FARMER MORTGAGORS

Otago Daily Times, Issue 22519, 13 March 1935, Page 5

FARMER MORTGAGORS

ADJUSTMENTS OF LIABILITIES PURPOSE OF THE B'LL 7 (From Oub Parliamentary Keporter.) WELLINGTON, March 12. "The purpose of this Bill is to enable such adjustments to be made in the liabilities of farmer mortgagors now under the protection of the Mortgagors and Tenants Relief Act, 1933, as will make it possible for them to continue in the occupation of their farms as efficient producers," states an explanatory memorandum attached to the Rural Mortgagors Final Adjustment Bill introduced and read a first time in the House of Representatives. The memorandum states that the Bill has no 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, 1931, 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 adjustment provided for in the Bill deals with all his liabilties whether secured or unsecured, and is not limited to his liabilities under a qualifying mortgage. For the purposes of the Bill the term "farming" includes the cultivation of 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 settlements between farmer mortgagors and their 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 the adjustment of his liabilities at he end of that period based upon the productive value of his farm as ascertained under the budgetary conditions,. For the purposes of the 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 existing legislation. MORTGAGORS' LIABILITIES Part 1 of the Bill sets up a court ot review of the 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 the proposed Act. The court will consist of three members, of whom one is to be appointed as a judge of the court. The judge must be a person possessed of the same qualification as a judge of the Supreme Court, and while he is in office as judge he will be entitled to the same salary and other' privileges as if

he were a judge of the Supreme Court. The other two members will be appointed for three years, but may be reappointed from time to time. No special qualifications, however, are prescribed with respect to those two members. They are not to be appointed as partisans to represent particular interests. Provision is made for the appointment of a sufficient number of registrars, deputy registrars, and other officers of the court who will, in most cases, if. not invariably, be officers already attached to the Supreme Court or the magistrates' courts. VOLUNTARY ADJUSTMENTS The second part of the Bill deals exclusively with the procedure to be adopted in arriving at voluntary adjustments between the farmer mortgagors and their creditors, whether secured or.unsecured. The- first step in the procedure is the filing of a notice seeking an adjustment. and the notice must be filed within 12 months of the commencement ol the operation of the Bill, which is fixed for May 1 next. It may be filed by the mortgagor himself or by the mortgagee under a mortgage that is subject to the existing legislation. When the notice has been filed the mortgagor is required to file complete lists of the debtors and creditors and verified statements of the assets and liabilities. The immediate effect of the filing of the 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 the enforcements of judgments, the sale of mortgaged property, etc., is substantially .the same as tie existing protection. The only important difference is that the rights against the mortgagor or his property that can now be exercised only by leave of the Supremo Court can, under the Bill, be exercised only by leave of the court of review. After the filing of a notice, whether by the mortgagee or the mortgagor, the matter will be referred for the consideration of the adjustment commission. Meetings of creditors will then be held under the auspices of the commission and efforts will be made to secure a voluntary adjustment of mortgagors' liabilities. Threefourths in value of the creditors may bind the minority in arriving at a voluntary adjustment, but no proposed adjustment will be effected until it has been approved by the adjustment commission, the decision of which will be in turn subject to appeal to the court. In tha,t way will be ensured proper consideration .of the rights of the dissenting minority. When a voluntary adjustment has been arrived at its terms will be recorded and filed in the court of review, and will then operate as an order of that court.

POSITION OF MORTGAGORS Part 111 of the Bill 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 determining whether or not he should be given further protection from his creditors. If he is to be given further protection he is placed on the "budget,'' as described later in the Bill, If he is not given protection his creditors are free to exercise the ordinary rights of creditors, that is, to sue for debts outstanding, to realise on their securities, and eventually, if need be. to make their debtor bankrupt. The •considerations governing the decision of the adjustment commission are enumerated a» follows:

1. Whether or not in its opinion the 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 the financial position of the mortgagor is such that, without the protection afforded by the 1933 legislation, he could not have continued to carry on his farming operations even if the special economic conditions that now affect the farmina industry had not arisen. 3. Whether the mortgagor, by reason of the manner in which he has carried on his farming operations, is not deserving of further protection. 4. The conduct of the mortgagor in respect of any breaches by him of the covenants of his mortgage or his conduct in general toward his creditors. 5. Any other matters it may consider relevant.

If the adjustment commission thinks a stay-order should not be issued it may make an order postponing for such period as it thinks fit not exceeding 12 months (1) the interest or principal payable by the mortgagor under any mortgage, or (2) the date for payment of any other moneys payable by the mortgagor.. Failing 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 disposed of. Explaining this section of the Bill, the memorandum says that, generally speaking, the position is that if the mortgagor has any prospect at all of carrying on and ultimately satisfying his liabilities he will be given the benefits proposed by the Bill. If, however, his positioii is altogether hopeless, or if he has proved that 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 case, however, the mortgagor can appeal to the court of review from the decision of the adjustment commission. EFFECT OF STAY-ORDERS

Part IV of the Bill describes the issue and effect of stay-orrfsrs. When the mortgagor and his creditors have been unable to arrive at a voluntary settlement, and it has been decided either by the adjustment commission or by, the court on an appeal from the commission that the benefits proposed by the Bill be extended to the mortgagor a stay-order in respect ot the 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, .tiis faimin-r operations will'be planed under the supervision of an adjustment commission with or without the intervention ot a supervisor. A budget will be prepared of his estimated income and expenditure. He will be allowed reasonable living and working expenses, and the balance ot his income for each budgetary period will.be distributed bv the adjustment commission subject to appeal to the court of review amono- his creditors. In ordinary circum stances the mortgagor will remain under budgetary control for five years, when an adjustment of his liabilities will be made. Where the mortgagor is already under budgetary control under section 11 ot the 1933 Act a final adjustment may be made at a somewhat earlier date. In certain exceptional cases a stay-order may be dischav<red before the expiration oi the tiw years of budgetary control. In such event the mortgagor will be placed in relation to his creditors in the same position as any other.

FINAL ADJUSTMENT OF LIABILITIES

Part V of the Dill dealing with the final adjustment of liabilities will not come into effect until the farmer mortgagor has carried on his -farm under budgetary control for a period of live years. ' That period may include any period up to two years during which the mortgagor has been under budgetary control in accordance with the terms of his agreement or order under section 11 of the 1933 Act. At the end of that period ot five years the court is required to con, sider the position of the mortgagor as revealed by the accounts over the budgetary period, and (1) to determine the amount of the mortgagors' equity in 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 lie may have. The procedure to be adopted in assessing the mortgagor's equity is generally as follows: (1) From the gross income (hiring the budgetary period there will be deducted the mortgagor's living and working expenses, rates, and 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 cross income. (2) The residue will be deemed to be not income insofar as it is produced from land independently of other factors cm ployed in the production of the gross in come. (3) That the residue will be capitalised at a rat.;: to be fixed by the court, th( capital sum so ascertained to be 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 the proper basis for ascertaining the value ol 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 stayorder, '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 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 in the land, stock, and in any other chattel. 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 if the amount owing to any creditor of the mortgagor would require to be reduced in consequence _of such assessment. Subject to that limitation, the court may assess the value ot 'the equity at such amount as it considers fair and reasonable. When the value of the mortgagor's equity is determined the court proceeds to appropriate it in part to the 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 stock or other chattels i 6 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 of land or stock the reduced amounts are allotted to those mortgages in order of their respective priorities. The reduced amount of the mortgages is made repayable (where the mortgage is overdue) in five years, and in the meantime bears interest at a special rate fixed by the court. If the mortgagor sells or otherwise parte with possession of his farm within five years from the 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 the mortgagees whose mortgage securities have been reduced, and the mortgagee under-reduced 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 of the value of his farm pVoperty as exceeds the .sum of his adjusted mort<':i"es and the value of his equity. ■ The Bill extends the duration of the Mortgagors and Tenants Relief Act. 1933,. by repealing the limiting its duration to the end of 1935.