MORTGAGORS AND CREDITORS.

Ashburton Guardian, Volume 55, Issue 129, 13 March 1935, Page 3

MORTGAGORS AND CREDITORS.

ADJUSTMENTS TO BE! MADE. SPECIAL COURT OF EQUITY. GOVERNMENT'S FINAL BILL. (Special to the " Guardian."} WELLINGTON, March. 12. The Government introduced in the House to-day its final proposals in connection with mortgages, this . being the long-awaited Plural Mortgages Final Adjustment Bill, which was read a first time. The second reading will be taken to-morrow. "The general purpose of this Act is to retain efficient farmers in the use and occupation of their farms', and to make provision for adjustment of all their liabilities." This is how the object of the llural Mortgagors Fimal Adjustment Bill is defined, and it is proposed to operate from May 1 next. There are 73 clauses and the Bill is divided into seven parts, each dealing with a specific phase of the problem. The Bill has no application to any farmer unless he is a mortgagor under a mortgage to which the Mortgagors and Tenants Relief Act, 1933, applies, subject to certain limited special exceptions, that the Act applies only to mortgages executed prior •to April 17, 1931. If a farmer mortgagor is within the scope of the Bill by * ' virtue of one mortgage, then adjustments are not limited to his liabilities under the qualifying mortgage. Farming includes cultivation of tne soil for production of food products. Other useful products of the soil include horticultural and pastoral purposes, and keeping of pigs, bees or poultry. „ , i x„ The Bill seeks in the first place to encourage voluntary settlements between farmer mortgagors and then creditors. In cases where voluntary settlements are not arrived at provision is made in proper cases that the farmer should work under a budgetary scheme for five years and for an ad. justment of his liabilities at the end of that period, based upon the productive value of his farm as ascertained under budgetary conditions.

Administration of Scheme. For the purpose of administration of the scheme it is proposed to establish a special Court of Equity, and utilise the services of the adjustment commissions set up under the existing legislation. The Court of Review of Mortgagors' Liabilities will be a special court with equitable jurisdiction to act as a court of appeal from decisions ot adjustment commissions and generally to assist in the administration of the Act. The Court will consist of three members, of whom one is to be appointed as Judge. He must be possessed of the same qualifications as a Judge of the Supreme Court, and en* titled to the same salary and other privileges as if he were a Judge of the Supreme Court. The other two members are to be appointed for three years and may be -reappointed. No special qualifications are prescribed, but they are not to be appointed as partisans to represent particular interests. The Court's officers will generally be those of the Supreme or Magistrates' Courts. The Court can act on testimony sworn or unsworn. If mernbers of the Court are divided) the de* cision of the Judge will prevail. Procedure. Twelve clauses deal with the procedure adopted in arriving at voluntary adjustments between farmer mortgagors and all their creditors, whether secured or unsecured. Notice seeking an adjustment must be filed within 12 months. It may be filed by the mortgagor himself or by a mortgagee under a mortgage subject to the existing legislation. When notice is filed the mortgagor is required to file complete lists of his debtors and creditors, also verified statements of his assets and liabilities. The immediate effect is to take the mortgagor out of the protection afforded by the Mortgagors and Tenants Relief Act, 1933, and bring him within the protection of the Bill, which as regards enforcements of judgments for the sale of mortgaged property is substantially the same as the existing protection. The only important difference is that rights against a mortgagor or his property that can now be exercised only by leave of the Supreme Court can, tardea- the Bill, be exercised only by leave of the Court of Review. The matter must first be referred for consideration to an adjustment commission. At meetings of creditors held under the auspices of the Commission efforts made to secure a voluntary adjustment of a mortgagor's liabilities three-fourths in value of the creditors may find the minority in arriving at a voluntary adjustment, but no proposed adjustment is effective until approval by an adjustment commission, whose decision in turn is aubfeot to appeal to the Court. Placed on Budget.

Where a voluntary adjustment cannot be made the adjustment commission will consider the position of the morteagor for the purpose of determining whether or not he should be given further protection from Ins creditors. If so he is placed on a "budget." If he is not given protection his creditors are free to exercise the ordinary rights of creditors, that is sue for debts outstanding, realise on thensecurities and eventually, if need be, make their debtor bankrupt. The consideration governing the decision of an adjustment commission in making a stay order for a debtor's protection are not only to provide means to enable mortgagors to remain on their farms as efficient producers, but

they must have regard to whether the giving of such relief will involve the imposition of undue hardship on mortgagees or other creditors. When a mortgagor is protected by a stay order his farming operations are placed under the supervision of an adjustment commission, with or without the intervention of a supervisor. A budget is prepared in respect to his estimated income and expenditure. He is allowed reasonable living and working expenses and the balance of his income is distributed, subject to appeal to the Court of Review, among his creditors, priority being given in the following order: — Treasonable living expenses. Hates and taxes. Rent of land used for farming. Then interest to mortgagees in order of their respective priorities. Adjustment of Liabilities. In ordinary circumstances a mortgagor remains under budgetary control for a period of five years, when an adjustment of his liabilities is made. Where the mortgagor is already under budgetary control under the 1933 Act a final adjustment of his liabilities may be made at a somewUat earlier date. Five years under budgeting brings the mortgagor to a point where the Court is required to consider his position to:—i

(a) Determine the amount of the mortgagor's equity in his farm property. (b) Make consequential adjustments in the amount of his mortgages.

(c) Make available tor his unsecured creditors any surplus assets he may have.

The procedure to be adopted in assessing a mortgagor's equity is generally as follows:

(1) From tie gross income during the budgetary period there is deducted (a) the mortgagor's living and working expenses; (b) rates and taxes; (c) interest (computed at a i*ate to be fixed by the Court) on the average value of stock and other chattels used in the production of the gross income. (2) The residue is deemed to be net income in so far as it is produced from the land independently of other factors employed in the production of gross income.

(3) This residue is capitalised at a rate to be fixed for the purpose by the Court. The capital sum so ascertained is referred to as "the productive value" of the mortgagor's farm lands. (4) Having ascertained this production value, the Court is called upon to decide whether or not it is a proper basis for ascertaining the value of the mortgagor's equity in the farm property, and for determining the consequential adjustment of his mortgage liabilities. Mortgagor's Equity.

To answer this question the Court must take into account the relative efficiency of the mortgagor as a farmer, and the extent to which the farm is not used to its full productive capac-

ity during the budgetiifg period. The Court may thus make an addition to or deduction from the ascertained produc-

tive value, and the result is called the "basic value." On the basic value so ascertained the Court fixes the value of the mortgagor's equity in land, stock and other chattels. The value so fixed as the mortgagor's equity may be up to 20 per cent, of the basic value, but must not exceed that percentage to the detriment of creditors, whether secured or unsecured. The Bill details the method of allocating relative interests. The amount appropriated to land is deducted from the aggregate amount secured on the land, and in like manner the amount appropriated to stock or other chattels is deducted from the aggregate amount secured on the chattels. In each case the excess over the amount so appropriated is discharged from the mortgages affected and becomes an unsecured debt.

Where there are two or more mortgages over land or stock the reduced amounts are allotted in the order of their respective priorities. The reduced amount of mortgages is made repayable where the mortgage is overdue in five years and in the mean-

time bears interest at the special rate fixed by the Court. If\ a mortgagor sells his farm within five years from

adjustment 50 per cent, of any excess in price over the basic value on which his equity was ascertained is to be made available for mortgagees whose mortgage securities have been reduced and a mortgagee under a reduced mortgage may call it up. After an adjustment of the mortgagor's mortgage liabilities has been made the Court proceeds to ascertain what, if any, assets are available for unsecured creditors. These assets will include all his property other than his farm property and so much of the value of his farm property as exceeds the sum of the adjusted mortgages and the value of his equity. Guarantors are to be protected to the same extent as mortgagors during the currency of stay orders, and have the right to secure from the Court an assessment of their liability.