FARM MORTGAGES

Manawatu Standard, Volume LV, Issue 89, 13 March 1935, Page 2

FARM MORTGAGES

PROVISION FOR ADJUSTMENT

FAR-REACHING RELIEF BILL

Far-reaching legislation for the relief of farmer-mort-gagors was introduced in the House of Representatives, yesterday, under the title of the Rural Mortgagors Final Adjustment Hill. Covering the rehabilitation of rural finance, the measure extends to 73 clauses. It is designed to bring about adjustments in the liabilities of farmer-mortgagors now being protected under relief legislation in order that they may be enabled to continue in occupation of their holdings as efficient producers.

POWERS OF TIIE BILL. FIVE-YEAR SCHEME. FARMING UNDER A BUDGET. Per Press Association. WELLINGTON, March 12. Encouragement of voluntary settlements between farmer mortgagors and their creditors is the object ot the Rural Mortgagors Final Adjustment Bill, which was introduced and read the first time ill the House of Representatives to-day.- The Bill defines the procedure to he adopted in arriving at these adjustments and also contains proposals for a five-year budgetary scheme in the event of failure to reach a voluntary settlement. At the end of this period there would be an adjustment of liabilities, based on tho productive value of the farm under budgetary conditions. Tho purpose of the Bill is to enable such adjustments to be made in the liabilities of farmer mortgagors now under the protection of the Mortgagors and Tenants Belief Act, as well as to make it possible for them to continue occupation of their farms as efficient producers, states an explanatory memorandum attached to the Bill. Continuing, the memorandum states that the Bill has uo application to any farmer unless he is a mortgagor under a mortgage to which the 1933 legislation applies. Subject to certain limited and special exceptions, that Act applies only to mortgages executed prior to April 17, 1933, the date of the passing of the Act. If a farmer mortgagor is within the scope of the Bill by virtue of one mortgage, then the adjustments provided for in the Bill deal with all his liabilities, whether secured or unsecured, and aye not limited to his liabilities under a qualifying mortgage. For the purposes of the Bill the term “farming” includes the cultivation of the soil for the production of food products or other useful products of the soil, and includes the use of land for horticultural or pastoral purposes, or the keeping of pigs, bees or poultry. ■ The Bill seeks in the first place to encourage voluntary settlemenis between farmer mortgagors and their creditors. In eases where voluntary settlements are not arrived at, provision is made in proper eases that the farmer should work under a budgetary scheme for five years and for the adjustment _ of his liabilities at the end of that period, based upon the productive value of his farm as ascertained under the budgetary conditions. For the purposes of administration of this scheme, it is proposed to establish a special Court of Equity and to utilise the services of the Adjustment Commissions set up under the legislation. _ COURT OF REVIEW. Part 1 of the Bill sets up a Court of Review of mortgagors’ liabilities, which will act as a court of appeal from the decisions of the Adjustment Commissions and will generally assist in the administration of tho proposed Act. The Court will consist of three members, of whom one is to be appointed Judge of the Court. The Judge of tho Court must be a person possessed of the same qualification as a Judge of tho Supremo Court, and while he is in office as a Judge he will he entitled to the same salary and- other privileges as if lie were a Judge of the Supreme Court. The other two members will be appointed for throe years, but may be reappointed from time to time. No special qualifications are prescribed with respect to those two members. However, they are not to be appointed as partisans to represent particular interests, but in the exercise of their functions they will be expected to be judicial and unbiassed. Provision is made for the appointment of acting-members of tho Court if for any reason the regular members are unable to act. Provision is also made for the appointment of a sufficient number of registrars, deputyregistrars and other officers of the Court, who will in most cases, if not invariably, be officers already attached to the Supreme Court or Magistrates’ Courts. EXTENTION OF PROTECTION. The second part of the Bill deals exclusively with the procedure to be adopted in arriving at voluntary adjustments between fanner mortgagors and their creditors, whether secured or unsecured. The first step in the procedure is the filing of notice seeking an adjustment in the office of the Court of Review nearest the place where the mortgaged property of the farmer is situated. That notice must be filed within 12 months of the commencement of the Bill, which is fixed for May 1 next. The immediate effect of the filing of tho notice is to take the mortgagor out of the protection afforded by the Mortgagors and Tenants Relief Act, 1933, and to bring him within the protection of this Bill, which, as regards enforcements of judgments, sale of mortgaged property, etc., is substantially the same as the existing protection. The onlv important difference is that the rights against a mortgngor or his property that can now be exercised only by leave of the Supreme Court can, under the Bill, be exercised only by leave of the Court of Review. After the filing of notice, whether by the mortgagee or the.mortgagor, the matter will be referred for the consideration of an Adjustment Commission. Meetings of creditors will then be hold under the auspices of the Commission and efforts made to secure a voluntary adjustment of the mortgagors’ liabilities. Three-fourths in value of tho creditors may bind the minority in arriving at a voluntary adjustment, but no proposed adjustment will be effected until it lias been approved by the Adjustment Commission," the decision of which will bo in turn subject to apjieal to the Court. In that way will be ensured the proper consideration of the rights of the dissenting minority. IVhen a voluntary adjustment has been arrived at, its terms will he recorded and filed in the Court of Review and will then operate as an order of that Court. THE ALTERNATIVE. Part 111 defines the provisions applicable in cases where voluntary adjustments cannot be made. If negotiations to effect a voluntary settlement fail, the Adjustment Commission will then consider the position of the mortgagor, for the purpose of deter-

mining whether or not ho should be given further protection from his creditors. If he is to be given further protection, he is placed on a budget as described later in the Bill. If lie is not given protection, his creditors are free to exercise the ordinary rights of creditors —that is, to sue tor debts outstanding, to realise on their securities and eventually, if need be, to make their debtor bankrupt. Tho considerations governing the decision of the Adjustment Commission are enumerated as follow:

(1) Whether or not in its opinion tho financial position of the mortgagor is such as to enable him to continue to carry on his farming operations satisfactorily, without the protection of a stay order.

(2) Whether or not in its opinion the financial position of tho mortgagor is such without the protection afforded by the 1933 legislation, he could not have continued to carry on l'.is farming operations, even if the special economic conditions that now affect the farming industry had not risen. (3) AVhether or not in its opinion the mortgagor, by reason of the manner in which lie has carried on his farming operations, is not deserving of further protection. (4) The conduct of tho mortgagor in rcsjrect of any breaches by him of covenants of the mortgage or his conduct in general toward his creditors. (5) jVny other matters it may consider relevant. If the Adjustment Commission thinks that a stay order should not be issued, it may make an order postponing for such period as it thinks fit, not exceeding twelve months: (1) The interest or principal payable l>y the mortgagor under any mortgage; or (2) the date for payment of any other moneys payable by the mortgagor. Fading an appeal within 14 days, any order of the Court shall take effect according to its tenor, but if an appeal is made, the order shall be suspended until the appeal is disjiosed of. “RECOGNITION OF SELF HELP. In explaining this section of the Bill the memorandum says that, generally speaking, the position is tliat, if a mortgagor has any prospect at all of carrying on and ultimately satisfying his liabilities, he will be given the benefits proposed by the Bill. However, if his position is altogether hopeless or if he has proved he is not doing the best he can to help himself the benefits proposed by the Bill will not be extended to him. In such a case, however, a mortgagor can appeal to the Court of Review from the decision of the Adjustment Commission. Part IV of the Bill describes the issue and effect of stay orders when the mortgagor and his creditors have been unable to arrive at a voluntary settlement and it lias been decided, either by the Adjustment Commission or by the Court on appeal from the Commission, that the benefits proposed by tho Bill shall bo extended to the mortgagor.

A stay order in respect of a mortgagor will be made by the Court of Review that will give to the mortgagor immediate protection from proceedings by his creditors to enforce their rights. His farming operations will be placed under the supervision of the Adjustment Commission with or without the intervention of a supervisor. ■ A budget will be prepared in respect to his estimated income and expenditure and he will be allowed reasonable living and working expenses, and the balance of his income for each budgetary period will be distributed by the Adjustment Qommission, subject to appeal to the Court of Review, among his creditors.

In ordinary circumstances a mortgagor will remain under budgetary control for five years, when an adjustment of his liabilities will be made. IVhere a mortgagor is already under budgetary control under section 1.1 of the 1933 Act, a final adjustment may be made at a somewhat earlier date.

DISCHARGE OF STAY ORDERS. In certain exceptional cases a stay order may be discharged before the expiration of the live years of budgetary control. In such an event the mortgagor will be placed in relation to his creditors in the same position as any other debtor —that is to say, his secured creditors may realise their securities and his unsecured creditors can enforce judgments lor debts obtained against him. This premature discharge of a stay order may be obtained in certain specific circumstances, of which the following are principal examples: (1) If at any time the affairs of the mortgagor are arranged by agreement between him and his creditors.

(2) If the mortgagor’s circumstances are so altered that he is no longer in need of the special protection afforded by a stay order. (3) If the mortgagor’s conduct of his farming operations is so unsatisfactory that the Court decides he is not deserving of the protection of a stay order. Bart V of the Bill, dealing with the final adjustment of liabilities, will not come into effect until a farmer mortgagor lias carried on his farm under budgetary control for a period of five years. That period may include any •period of up to the two years during which a mortgagor has been under budgetary control in accordance with the terms of an agreement or order under section 11 of the 1933 Act. At tho end of that period of five years the Court is required to consider the position of the mortgagor as revealed by tho accounts over the budgetary period, and (1) to determine the amount of the mortgagor's equity iff the farm property ; (2) to make consequential adjustments in the amount of his mortgages; and (3) to make available for his unsecured creditors any surplus assets he may have. FIXING THE EQUITY. The procedure to be adopted in assessing a mortgagor’s equity is generally as follows : (1) From the gross income during the Budgetary period there will bo deducted the mortgagor’s living and working expenses, rates, taxes and interest, computed at a rate to be fixed by the Court on the average value of the stock and other chattels used in the production of the gross income. (2) The residue will be 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) The residue will be capitalised

The Bill was read the first time.

at a rate to be fixed by the Court, the capital sum so ascertained to bo referred to as the productive value of the mortgagor’s farm lands. (4) Having ascertained that productive value, the Court will be 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.

To answer that question the Court must take into account the relevant efficiency or inefficiency of the mortgagor as a farmer, the extent to which the farm has not been used to its full productive capacity during the operation of the stay order, and such other matters affecting the farm property as it considers relevant. Having regard to those special considerations, the Court may make an addition to or a reduction from the ascertained productive value and the result is called the “basic value.” On the basic value so ascertained the Court will fix the value of the mortgagor’s equity in the farm property—that is, tho land and stock, and in any other chattel. The value so fixed as the mortgagor’s equity may bo up to 20 per cent, of the basic value, but must not exceed that percentage if the amount owing to any creditor or mortgagor would require to be reduced in consequence of such assessment. Subject to that limitation the Court may assess the value of tile equity at such amount as it considers fair and reasonable, taking into consideration all the circumstances.

When the value of the mortgagor’s equity is determined, the Court proceeds" to appropriate it in part to tho land and in part to the stock and other chattels The amount appropriated to the land is deducted from the aggregate amount secured on the land and, similarly, the amount appropriated to the 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. ALLOCATION TO MORTGAGES. Where there are two or more mortgages on land or stock, reduced amounts arc allotted to those mortgages in order of their respective priorities. The reduced amount of mortgages is made repayable (where a mortgage is overdue) in five years and in the meantime bears interest at a special rate fixed by the Court. If a mortgagor sells or otherwise parts with possession of his farm within five vears from adjustment, 50 per cent of";*-' excess in the price ovpr the basic value on which his equity was ascertained is to bo made available for mortgagees whose mortgage securities have been reduced, and a mortgagee under a reduced mortgage may call it up. , After the adjustment of the mortgagor's mortgage liabilities has been made, the Court proceeds to ascertain what assets are available for the unsecured creditors. Those assets will include all his property other than his farm property and so much ot tne value of his farm property as exceeds the sum of his adjusted mortgages and the value of his equity. There are several miscellaneous provisions in the final section of the Bill. One clause gives the right to a guarantor to apply to the Court to assess the amount for which he shall be liable under a guarantee where a stay order is in force. Another clause specificially states that tho Bill applies to mortcagos of the Crown. “ Finally, the Bill extends the duration of the Mortgagors and Tenants Belief Act, 1933, by repealing the provision limiting its duration to the v end or 1935. LABOUR CRITICAL. Labour members criticised the measure and said it meant introducing the budgetary system to farmers and would leave them in chains. Mr J. A. Lee said the proposal would in no way allow the farmer to live as a decent human being; it enabled him only to be kept as a bond slave. It was only a postponement after three years of Government refusal to face the problem. Mr A. J. Stallworthy asked what was to guide the corporation in selecting managers for various farms, and hoped that suitable persons would be selected.