Since 2011, Melbourne debt strategy consultants, DJ Partners, have assisted clients in the agricultural sector who have fallen on hard times, by negotiating on their behalf with their banks. In this contributed article, company director Damien Simonfi argues that having a clear strategy is key to a satisfactory debt negotiation outcome.
Often I am asked a simple question: “Is there really a need for a debt strategy consultancy firm to assist agricultural clients in financial distress?’’
The answer, in my opinion, is absolutely, ‘YES’.
Without assistance, agricultural farmers are at the mercy of their banks and creditors.
Having worked in executive roles within the financial service industry for 16 years, I’ve seen first-hand that most borrowers simply do not have the expertise to represent themselves when they fall into financial difficulty. Knowing these limitations is why we actioned this cause.
We all know the significant amount of stress caused to clients when they are behind on their bank repayments.
It starts with escalating collection phone calls and letters of demand, to Supreme Court Writs demanding full payment. Farm debt mediation has questionable degrees of success, and failure can mean eviction of families from their homes.
Whether it is Cyclone Yasi, floods, severe drought, commodity prices, family tragedy or other life factors, often there are underlying problems that cause temporary financial hardship among rural borrowers.
When an agri-client falls on hard times, often banks give insufficient time for clients to sort out these issues. However, the systemic failure of the system here is that when producers are given time, without having a strategy, it often creates an even larger problem that is difficult or impossible to reverse.
When agricultural borrowers are behind on repayments and have pressure from their banks, it is widely accepted that there are limited options available to them.
Every single agricultural borrower has a special circumstance and their entire livelihood is on the line. However all too often, what we observe are identical stories where agri-clients encounter the bank’s asset manager from the Collections Team, and they are not willing to move on their position sufficiently to support and assist in resolving the problem.
Adding further frustration and stress to the agri-client is the inability to speak directly with a decision maker.
When pressured by the bank, often clients will seek the assistance of a lawyer. While lawyers play a very important role, the moment an agri-client obtains legal representation, the bank is also forced to engage their own lawyers.
Suddenly the borrower is three or four people removed from speaking with a decision-maker at the bank, the process becomes a red tape nightmare and the agri-clients are now paying for two sets of lawyers – theirs and their bank’s. Where’s the commercial sense in that?
Other professionals, such as accountants, hold large amounts of data on their clients, but accountants are often reluctant to engage directly with the banks, as they are not bank negotiators.
Effective, holistic strategy necessary
If the agri-client does not coordinate an effective and holistic strategy where they have engaged with their lawyer, accountant, farm managers, family members and any other key stakeholders who will be affected, it is often very difficult to achieve a desired outcome. Often the result is that another Australian agricultural client becomes a statistic of bank foreclosure.
Here’s a few statistics from recent press clippings:
- “It is considered that more than 60 per cent of farmers are in serious trouble and could be foreclosed on this year or the year after” – Bob Katter – Sydney Morning Herald, 09 May 2015.
- Business advocate and founding member of the Small Business Party, John Codrington, estimates that ‘several hundred’ farms across Australia have faced foreclosure recently. “The police in Longreach have confirmed that there were 73 evictions in that district alone last year,” he said. “If that is just Longreach, then what about all the other areas around Australia? There could be as many as 1000.” – The Age Good Weekend, 09 May 2015.
- The wider implications of pushing farmers off their properties has led to speculation that Australia could lose control of its agricultural resources as foreign corporations move in. Says Nationals Senator John Williams, “We have about 400 million hectares of agricultural land; currently around 50 million hectares is foreign owned. Once you lose the farm, you lose control of food and where it goes. As the world population grows to 9.3 billion by 2050, Australia’s food-supply demand will increase and increase. The most optimistic industry we have is agriculture and the supply of food.” – Sydney Morning Herald, 09 May 2015.
While the above extracts are alarming, they are broadly unnecessary. It is widely accepted that if the current trend of not supporting our Australian farmers continues, the agriculture landscape will look very different from what we have known in the past.
Other sectors such as mining or the field of medicine are almost impenetrable. Yet Australian farmers, who are feeding our Australian cities – and millions of people around the world for that matter – succumb to financial hardship and are being picked-off, one-by-one.
Being sold up by the bank is a slow, painful process.
There are many factors that can contribute to a failed agricultural business but when we review the timeline of events that lead to a typical agri-client making contact with us, far too often their situation is mostly avoidable. It all starts with a supportive bank, transparent communication and unified strategy.
For any producer falling behind with repayments for any reason and being pressured by their bank, it’s important to know that there are options available to every person to assist in resolving the matter.
These range from escalating their queries to senior management in the collections department, taking the complaint to another department within the bank, such as the financial hardship team, to internal disputes resolution or to the office of the CEO.
The key is finding the path of least resistance and getting the bank to exercise its discretionary powers.
In addition to this, most states have a farm debt mediation process which borrowers can call on. Alternatively, the Financial Ombudsman Service (FOS) or the Credit and Investment Ombudsman (CIO), dependant on your creditor, is also another option that can be explored.
Whilst all parties seek the best outcomes, the various departments and bodies have different drivers to resolve matters and may view each complaint differently.
Whilst the legal avenue is always an option, when a bank holds a mortgage, they will inevitably win.
Whether it’s a sale or refinance strategy, or a break from payments and back to your relationship manager, having a holistic and robust strategy and knowing how to navigate through the various bank departments and external stakeholders will deliver the best chance of ensuring the agri-borrower remains in control of their business and properties.
The critical factor is the execution in whatever route is taken.
The real cost of feeding our nation is not only protein security, it’s the human cost of our Australian farmers and their family’s livelihoods.
- Damien Simonfi is a director with DJ Partners debt strategy consultants, based in Queensland and Melbourne. He can be contacted via this website