Farm debt mediation process
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Under the Farm Debt Mediation Act 2011 (the Act), it is compulsory for banks and other creditors to offer mediation to farmers before starting debt recovery on farm mortgages.
Farm debt mediation involves initiating the process, taking part in mediation and resolving the farm debt dispute.
Initiating farm debt mediation
Farm debt mediation can be initiated by the farmer or creditor. The circumstances of any farm debt mediation process will depend on the actions and decisions of both parties.
General process for creditor-initiated mediation
Creditors are required by law to offer mediation to farmers before starting debt recovery proceedings on farm mortgages.
Creditors must notify farmers in writing that mediation is available to resolve the farm debt matter, that they intend to take enforcement action, and that the farmer has 21 days from the date of the offer to mediate to respond.
If the farmer does not respond or refuses mediation, the creditor can request an exemption certificate from the Victorian Small Business Commission (VSBC) to allow them to start debt recovery proceedings. The creditor is required to obtain an exemption certificate in all instances before taking enforcement action, including when a farmer has not responded to their offer of mediation. The VSBC has some discretion in the issuing of these certificates.
If the farmer and creditor agree to mediation, the creditor must notify the VSBC of their agreement and that mediation is required.
For more information, see the full process for creditor-initiated mediation.
General process for farmer-initiated mediation
Farmers can request mediation with their creditor. The farmer does not have to be in default to make this request. The creditor can accept or refuse an offer to mediate.
If the creditor refuses to mediate and the farmer is in default, then the farmer can request a prohibition certificate from the VSBC. This will stop the creditor from taking enforcement action for up to six months or until the day the farmer and creditor enter into mediation. If the creditor refuses mediation or does not respond within 21 days and the farmer is not in default, there is no further action.
If the creditor and farmer agree to mediation, the creditor must notify the VSBC of their agreement and that mediation is required.
If a farmer asks their creditor to mediate when they are not in default and mediation takes place, an exemption certificate cannot be issued, and the farmer will keep their right to be offered mediation if they are later in default.
For more information, see the full process for farmer-initiated mediation.
Accessing early help
When the VSBC receives notification of a farmer and creditor’s agreement to mediate, we contact both parties to provide early help. This includes:
- discussing the aims of farm debt mediation
- giving both parties guidance on their rights and obligations in relation to mediation
- encouraging open communication between the farmer and creditor
- appointing a mediator
- determining a mutually acceptable time and location for their mediation session to take place.
The VSBC encourages farmers who are going to take part in farm debt mediation to contact their local Rural Financial Counselling Service (RFCS), or their solicitor, accountant or another suitably qualified professional. The RFCS is a free and independent service that can provide a rural financial counsellor to help a farmer prepare for mediation, assist them on the day and help them with any actions that need to be undertaken after mediation.
Taking part in mediation
Mediation is where we bring the farmer and creditor together with an impartial and experienced mediator to confidentially discuss options for managing current and future farm debt arrangements, keeping the matter out of court.
At mediation, both the creditor and farmer are required to make a genuine attempt to mediate in good faith. This means communicating with each other and having discussions honestly and fairly with the genuine aim of reaching an agreement that they can both accept. It also involves behaving in an open and transparent manner and providing accurate and sufficient information to support negotiations.
Creditors are not obliged to forgive or reduce farm debts.
Mediations can be held at the VSBC’s Melbourne office or at locations across regional Victoria, depending on the needs of the farmer and creditor.
Mediations usually happen within twelve weeks of the VSBC receiving notification from the creditor. They are generally completed in one session, with each session costing $195 per party (for more information see question 3 of our farmer and creditor FAQs). Mediation is subsidised by the Victorian Government, making it a very low-cost alternative to litigation. Parties are responsible for their own travel and costs for preparing to attend mediation.
For more information, see our guide to mediation.
Resolving farm debt disputes
The outcome of any farm debt mediation process will depend on the circumstances of the dispute and the actions and decisions of the farmer and creditor.
At the end of the mediation process, the farmer and creditor can agree to sign a binding agreement to resolve the dispute. The creditor must ensure that any binding agreement between the parties is reflected in any contract, deed, mortgage or other instrument.
Under the Farm Debt Mediation Act 2011 (the Act), the creditor can request an exemption certificate on the basis that satisfactory mediation has taken place. This certificate enables the creditor to start enforcement action under a farm mortgage. Satisfactory mediation means that mediation has resolved the matter or that mediation has proceeded as far as it reasonably could though hasn’t resolved the matter. In situations where mediation Terms of Settlement are in force, the creditor should not proceed with enforcement action where the said Terms of Settlement are being met.
A farmer can request a prohibition certificate if they consider that the creditor has failed to take part in mediation in good faith. A prohibition certificate stops a creditor from taking enforcement action for up to six months or until the day the farmer and creditor enter into mediation.
The VSBC determines whether or not exemption and prohibition certificates are issued based on the requirements of the Act.
For more information:
- see our farm debt mediation forms, FAQs and information on important changes to the Farm Debt Mediation Act 2011
- access support and information for farmers and information for creditors
- contact us.