The final report of the Royal Commission into Misconduct in Banking, Superannuation and Financial Services Industry was released on Monday 4th February, 2019. Among its 76 recommendations was one to implement a national scheme of farm debt mediation.
The final report recommends (Recommendation 1.14) that in relation to distressed agricultural loans the bank should:
- ensure that those loans are managed by experienced agricultural bankers;
- offer farm debt mediation as soon as the loan is classified as distressed;
- manage every distressed loan on the footing that working out will be the best outcome for bank and borrower, and enforcement the worst;
- recognise that appointment of receivers or any other form of external administrator is a remedy of last resort; and
- cease charging default interest when there is no realistic prospect of recovering the amount charged.
Further in the report it goes on to state that “properly used … mediation may allow the lender and the borrower to agree upon practical measures that will, or may, lead to the borrower working out of the financial difficulties that have caused the lender to treat the loan as distressed. …Early farm debt mediation should allow wider and better choices for the lender and borrower about servicing, and ultimately repaying, the loan.” (page 101)
Currently four states, including Victoria, have legislated farm debt mediation. There are differences between the schemes but the essential element is a requirement that banks and other creditors offer mediation to farmers before taking enforcement action against farm property. The single national scheme recommendation is to ensure consistency and national adoption of mediation.
I believe that this is a worthwhile recommendation and should be adopted without delay. Having been involved in successful mediation between bankers and clients I believe that it should be a national standard for all distressed loans. It serves the interests of both banks and customers and achieves for all a far better outcome than immediate enforcement.