In 2018, the Royal Commissioner into Misconduct in the Banking, Superannuation and Financial Services Industry, former High Court judge Kenneth Hayne, recommended a range of reforms aimed at improving the conduct of financial institutions and restoring trust in the sector.
One of the key recommendations made by Commissioner Hayne was the establishment of a national scheme to mediate farm debts. Hayne noted that farmers often face unique financial challenges, such as natural disasters, droughts, and market fluctuations, which can make it difficult to keep up with their debt obligations.
A national farm debt mediation scheme would provide a structured and fair process for farmers and their creditors to come together and negotiate a mutually acceptable repayment plan. This would help to reduce the number of farm foreclosures and provide greater certainty for farmers and their families.
Commissioner Hayne noted that case studies dealt with by the Commission revealed that farm debt mediation has too often been treated as a step that is taken only because the lender considers enforcement very probable, even inevitable, and is required by statute to undertake a process of mediation before enforcement can proceed. He said:
“Properly used, however, 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.”
“Ordinarily, then, I consider that lenders should offer farm debt mediation as soon as the loan is classified as distressed.
“If used in conjunction with rural financial counselling services, early farm debt mediation should allow wider and better choices for the lender and borrower about servicing, and ultimately repaying, the loan.”
The establishment of a national farm debt mediation scheme would require the cooperation and coordination of federal and state governments, financial institutions, and the farming community. It would also require the development of clear guidelines and standards for the mediation process to ensure it is fair and transparent for all parties involved.
Overall, the recommendation made by Hayne for the establishment of a national farm debt mediation scheme represents a positive step forward in addressing the challenges faced by farmers in managing their debt obligations. It is hoped that this recommendation will be acted upon promptly to ensure that farmers have access to the support and assistance they need to build sustainable and prosperous businesses.