RURAL MORTGAGES

Hawke's Bay Tribune, Volume XXV, Issue 79, 16 March 1935, Page 3

RURAL MORTGAGES

OBJECTIONS TO BILL Businessmen’s Criticism BENEFIT TO SMALL NUMBER Describing the Rural Mortgagors’ Final Adjustment Bill as a complete abrogation of the motto that “an Englishman’s word is his bond,’’ further criticism is made of the measure by thp committee set up under the auspices of the Associated Chambers of Commerce, the Associated Banks, the New Zealand Life Insurance Offices Association, the New Zealand Law Society, the Stock Agents’ Association, the New Zealand Fire and Accident Underwriters’ Council, the New Zealand Investors’ Protection Association, the Building Societies’ Association, and investment companies. The committee holds that the number of persons who can claim benefit from the proposed legislation will probably not exceed 7500, and points out the danger of legislating for such a small section of the community, while at the same time it would have the effect of acting as a deterrent on future investors in farm property. The methods of operation of the Court of Review and Adjustment Commission are also opposed by the committee on the grounds that there is insufficient provision for appeal. The committee's original memorandum was based upon the Minister’s pamphlet and interviews with him and his staff. Nothing in the Bill introduced this week has given the committee auv reason to modify the criticisms it then expressed. The text of the Bill discloses several new objectionable features and does nothing to meet the criticisms previously made. The committee reiterates the statement made in its original memorandum that, “The risk of a really competent and efficient producer, even if he 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 ma-i should be kept on his property, as th* 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 in the interests of the community generally or the farmers themselves, or of their mortgagees that they should be allowed io remain on their farms producing uneconomically.” Reliable information in the possession of the committee shows that the number of farmers who are in serious financial difficulties represents a very small proportion of the adult male population of the Dominion. Actually the total number of persons in the Dominion engaged in farming on their own account is 75,000 approximately. Inquiries made from different sources go to show that about 90 per cent, or this number are even to-day meeting the whole of their obligations reasonably promptly. It is doubtful whether the number of persons who can conceivably claim the benefit of the proposed legislation, if it becomes law, will exceed 7500. It is both unnecessary and dangerous to legislate for any small section of the community. If our existing laws applicable to the relationship of debtor and creditor are unsatisfactory then by all means let them be amended. But any amendment should apply to all debtois and all creditors. Not only so, but the amendments should be in simple form and easily understandable, not cumbersome and involved as is the present Bill. IS ASSISTANCE NEEDED? In some of his public statements the Minister has confused the interests of individual farmers with those of the industry as a whole. The committee admits that in the absence of some relict' legislation there are some mortgagors who, during the past four years, might have been treated harshly by their mortgagees. It is, however, convinced that the number of such cases would have been small. The committee would, however, strongly stress the fact (and it is aa unquestioned fact) that if any individual farmer should be put out of the control of his farm, it does not necessarily follow that the industry as a whole will be prejudicially affected. The mortgagee who forecloses upon his farm mortgagor does not forthwith abandon the property. To do so would merely defeat his own ends. In such cases the mortgagee in self-protection carries on fanning cither himself or by a manage!. Had we no mortgagors’ relief legislation, then of the 75,000 farmers actively engaged in the industry in 1929 a small proportion migiil by to-day have had to abandon their farms. But as each such farmer 10.,t his farm his place would have to be taken by someone else, so that theie would still be some 75,006 iarmtis actively engaged in the industry and the total production for the Dominion of butterfat, wool, lambs, etc., would not have been diminished. It must be dearly understood that the present legislation is not legislation to maintain the farming industry in existence, but is legislation having as its sole purpose the retention on rural properties of a < omparati'ely small number of individuals who, had the ordinary processes of law been allouid to take their course, might by now Lave ceased to be farmers on then uv.ii account. in our previous report we said, “While final adjustment <>i the un• .• ti->• factory mortgage position to-day 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 tor final adjustment could be devised Primary

products, however, have always been subject to violent and unexpected fluctuations. It ia impossible to predict price levels of primary produce even a few months, let alone a few years, ahead.’’ Until prices for primary products remain reasonably stable any adjustment between borrower and lender which is based upon actual prices for a period, may eventually prove grossly unfair, to one party or the other. Presumably the final adjustment to be made at the end of the five-year period of a stay order will be based on actual prices received during those five years. If during that period prices are falling consistently, an adjustment based on the average price during the five years will possibly not benefit the borrower. Conversely, if prices rise steadily during the period, an adjustment, based on the average price during the five years, will involve the lender in concessions which may eventually prove to amount to more than the 20 per cent, proposed. EXISTING LEGISLATION. We have already indicated that had the present relief legislation not been enacted, we doubt whether there would have been any prejudicial effect on the farming industry in the Dominion as a whole. The committee would repeat that it is its considered opinion that if the present Mortgagors’ Belief Act were repealed to-day, 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, lew would be dispossessed of their farms. The conscientious, capable fanner would be almost invariably reinstated by his first mortgagee on the property the moment he got lus discharge. The committee feels that the proposed legislation will defeat its own ends. The proposals of the Government are intended to benefit that section of the farming community which at present is unable to meet its obligations as they become due. A statutory discounting of the amount of these obligations may enable the embarrassed borrower to meet the remaining balance fairly promptly, but has the Minister considered tlie probable effect of the legislation upon potential future lenders? The average lender regards his principal as almost sacred, and is frequently prepared to make very substantial sacrifices of income in order to keep his principal intact. Proof of this is to be found in the steady accretions during recent years to the amounts held on fixed deposit by the trading banks, notwithstanding the very substantial reductions made in the interest rates for fixed deposits. Nothing is easier than to frighten the investor away from a particular class of investment. It only requires the suspicion of a rumour that any particular form of investment i* in jeopardy to cause those holding that particular class of investment ty make every endeavour, sometimes making substantial sacrifices, to save their money. However much the committee may differ from the Government ou various matters in the Bid, it is quite satisfied that the intention is to attempt to improve the position of the 1 aimer who is in difficulties. The committee would, however, urge on the Minister the verygrave risks attending his proposals. The committee is convinced that the Bill, if it becomes law, will inevitably create the impression in the minds of the investing public that no broad acre security is thereafter a safe investment. Has it occurred to Cabinet that the thrifty section of the community who, after all, provide the funds for the great majority of mortgage investments, may become frightened of rural mortgages ? It is common knowledge that special legislation very often hag effects quite unexpected, so that “the cure is worse than the disease.” It may well be that one effect of the Government’s wellintentioned but misguided effort will be to render it practically impossible for the solvent farmer to obtain finance. The committee feels quite sure that there is a grave risk of this happening, and that Cabinet has not appreciated what is almost certain to be the ultimate effect of this Bill if it becomes law. COURT OF REVIEW AND COMMISSIONS. In his pamphlet the Minister proposed to set up a special Court which would deal with those eases in which a voluntary arrangement betw’een a mortgagor and his creditors could not be made. He suggested that the Adjustment Commissions, under the present relief legislation, would assist the Court of Review by investigating cases and submitting reports thereon. As outlined in the pamphlet, the status and duties of the Adjustment Commissions would remain practically the same as at present. The Bill, as drafted, however, departs very materially from these intentions. It is startling to find that these Commissions are all to be given a status equal to that of a Court, and that in some respects the decisions of a Commission are not subject to any review or any right of appeal, even by the Court of Review. At present the Commissions are purely advisory bodies reporting to the Courts, which may, and not infrequently do, find it necessary to differ from the recommendations of the Commissions. In its original memorandum, the committee mentioned that it had been assured that the Government would have no objection to the principle of there being a right of appeal if the necossary machinery were devised. The commiteo was then fully convinced that the work of the Court would be so onerous, and the possibilities of miscarriage of justice so great, that there should be full provision for appeal from the Court of Review to the Court of Appeal. The Bill, however, makes no provision for any appeal from the Court of Review. As mentioned above, it confers judicial duties upon the adjustment commissions. The committee has no wish to disparage the gentlemen who are serving on the various Commissions, and recognises that they have done yeoman service. At the same time, it would point out that the majority of the gentlemen at present serving on these Commissions have had no training in judicial functions. It may be said that the same is true about Justices of the Peace, but it is only proper to point out that our law provides for appeals from the decisions of Justices. It is the considered opinion of the committee that the departure from the system outlined in the pamphlet is a very serious defect. It is not suggested that the Adjustment Commissions be abolished; at the same time, there appears to bo no sound rea on for making the Commissions more than investigating and advisory bodies as they are at present. With regard to the Court of Review, the Bill provides that the judge of the Court is to be a Supreme Court Judge, or a gentleman eligible far appoint- ■ cient t<> the Supreme Court bench. Ho '

| is, however, to have associated with him, two gentlemen who need not necessarily have any judicial qualifications. We are, of course, familiar with tribunals of this type—as, for example, Assessment Courts—but the committee would point out that the laymen associates of the judge in such tribunals are usually representative of the two classes of persons appearing before the tribunal. For example, in our Assessment Courts one of the two associates is representative of the local body concerned, while the other is a representative of the ratepayers, or in compensation cases, of the claimant. It is not unreasonable to suggest that the Court of Review should be similarly constituted, and that of the two laymen one should be representative of mortgagors and the other of mortgagees. If the Commissions are to exercise judicial functions, as the Bill now provides, the Commissions should, in the opinion of the committee, be constituted of an impartial chairman of adequate qualifications, a representative of mortgagors and a representative of mortgagees. Whatever the constitution of the Court of Review, the committee is satisfied that a right of appeal to the Court of Appeal is essential. PUBLICITY REQUIRED. The Bill makes it an orrence, punishable by a fine of £5O, to publish, without the authority of the Court of Review, any statement that an application has been made for the voluntary adjustment of a mortgagor’s liabilities. The committee recognises that there is much to be said in favour of investigations by the Court of Review being held in camera. In one respect, however, publicity is essential. It is the duty of a mortgagor making an application, to furnish a statement of his assets and liabilities, with the names of his creditors. Notice of the application is to be given to all creditors by an officer of the Court. The Bill recognises the possibility of a mortgagor inadvertently omitting the name of a creditor, because provision is made for the filing of amended statements. The committee does not wish to press for public hearings by the Court of Review, or by the Adjustment Commissions, but it does think it essential that there should be some publication of the fact that an application has been made, or that a stay order has been granted. The committee would suggest that the names and addresses of applicants, and the names or persons in respect of whom stay orders have been granted, be published in the “New Zealand Gazette’’ in the first issue after the application has been made or the stay order granted. This would give an opportunity to creditors, whose names have been inadvertently overlooked, to communicate with the Registrar of the Court. In its original memorandum, the committee expressed the view that the proposal that any insolvent person be allowed to retain 20 per cent, of tin. value of his assets was an astounding one, and suggested that if any proposal of this nature was incorporated in the legislation, then the amount of the equity should be subject to a modest monetary total. In this connection the committee is unable to see any good reason why an insolvent farmer should receive more liberal treatment than a trader, a professional man, or a working than in a similar predicament. In its earlier memorandum, the committee mentioned the case of an insolvent farmer whose assets were valued at £lOO,OOO. Under the Bill he may be allowed to retain up to £20,000 at the expense of his creditors. The example given by the committee was not a solitary one. Cases are known to the committee in which the amount involved js much greater. While the committee feels that very cogent reasons should be advanced before preferential treatment of th s nature is advanced to any borrower, and that so far no such cogent reasons have been advanced, it would urge that if any concession of this nature is Io be retained in the Bill the most that should be permitted should be the retention of assets to an extent not exceeding £2OOO. This is 40 times the amount allowed any other unfortunate debtor. Unless some such maximum limit is fixed there will be eases m which insolvent fanners are allowed t<> retain a very handsome competence at the expense of their creditors. NEW ADVANCES AFFECTED. The committee understood from the Minister’s pamphlet that this Bill was to deal merely with the adjustment of mortgage liabilities in respect of rursl properties. It is astonished to find that in some circumstances mortgages granten since April 17, 1931, over urban properties may be brought within the scope of the legislation. There are a number of lenders who have recently made advances, relying on the fact that the securities they had taken did not come within the scope of the existir fe relief legislation. So long as the borrower is not a farmer, that belief is well founded, but no matter what was the nature of the security or the dale of the loan being made, the transaction will, if the borrower is a farmer, come within the purview of the present Bill if the borrower makes an application for relief in respect of one of his farm mortgages. The following example will make the position, plain: A farmer owning, in addition to his farm, some other property, may have borrowed money ou the security of that properly at current rates within the last few months. The lender, who probably had no previous transaction with that particular buiro\ >r, naturally assumed that this new advance would not be affected by the 1933 Act. If, however, his borrower is a farmer who applies for relief undei the present Bill in respect of an oid mortgage on his farm property, the security over the other property will beeoxie subject to the provisions of the Bill, and may involve the lender in a loss. It is not necessary to comment further on this provision; the injustice of it is manifest. The Bill proposes to confer upon guarantors of rural mortgages certain rights t - relief. In the opinion of im committee the obligations of a guarantor should not be modified except ou a substantive application by him for ielief in which all the -guarantor’s creditors are joined. In particular, protection granted to a mortgagor should not mil'* inatically operate to suspend the obligations of a solvent guarantor. Nor should a principal creditor who his made advances, relying on the guarantee of a wealthy guarantor, be expected to make any concession which the guarantor's can mortgagees and other

creditors would not be expected t;> make. The foregoing observations deal only with some of the principal features of the Bill. With explanatory memorandum and schedules, the Bill Covers 4i pages, and an exhaustive criticism of ii canhot be compressed within the space of this memorandum. Finally, the committee would observe that the Bill may aptly be desribed as a Bill for the repeal and abolition of the old motto, that “an Englishman’s word is his bond.’’ At one time it was our proud boast that anyone who claimed to be a decent, self-respecting citizen carried out his obligations, if it took his last penny to do so. The present Bill, so f.»r as one section of the community is concerned, is a complete abrogation of this principle.