reasonably practicable, provided that the mediation process cannot continue beyond 60 workings days from the date of the mediation request without the agreement of the parties.

There is an obligation on the parties to participate in the mediation process in good faith. Importantly, declining to reduce or forgive a debt or to vary its terms, does not mean that a creditor has failed to participate in good faith.

If a creditor has participated in the mediation process in good faith they may apply for an enforcement certificate. If the creditor did not participate in the mediation process in good faith a farmer may apply for a prohibition certificate. Either application can be made within 10 working days of receipt of the mediation report from the mediator.

The costs of the mediator are usually split evenly, though a farmer is only required to pay up to $2,000 towards those costs. Some creditors may be willing to bear the cost of the mediation. The Act requires a creditor to meet its own costs in relation to the mediation, meaning that these cannot be passed on to the farmer even if the creditor’s loan documentation allows it to recover these as enforcement costs.
It’s also important to note that a creditor may apply to the Court to appoint a receiver, despite there being no Farm Debt Mediation, if there is an event of urgency and the appointment is necessary or desirable to safeguard the interests of the creditor or to safeguard the welfare of animals.

Mediation Hardship Fund

The Mediation Hardship Fund has been established to help farmers with Farm Debt Mediation who cannot afford the cost. The Fund can provide up to $2,000 towards the cost of the mediator, as well as a contribution towards other costs of the mediation. In order to qualify a farmer must be under financial hardship that would prevent them from participating in Farm Debt Mediation without the assistance of the Fund.

Importantly, there is other support available for farmers in financial hardship, such as the Rural Support Trusts.

Benefits of Farm Debt Mediation

The Ministry for Primary Industries (MPI) lists a number of benefits of farm debt mediation[3], including

Creating a safe environment for farmers, giving them a chance to talk constructively with creditors as they work through debt problems.

(a) There can be a significant power imbalance when farmers deal with creditors. Mediation creates a more level playing field.

(b) The scheme allows parties to explore options for turning things around. If it cannot save the farm business, it can allow farmers to make a dignified exit.

(c) Lenders view it positively as it provides a transparent process for working through debt issues.

(d) The Farm Debt Mediation Scheme ensures that qualified and competent mediators are delivering services. It promotes a consistent, quality-led approach to the mediation process for all parties.

As of May 2021 MPI had received notification of 43 Farm Debt Mediations and 5 Mediation Hardship Fund requests and were on track to exceed the predicted 50 Farm Debt Mediations for the first year of the Scheme.

The agricultural sector has performed relatively strongly over the COVID-19 pandemic. Lending in the agricultural sector has decreased over the past 12 months[4]and farm values and sales are increasing[5]. The Reserve Bank has noted in its recent Financial Stability Report that “robust export prices have supported agricultural incomes”[6]. These and other factors have likely meant that there has not been as great a need for Farm Debt Mediation in the current climate.

[1] Section 3.

[2] A farmer may apply for an extension of up to 10 working days to reply to a request by a creditor.

[3] https://www.mpi.govt.nz/funding-rural-support/farming-funds-and-programmes/the-farm-debt-mediation-scheme-2/.

[4] Reserve Bank of New Zealand – Registered banks and non-bank lending institutions: Sector lending (C5).

[5] REINZ Rural Press Release – May 2021.

[6] Financial Stability Report - May 2021 at p7.


Commercial Disputes & Employment Team