The Northern Advocate Daily MONDAY, JULY 29, 1935. ADJUSTMENT ON FARM DEBTS

Northern Advocate, 29 July 1935, Page 4

The Northern Advocate Daily

MONDAY, JULY 29, 1935. ADJUSTMENT ON FARM DEBTS

Registered for transmission through the post as a Newspaper.

The Mortgagors’ Final Adjustment Act Was the direct outcome of the world depression, and it differed in this respect from the Mortgage Corporation; which might well have been instituted even if world conditions had remained good, for, in the money market, as elsewhere, competition is the soul of trade. The Rural Mortgagors’ Final Adjustment Act has given rise to much crtieism, and it is questioned whether the legislation as it emerged from Parliament, which was materially different from that which Mr Coates endeavoured to place on the Statute Book, confers any benefit on any farmer that was not conferred by the Mortgagors and Tenants’ Relief Acts, except in so far as it brings the issues to a finality in a definite period—five years—and safeguards him against, • process for debt. By providing for control of the mortgagors’ finances for the five-year period, the Government to that extent safeguards the mortgagee’s, interests, as under the relief legislation it would be possible for the mortgagor to waste his money for unnecessary or uneconomic' purchases. The Act, which came into force on May 17, 1935, applies only to farmer mortgagers and to mortgages coming within the scope of the Mortgagors and Tenants’ Relief Act, 1931. The main purposes of the Act, in the 1 , words of the Finance Minister, are “to enable the excessive liabilities of farmer mortgagors to be adjusted to a level which is within their capacity to meet them, and thereby to retain sufficient farmers in the use and occupation of their farms. In (making such adjustments due regard will be had to the relative

!hardship on .mortgagors and their creditors/’ At any time before May 1, 1936, a mortgagor (or a mortgagee) may apply for the adjustment of his liabilities. This automatically removes the mortgagor from the protection of the Mortgagors and Tenants’ Relief Act, 1933, hut his creditors are nevertheless prevented from taking action against his property or making him. bankrupt. As soon as practicable after the filing of notice, the Adjustment Commission in the district is to call a meeting of creditors. If throe- , fourths in value of the creditors I agree, a voluntary adjustment may be made, subject to the Adjustment Commission approving dt. The decision of the commission may bo the subject' of an appeal to "the Court of Review. If the adjustment is approved by the Adjustment Commission (or Court) it becomes binding on the mortgagor and all the creditors. The protection of this Act and the principal Act is removed, and ■creditors may exercise their usual rights if the conditions of the voluntary a greement are not observed. If a voluntary adjustment is not made, the Adjustment Commission must decide whether or not a stay oinjer is to be issued. If such an order is not granted, the mortgagor is removed from protection and any mortgagee or other creditor may exercise the ordinary rights of a creditor.

If a stay order is granted, the mortgagor is protected against any action by'any mortgagee or other creditor which would hamper him in the efficient conduct of his farming operations. On the other Ijand, the financial operations of the farmer are controlled in the form of a budget, which is a plan of expenditure based on estimated returns. The mortgager is restrained from selling or encumbering his property during the operation of a'stay order, which has a currency of five years, though a voluntary adjustment may be made at any time during that period. The stay order itself may be lifted on the application of the mortgagor if he has paid his debts or does not require further .protection, or by the mortgagee or other creditor if the conduct or circum-i •stances of the-mortgagor has rendered the discharge of the stay order eqfiitable and desirable. So far, there is comparatively plain sailing. The question of importance relates to the final adjustment of liabilities. Mr Coates originally proposed that a mortgagor should be entitled to up to 20 per cent, equity in the property at the expiry of the stay order, but this was so strenuously opposed by the commercial sections throughout the Dominion, who accused the Finance Minister of being too Socialistic, that he withdrew the provision. It is the substitution of compensation determined by Adjustment Corn mission or Court for this arbitrary declaration of equity which is the cause of criticism today. On the expiry of the stay order the Adjustment Commission will first assess the ’productive value by capitalising the net average income derived from the farm lands during the operation of the stay order at a basic rate to be determined by the Court. To arrive at the net annual average income, all expenses other than capital expenses incurred in the production of the gross income are to be deducted. Such will include living and working expenses, together with interest, to be determined by the Court, on the average annual value of stock and chattels, as well as rates or taxes. Interest on mortgage on the land will not be included. If the basic value of the land is less than the amount of the mortgages secured against it, these are to be reduced to an amount equal to the basic value. The first mortgage is to be satisfied before any amount is appropriated to the second mortgage, and so on. The Court is to ascertain the value of the stock and chattels, and if this is less than the mortgages secured against them, the mortgages are reduced to the value of them. The liabilities written off are regarded as unsecured liabilities, and the mortgagees become unsecured creditors in respect thereof. Any free assets of the mortgagor, including assets other than those connected with the farm, 1 may be used by the Court to satisfy unsecured creditors. Any unsatisfied claims are to be discharged on a date to be fixed by the Court. On ascertaining the basic value of the farm lands, the Court will 'decide whether the mortgagor is entitled to remain in possession. If the Court decides that the mortgagor is not to remain in possession, any mortgagee may take over the property, subject to taking over prior encumbrances exclusive of arrears of rates, taxes, interest and other charges, and compensation is to be paid to the mortgagor in such amount (if- any) as is determined by the Could. In determining the amount of compensation, the* Court will take into account the relative financial position of the mortgagor • and mortgagee or mortgagees, the,relative hardship

on the mortgagor and the gagoe or mortgagees, and the amount by which the living expenses of! the mortgagor fell short of reasonable remuneration during the operation of the stay order. The mortgagor may, if he wishes, remain in occupation, but if he does so he is not immediately released from his liabilities, in that, except to the extent to which his debts are collaterally secured, his mortgagees are deemed to bo unsecured creditors, who have a claim on his free assets. If the mortgagor elects of his own .account not to continue in occupation, any mortgagee may take ‘over the farm lands, and compensation is to he paid to the mortgagor in the same way as if the Court decided that he is not to remain on the property. If the lands are not taken over by a mortgagee, the Court, shall direct them to bo sold by auction, any mortgagee being entitled to bid. The purchaser will be required to pay in cash an amount not less than the amount of compensation. The compensation provisions take the place of the “up to 20 per cent, equity” clause which the Finance Minister was forced to withdraw. Whether the fixing of compensation, as left to the discretion of the Court, is an adequate substitute for the original equity clause is a matter of opinion, For our part-, we think that withdrawal of the equity clause was unfortunate.