Matt Davidson and Guy Polson on Farm Debt Mediation in Farmers Weekly

Mediation can help ease stress of farm debt

It brings a human element to the process, rural dispute resolution lawyer says.

Farm debt mediation is not just a box ticking exercise for the bank or lender when a farming business gets into financial trouble.

It’s an opportunity to discuss the issues with the farm owner and hear their side of the story. 

It brings a human element to a process that can be stressful for the farmer, Tavendale + Partners lawyer Matt Davidson told a rural dispute resolution day at Ruakura in Hamilton.

It is sometimes the first time sitting face to face with the person making the decisions in the bank.

“They have the chance to explain, this is my family, this is what this means to me –  and that can be really powerful in that process.”

For farmers, it is an all-encompassing moment for them because the future of their family’s business hangs on the outcome.

The process also puts all parties on the same page, Davidson said.

The day was organised by the Arbitrators’ and Mediators’ Institute of New Zealand. It covered the key issues facing the rural sector and the best approaches to resolving disputes efficiently and effectively.

Farm debt mediation occurs when a farm business gets into the sort of financial trouble that elevates the risk for its bank. 

The process uses neutral and independent mediators to help farmers and their creditors work through debt issues.

It is governed by the Farm Debt Mediation Act 2019, which says that secured creditors must offer mediation before taking any debt enforcement action against a farmer.

Tavendale + Partners business and strategy advisor Guy Polson said once the bank takes the position that the business is in trouble there are options, such as re-financing, deleveraging the business or introducing equity. 

Generally, the bank will try to work with the farmer to find a way out, however, if there are no improvements to the financial position, they will likely look to farm debt mediation.

Polson said a farm business ends up in mediation for a variety of reasons. 

These range from the business carrying a large amount of debt from when the original financing occurred, financial mismanagement, or factors outside of their control such as market conditions or adverse events. 

“What often happens is a combination of these factors. You get a bit of everything,” he said.

Businesses facing these conditions do need to act quickly, despite the often-confronting nature of the problems they face. Not doing so can limit options further down the track.

It all leads to financial stress where the business gets on the wrong end of a bank’s risk spectrum.

Davidson said the wide variety of factors causing FDM highlighted the need for having the right people around the farm business and the right advisors during the FDM process. 

“There’re so many different elements that come into it that is not strictly just a ‘this business is not performing financially’, there is so much more to it than that.”

Polson said immediately after mediation, the most common emotion he sees is relief because the process is over and there is now some certainty and a path forward. 

For a farmer who cannot improve the financial position of the business, the best outcome for them might to sell the farm. 

This is best done on their terms, as a forced sale is regarded by all parties as a worst-case outcome. 

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Mediation can help ease stress of farm debt