FARMERS FINANCE

Evening Post, Issue 29, 4 February 1935, Page 13

FARMERS FINANCE

SETTLEMENT OF CLAIMS

EFFICIENCY QUESTION

"On the question of the rehabilitation of farmers' finance the committee reiterates its view that it is necessary to consider the rehabilitation proposals as separate, and distinct from the Mortgage Corporation proposals.

"Mr. Coates, in his pamphlet, stresses the dangfcr of competent farmers, who through no fault of their own have got into difficulties, being'dispossessed of the land into which they have put their life's savings. We believe that the risk of a really competent and efficient producer (even if he actually has little or no present equity in his property) being put off his-property, is infinitesimal. The best interests of the mortgagee demand that,such a man should be kept on his property,: as the mortgagee would be in a worse position if a good farmer had to leave his farm. , -.'•.•■ "As regards. incompetent farmers, it is very doubtful whether Ji is in the interests of the community generally, of the v farmers themselves, or of their mortgagees, that they should be. allowed to remain on their farms producing: uneconomically. . . LOSSES AND PROFITS, i 'This whole section of Mr. Coates's pamphlet appears to be based on the novel view that the relationship be^ tween present motgagees arid borrow-, ers is one of partnership in sharing losses but not in sharing profits. Many farmers have succeeded in borrowing the full value, and more than the full value, of their- properties. We very, much doubt if it be possible to create machinery which will distinguish between those who are worthy of help and'those who have arrived in their present situation through incompetence, mismanagement, and extravagance. •„• •..'., "While final adjustment of the unsatisfactory mortgage position today is desirable, the , committee has grave doubts as to whether ■ final. equitable adjustment is feasible. If we could regard the prices of primary products as stabilised, an equitable scheme for final, adjustment could be devised. Primary products,' however, have always been subject to violent and unexpected fluctuations. It is impossible to predict price levels of primary produce, even a few months, let alone a few years, ahead. An adjustment which might appear equitable on today's values might prove to be grossly inequitable in even so short a period as twelve months. EXISTING LEGISLATION. "In the Bankruptcy Act there is on the Statute Book adequate machinery for the settlement of creditors', claims if a person be insolvent. "The proper course for a debtor who is unable to meet his obligations in full is to effect a compromise with his creditors by mutual arrangement,, and failing his being able-to do so, to invoke the protection of the Bankruptcy Act. It is the considered opinion of the committee "that if the.present.Mortgagors' Relief Act \were repealed today, the number of farmers who would find it necessary to file in bankruptcy would be very few; not only so, but of those who did file, few would be dispossessed of their farms. The conscientious, capable farmer would be almost invariably reinstated by his firsfrnortgagee on the* property the. moment he got his discharge. "Assuming that there is some real necessity for further- legislation, the committee considers the proposals should .not be limited to one section of the community, namejy, the farmers. If there be any reason to make special concessions to mortgagors, the committee cannot see any logical reason for discriminating between farmer mortgagors and other mortgagors. Why should not similar concessions be made to struggling ' country storekeepers who have done their share towards keeping the farmer, .on the land, and whose difficulties are largely due to the inability of farmer, customers to pay lor goods bought? In the opinoin of the committee, if the proposals go through in 'their present form, they : will involve the ultimate bankruptcy of a large number of country storekeepers. EQUALITY OF SACRIFICE. "If it be necessary, that sacrifice should be made to maintain the farming industry, then it "should be national and should be shared by the whole community. Under the rehabilitation proposals as explained in Mr. Coates's pamphlet, sacrifice is demanded of one class of the community only, namely, the ' farmers' creditors. The committee would stress that the sacrifice will fall not only on mortgagees of land, stock, and chattels, but also oh all the unsecured creditors of the farmers.

"This principle is unsound and inequitable. Hitherto the special assistance extended to the farming community has been at. the expense of the community at large, and if further special assistance should be given it' should not: be at the expense of the class which has already suffered great losses in the financing of the man on the land.

"The proposal that one class of the community (the farmers' creditors) should bear the cost of the rehabilitation of the farming industry is inequitable and unjust. The committee believes that such procedure would have far-reaching effects 'and would cause widespread distress among many classes, as well as among mortgagees. In the long run the effect may very well be further to damage farm credit and ultimately to injure rather than assist those whom the proposals are designed to benefit. ASTOUNDING PROPOSAL. The proposal that an insolvent person should be allowed to retain 20 per cent, of the value of his assets is an astounding one. if a trader or a professional man has, through misfortune, to invoke the protection of the Bankruptcy Act, he is entitled to retain furniture, clothing', and tools of trade to a value not exceeding. £50. On the other hand, an insolvent farmer whose assets are valued at, say, £100,000 is to be allowed to retain £20,000 at the expense of his creditors. "Why should the farmer be. arbitrarily allotted (at.the expense of his creditors, of whom the State may be one) a 20 per cent, equity in his property, whether oi\ not such equity 'exists-today? Is not the competent

tradesman or shopkeeper, or any other class of competent worker who has met misfortune and is today insolvent, also entitled to a similar concession?

"The committee thinks that the suggestion to allot arbitrarily to a farmer an equity in his property at the expense of his mortgagees and creditors cannot be justified, but if any proposal fo this nature is given 'effect to, then the amount of such equity should: be determined by an impartial tribunal and should be subject to a modest maximum limit not based on a percentage of a valuation Of assets. What a farce it would be if a farmer with £100,000 of assets, and liabilities«exceeding those assets, were allotted,, at the expense of his creditors, an equity of £20,000—a fortune to most people—while the storekeeper with assets of £5000,' and liabilities exceeding those aßsets, has to seek the protection of the Bankruptcy Act, and is allotted a maximum of £50 in personal effects and tools of trade. CONFLICTING INTERESTS. "The pamphlet is exceedingly vague on the question of the relative rights of various classes of creditors. In the average case which will come before the proposed tribunal, it will be found that the mortgagor owns: Land, live stock, plant, and implements, and other assets. His creditors may be classified as follows: ' Mortgagee or mortgagees of land; mortgagee of chattels,' preferential, creditors (for instance, wages and rent), and ordinary unsecured creditors. Under bankruptcy law the relative rights of these different classes of creditors are clearly defined. Mr. Coates's pamphlet does not make clear what position is contemplated. under the proposed legislation. ' ' "The committee urges that the established priorities and relative rights of creditors be left untouched. ASSISTANCE FROM CORPORATION. "The committee is very strongly of the opinion that the proposal that the Mortgage Corporation be authorised to' take over, at its discretion, existing mortgages, financing these ;at a low rate of interest, up to an amount not exceeding 80 per cent, of the security as Revalued, the State accepting a contingent liability for one-eighth of such mortgages, is ■ utterly and totally unsound. "In the section of this memorandum dealing with the Mortgage Corporation, the committee has expressed the strong opinion, which it now wishes to emphasise, that any mortgages taken over by the Corporation should be taken over after revaluation on a sound lending basis without contingent liability, either on the part of the Corporation or any other party.

"Mr. Coates's pamphlet left in doubt the question whether the private mortgagee whose mortgage might be taken over by the. Mortgage Corporation would be paid by the Cbrporation in cash or in bonds. Mr. Coates has assured the committee that in such cases the mortgagees will be paid in cash. The committee urges further that in no case should the Mortgage Corporation take over private mortgages without the prior consent of the mortgagee.