In Times of Debt: The Farm Debt Mediation Act 1994 (NSW)

The Australian ‘farm debt’, currently standing at $67 billion, has more than doubled over the past decade according to the Reserve Bank of Australia. Given that approximately 94% of this debt is owed to Australian banks, and in light of the fact that the farming sector’s debt-to-income ratio is currently sitting near a multi-generational high, reliance on the Farm Debt Mediation Act 1994 (NSW) (Act) in litigation proceedings is becoming increasingly prevalent.


What is the intended purpose of the Act?

The Act aims to provide for an ‘efficient and equitable resolution of farm debt disputes’.

It seeks to achieve this objective by imposing on creditors a requirement to offer the option of mediation to a debtor farmer before commencing enforcement action against a farmer for default on a loan facility. Any enforcement action taken by a creditor against a farmer that does not comply with the Act, is void.

The concept of ‘enforcement action’ has been held by the High Court of Australia to be broad in content and covers “reliance on any of the rights in the farm mortgage”.[1]

Who is a ‘farmer’ and what is ‘farm debt’?

The Act applies to creditors only in so far as they are creditors under a ‘farm debt’.

In order to determine whether a debt will fall within the Act, the following 'three step' test must be satisfied:

The debt must have been:

  1. incurred by a farmer (being a person who is solely or principally engaged in a farming operation).
  2. in order to conduct a farming operation (including dairy farming, poultry farming and bee farming, pastoral, horticultural or grazing operation[s]); and
  3. secured wholly or partly by a farm mortgage (including any interest in farm property (including, inter alia, machinery that is not leased) that secures obligations of the farmer whether as either debtor or guarantor).
When determining whether a debt is a ‘farm debt’, regard must be had to both the purpose for which the debt was incurred (at the time it was incurred) and the present circumstances of the person who is claiming to fall within the Act.[2]

The Act in practice

Sundara Pty Limited & Ors (“Sundara”) is a recent example of an unsuccessful attempt by a debtor to use the Act as a defence to enforcement proceedings.[3] In that case, it was argued that the Act applied where a lender appointed receivers who sold the secured properties of defaulting borrowers. The defaulting parties contended that the creditor’s enforcement actions and sale of the properties were void.

Although it was found that the Act did apply to the sale of one of the properties, given that the property had been sold to a purchaser for substantial consideration and in good faith, and given that the purchaser registered its interest on title, it was held that Act did not override the operation of the s 42 of the Real Property Act.

What does this mean for you?

Although the Act serves an important function of providing farmers with an ‘efficient and equitable resolution of farm debt disputes’, in practice it is often used by debtors as a ‘buy-time’ pre-litigation tool.

Creditors should be alive to the time-delays that can be imposed on any potential enforcement action, as well as their obligations under the Act to notify farmers of the availability of mediation. By elongating the enforcement process, creditors’ costs can ‘add-up’ and, given Australia’s maturing property price cycle, this delay in enforcement may increase a creditor’s recovery risk.

[1] Waller v Hargraves Secured Investments Ltd (2012) 245 CLR 311, 335 [66] (Heydon J).

[2] Constantinidis v Equititrust Ltd [2010] NSWSC 299 [13] (Barrett J).

[3] [2015] NSWSC 1694.


Ashleigh Whittaker Lawyer
Andrew Gill Graduate