RELIEF OF MORTGAGORS

Taranaki Daily News, 11 April 1935, Page 9

RELIEF OF MORTGAGORS

MR. WILKINSON’S VIEWS MEASURES TO HELP FARMERS. ADJUSTMENT ACT FAVOURED. A review of the provisions of the recent mortgage legislation was given by Mr. C. A. Wilkinson, M.P., to a meeting arranged by the Eltham Farmers’ Union at , Eltham last night. He did not support some aspects of the mortgage corporation measure, but in the main favoured the Final Adjustment Act. Mr. Wilkinson referred to the position of farmers’ affairs in 1930-31, and said that farm values had been reduced by at least 50 per cent. The consequences were disastrous and affected every section of the community, which necessitated immediate readjustment.

“Parliament faced an unprecedented position necessitating the suspension of party Government control and the setting up of an inter-party committee to determine the course of action. It was composed of members from the United, Reform and Labour parties and Independents, ten in all. Three weeks of long and arduous sittings resulted in the formation of the Coalition, but not a national Government, as I strongly urged during the committee’s sittings. “Only Labour and the Independents made direct reports to Parliament advocating any practical measures to meet the position. The Coalition Government’s financial proposals were those of the Hon. W. D. Stewart, whose supplementary budget suggested no relief and did not remedy the situation. Consequently I opposed the Coalition and thereby faced political oblivion,” added Mr. Wilkinson.

“At the 1931 election the Independents made strong advocacy of drastic . interest and rent reduction, but the Govem-r-ent was opposed to the suggestion and declared against our proposals. Many farmers also opposed the suggestions, although in difficulties themselves, evidently believing they could carry on.” After the, election the position showed no improvement and the Government appointed a commission to investigate finance and make recommendations. The report of the commission supported his contention and urged the immediate reduction of interest and rents by 20 per cent. It also made wage cuts and other economies. The Government accepted these proposals, and interest and rents were greatly reduced. Local bodies made great savings, the Taranaki Power Board alone saving over £6OOO per anrz— — the result of the reduction which obviated the need for a rate.

The next proposal by the Government to right the position was to increase the exchange. This was expected to put things right, but he strongly condemned it and pointed out that it was a fallacy. The exchange rise, he contended, failed to give the necessary relief to farmers, and those to receive most of the benefits were mortgagees, banks, traders and stock agents. He believed it had added enormously to the Government debt, inflated all costs and eventually would be more harmful than useful. COMMISSION SET UP. “Last year the position was still as bad as ever, although the 25 per cent, exchange had been in operation for two seasons,” said Mr. Wilkinson, “and the Government set up a Royal Commission to investigate the farming situation. The original order of reference did not include a review of mortgages, but urgent representations were made, meetings were held, and eventually the Prime Minister visited Eltham and met 400 farmers, who showed the necessity for dealing with the mortgage problem. It was men like Messrs. J. Cocker, H. A. Hunt and S. Bennett who did good work m bringing this aspect to the front, and finally the order of reference was amended to • enable the commission to deal fully with the question.” The report was such that no Government could ignore the findings, arid probably no commission ever set up in New Zealand had exerted such influence upon a Government.

The immediate result was the Agricultural Emergency Act and the reconstruction of the Dairy Control Board, the Government taking full power to control all primary products except wool. This, however, offered no relief from the main troubles of farmers, and the next step was the establishment of a mortgage corporation. After 40 years of great service the State Advances Department was to be abolished and a new lending institution set up. This would be largely under private control and the rates of interest would probably be higher than the .economic conditions warranted.

As a system of practical and permanent relief he thought his own scheme preferable. This would abolish all farm mortgages and farmers would pay their interest or rent in produce instead of mqney. However, the House had just the Rural Mortgagors’ Final Adjustment Bill. He tried to introduce by amendment the reduction of the budget period from five years to two, but this was not agreed to, although the proposal for cash budgetary payments to farmers was accepted. ® The Rural Mortgagors’ Final Adjustment Act, 1935, was intended to encourage voluntary settlements between farm mortgagors and their -creditors,, but in effect it was also a very big stick and provided many unpleasant consequences if settlements were not brought about by mutual agreement. Personally he would much prefer that voluntary settlements should be made, but he advised mortgagors to be sure that they did not make foolish settlements in view of what had been done for them by Parliament. The Act was a recognition that existing contracts, where they were inimical to public interest, could be varied or cancelled, and under its operation farm mortgagors, whose mo' i+ "-ge and other debts were beyond their capacity to pay were assured of a chance to recover their position. The mortgagee was also assured of a fair “run for his money,” both by voluntary settlement and by the compulsory method. ' '

Part 2 of the Act empowered mortgagors to give notice within twelve months to the nearest court that they required an adjustment of secured and unsecured debts. This would obtain immediate relief from all debt claims, as well as from obligations under the Mortgagors and Tenants’ Relief Act. Farmers were then in exactly the same position as if they came under a “stay order.” A provisional trustee was appointed to take control as speedily as possible. One important clause provided that if it were shown that any creditor of the mortgagor was entitled to receive the whole or the greater portion of the proceeds of the sale of stock or other produce derive- 1 by the mortgagor from his farming operations that person, or a person nominated by him, should be entitled to be appointed as provisional trustee. The court had power to remove such trustee on the application of the mortgagor. The provisional trustee had power regarding the living expenses of the mortgagor and he might himself be paid for his servicer. MEETINGS OF CREDITORS. The adjustment commission then called a meeting of all creditors and these, representing three-quarters in value, might agree with the mortgagor regarding readjustment. The commission might

agree or not with the proposed settlement. If agreed to, any objecting creditor might appeal to the court within 14 days, but if finally agreed to either by the commission or court an order would be made. The court . order cancelled debts, secured and unsecured, outside the scope of settlement. In the event of the mortgagee not executing instruments in compliance with the settlement the court registrar would sign on his behalf.

Part 2 of the Act dealt wholly with voluntary settlements, but the provisions of part 3 were applicable where voluntary adjustments of liabilities were not made. Where negotiations had not been successful, the adjustment commission, subject to an appeal to the court, might direct that a stay order 1 be issued or not be issued. The commission should have regard to the fact that the paramount object of the Act was to provide a means of giving to farmer mortgagors such relief from their financial obligations as would enable them to be retained in the use and occupation of their farms as efficient producers, except in cases where the giving of such relief would involve the imposition of undue hardship on mortgagees or other creditors. The commission should take into consideration whether the financial position of the mortgagor was such as to enable him to continue his farming operations satisfactorily without the protection of a stay order; whether or not the financial position of the mortgagor was such that without the protection of the principal Act he could not have continued his farming operations, even if the special economic conditions that affected the farming industry had not arisen; whether the mortgagor, by reason of the manner in which he had carried on his farming, was not deserving of further protection; the conduct of the mortgagor in respect of any breaches by him of the covenants of the mortgage. It was further provided that if the commission thought a stay order should not ’be issued it might make an order postponing for a period not exceeding 12 months the interest or principal payable by the mortgagor or the date of payment of any other moneys payable by’ the mortgagor. If a stay order was not made and an appeal not loged within the prescribed time, or if the appeal was dismissed no further protection would be given under this or the principal Act and the mortgagee or other creditor might exercise his powers or rights as if the principal Act or this Act had not been passed. POSITION. UNDER STAY ORDERS.

Mr. Wilkinson touched on the position

resulting when stay orders were made under part four. In regard to his farm property only a mortgagor was then immune from summons, imprisonment for debt, seizure, of his property, payment of unpaid rates or bankruptcy proceedings. In the event of the death of a mortgagor his estate was protected in similar manner. As soon as possible after

the issue of a stay order a trustee was appointed who would - act as agent of the mortgagor, but with power to enforce his rules subject to the commission. The commission had power to dispense with the appointment of a’ trustee where such was not required for the protection of the creditors and might appoint the mortgagor as trustee, but any creditor had the right to appeal against such a decision and appointment. The trustee should have the sole right to receive all moneys and give a discharge of such moneys, and the failure of the mortgagor to pay over all moneys might mean the cancellation of the stay order. The trustee was to pay all moneys into a trust’ account at a bank and keep proper books of account, all parties to have access to such books. The trustee might be remunerated for his The trustee should prepare a budget of income and expenditure for the year, this to be submitted to the mortgagor, who should be given an opportunity of making representations regarding amount of living and working expenses. The mortgagee should have similar rights. The income received by the trustee should be disbursed in accordance with the directions of the commission and debts incurred by the mortgagor in respect to his farming operations within twelve months before the commencement of the first budgetary period might be paid. It was directed that provision should be made for the payment in cash of reasonable living expenses of the mortgagor and his family and' for adequate working expenses before any payment was made in respect of rates, rent, taxes or other statutory charges on the farm lands of the mortgagor, but before any payment was made for interest on land or chattels mortgage provision should be made for the payment of rates and taxes and other statutory charges. When land was leased provision should be made for the payment of rent before any ’payment of interest was made to any rhortgagee, and as between mortgagees payment should be made in the order of their respective priorities of mortgage. A stay order might be discharged by voluntary adjustment of liabilities, but a mortgagor was restrained from disposing of his property during the continuance of the stay order. There was also a restriction of the rights of a vendor under a hire-purchase agreement, the owner of the chattel, except with the consent of the commission, being unable to determine the agreement or remove the chattel from the possession of the mortgagor. Capital assets in the hands of the trustee that were not connected with farming operations might be realised for the benefit of creditors if the court so directed.

The final adjustment was made under the provisions of part 5, said Mr. Wilkinson. After the stay order had been in force for the budgetary period of five years the court should make- a final adjustment of liabilities, whether secured or Unsecured, but the- mortgagee and mortgagor might agree to adjust at any time before the five years. It was also provided that the budgetary period might be deemed to date back two years previous to budgetary control. On the final adjustment the commission would proceed to ascertain the productive value of the mortgagor’s farm lands. This was to be an amount equal to the net average income during the operation of the stay order. In arriving at the value all expenses of running the farm other than capital expenditure should be taken into account and interest on stock and chattels was to be a charge as farm expenses. The commission was empowered to decide finally regarding value, all factors to be taken into consideration, including the efficiency or otherwise of the management. After the provisional basic value of the land had been fixed, notice should be served on the mortgagees and mortgagor and all parties would have ample opportunities to appeal. Then came the crucial point. If the basic value was less than the mortgages these were to be reduced to the amount of the basic value, arranged according to the priority nirim of the respective mortgagees. For example, if a farm was mortgaged a- foUows: First £4OOO, second £lOOO, third £5OO, and the value of the land was only £3OOO, the £5OO and £lOOO third and second mortgages respectively were cancelled, and £lOOO of the first mortgage cancelled. If there was a stock itgage of £5OO and the ascertained value of the stock was only £3OO the balance of £2OO was cancelled. All unsecured debts were also cancelled.

New mortgages for five years fronj settlement date should be given, ans interest should not exceed the basic rate prescribed by the court. These interest rates would be determined later. The same principle also applied to stock mortgages. If the farm was sold within five years the mortgage might be called up, and if the sale price exceeded the

basic value up to half the excess amount should be payable to the mortgagee and the surplus to the unsecured creditors. The court was to determirie whether the mortgagor was to be allowed to continue, taking into consideration his conduct and position during the stay order.

If the mortgagor was dissatisfied and c’ 'ed to go off the land the mortgage was deemed to be a debt to the mortg~"ee as an unsecured creditor and the farm might be taken over by the mortgagee or, if he declined to do this, it m : -' ’be sold. Should there be a surplus over the new mortgage value, this would be available as compensation to the mortgagor for his services during the stay period. If the court decided that the mortgagor must vacate he would also get a clearance of his debts 1 process of the new law.

At the conclusion Mr. Wilkinson was thanked for his exposition of the legislation.