MORTGAGE ADJUSTMENT

Taranaki Daily News, 13 March 1935, Page 7

MORTGAGE ADJUSTMENT

GOVERNMENT'S FINAL SCHEME fc — POWERS OF THE COURT OF REVIEW BUDGETARY PLAN FOR FARMERS By Telegraph—Press Association. Wellington, Last Night. THE'Rural Mortgagors’ Final Adjustment Bill was introduced in the House of Representatives to-day by GovernorGeneral’s Message. The encouragement of voluntary settlements between farmer mortgagors and their creditors is the object of the Bill, which defines the procedure to be adopted in arriving at these adjustments, and 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 the productive value of the farm under budgetary conditions. The 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’ Relief Act as will make it possible for them to continue occupation of their farms as efficient producers, states the explanatory memorandum attached to the Bill.

TERMS OF THE BILL

sider the position of the mortgagor for the purpose of determining whether 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. RULES FOR COMMISSION. Considerations governing the decision of the adjustment commission are enumerated as 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 or not in its opinion 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 effect the farming industry had not arisen. (3) Whether or not in its opinion a 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 the 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 twelve 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 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. In explaining this section of the Bill the memorandum says that generally the position is that if a mortgagor has any prospect at all of carrying on and ultimately satisfying his liabilities he will be given the benefit proposed by the Bill. However, if his position 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 a 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 orders. 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 appeal from the commission that the benefits proposed by the Bill should be extended to the mortgagor, a stay order in respect to 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. 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. He will be allowed reasonable living and working expenses and the balanc-' of his income for each budgetary period will be distributed by the adjustment commission, subject to appeal io the Court of Review, among his creditors. In ordinary circumstances the mortgagor will remain under- budgetary control for five years, when an adjustment of his liabilities will be mad,e. Where a mortgagor is already under budgetary control under section 11 of the. 1933 Act a final adjustment may be made at a somewhat earlier date. In certain exceptional cases a “stay order” may be discharged before the expiration of the five 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 for <’-'bts obtained against him. PREMATURE DISCHARGE. This premature discharge of a "stay order” may be obtained in certain specific circumstances, of which the following are the principal examples: (1) I* 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 the “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 the “stay order.”

CONSTITUTION OF COURT METHODS OF BUDGETING AGREEMENT ENCOURAGED Wellington, Last-Night. The memorandum stages 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 BiU by virtue of one mortgage, then the adjustments provided for in ' the Bill deal with all his liabilities, whether secured or unsecured, and are hot limited to his liabilities under the 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, 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 proven cases 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 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 existing legislation. COURT OF REVIEW. . Part 1 of the Bill sets up the 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 the proposed Act. The court will consist of three members, of whom one is to be appointed a judge of the court. The judge of the court - 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 privilege 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 are prescribed with respect to those two members. However, they are not to be appointed as partisans to represent particular interests, but in exercise of their functions they will be expected to be judicial and rmbiassed. Provision is made for the appointment of acting members of the 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, deputy-registrars and other officers of the court, who will in most cases, if riot invariably, be officers already attached to the Supreme Court or magistrate’s courts. The second part of the Bill deals exclusively with the procedure to be adopted in arriving at voluntary adjustments between farmer 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 Act, which is fixed for May 1 next. EFFECT OF NOTICE. 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 Act, which as regards enforcements of judgments, sale of mortgaged property etc., is substantially the same as the existing protection. The only important difference is that rights against a mortgagor 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 mortgagee or mortgagor, the matter will be referred for consideration of an adjustment commission. Meetings of creditors may then be held under the auspices of the commission, and efforts made to secure a voluntary adjustment of the 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 that way will be ensured the 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 orde'r of that court. 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 con-

Part V of the Bill 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 five years. That period may include any period up /to two years during which the mortgagor has been under budgetary contr ' in accordance with the terms of the agreement or order under section 11 of the 1933 Act. At the end of that period of five years the court is required to consider the position of the mortgagor as revealed by the accounts over the budgetary period, and (1) to deter-

mine the amount of the mortgagor’s 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 he may have. The procedure ,to be adopted in assessing the mortgagor’s equity is generally as follows:—

(1) From the gross income during the budgetary period there shall be deducted the mortgagor’s living and working expenses, rates, taxes, interest computed at a rate to be fixed by the court on the average value of stock and other chattels used in the production of the gross income.

(2) The residue will be deemed to be the net income insofar as it is produced from the land independently of other factors employed in the production of the gross income. (3) That the residue will be capitalised at a rate to be fixed by the court, the 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 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. QUESTION OF EFFICIENCY. 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 the 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 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 wculd require to be reduced in consequence of such assessment, subject to that limitation, the court may assess the value of the 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 the land and in part to 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 is deducted from the aggregate amount secured on 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 reduced amounts are allotted to those mortgages in order of their respective priorities. The reduced amount of mortgages is made available (where the mortgage is overdue) in five years, and in the meantime bears interest at a special rate fixed by the court. IN EVENT OF SALE. If a mortgagor sells or otherwise parts 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 the reduced mortgage may call it up. After the adjustment of the mortgagor’s mortgage liabilities had 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 property as exceeds the sum of his adjusted mortgages and 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 io the court to assess the amount for which he shall be liable under the guarantee where a stay order is in force. Another clause specifically states that the Bill applies to mortgages of the Crown. Finally the Bill extends the duration of the mortgagors and Tenants’ Relief Act, 1933, by repealing the provision limiting its duration to the end of 1935. 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 (Lab., Grey Lynn) said the proposal would in no way allow the farmer to live as'a decent human being. H enabled him only to be kept as a bond slave. It was only a postponement after three years and a Government refusal to face the problem. Mr. A. J. Stallworthy (Ind., Eden) asked what was to guide the Mortgage Corporation in selecting managers for the various farms. He said he hoped suitable persons would be selected. The Bill was introduced and read a first time.