FARMERS’ FINANCE.

Star (Christchurch), Volume LXVI, Issue 20484, 10 December 1934, Page 9

FARMERS’ FINANCE.

Government’s Rehabilitation Proposals. MORTGAGES CORPORATION. IV. Parliament is meeting in February next primarily to consider legislation for the establishment of a National Mortgage Corporation and for setting up suitable machinery for the rehabilitation of farmers' finances. In order that the people of the Dominion may luily understand and appreciate these important proposals ot the Government, the following four articles for publication have been prepared by Mr Coates, Minister of Finance. The final of the series is as follows: The rehabilitation of farmers’ finance is a pressing problem of great magnitude that is beset with difficul- | ties. The Mortgage Corporation will be the means of providing an adequate flow of capital into the farming industries at the cheapest possible rates of interest. 1 his will be of material assistance, because at a lower rate of interest a given income can support a greater capital burden. It is clear, however, that in a great many cases farms are so overcapitalised at the present level of prices that the country is laced with the necessity of providing suitable temporary machinery for bringing about expeditiously and as cheaply as possible a rearrangement of the finances of mortgagors in difficulty. Having regard to the economic and social aspects of the problem created by the major agricultural depression, it is not difficult to appreciate the objections that lie against any proposal that infringes the long-established rights of secured creditors, but in the face of circumstances that affect so many of the creditor-debtor relationships of our primary producers some ordered liquidation of liabilities based on price-levels appears to be the only practicable solution of this problem. While there was any reasonable expectation that prices would recover within a year or two, the original mortgagors’ relief legislation met the needs of the situation by empowering the Courts to postpone proceedings that would dispossess mortgagors of their properties. The continuance and growing intensity of the depression, howj ever, made it necessary to extend the scope of the legislation to authorise the Courts to reduce interest-rates and remit arrears. A number of Adjustment Commissions were also set up to assist the Courts by investigating the affairs of mortgagors in difficulty.

All of these measures were essentially temporary expedients to tide matters over pending recovery in prices. It is becoming increasingly evident, however, that a new standard of pricelevels must be reckoned upon as a more or less permanent feature. In these circumstances it is useless continuing on the basis of temporary postponement, and some general scheme of permanent reconstruction must be evolved. It is in the interests not only of mortgagors, but also of mortgagees, that this should be done. In fact, the present “stand-still” arrangements are keeping alive a feeling of uncertainty that is leading to an accumulation of idle capital and overdue mortgages, and generally proving a big stumblingblock to recovery in trade and industry. The time has come to get things, moving again on sound lines.

Some may contend that the most satisfactory solution would be to repeal all the emergency legislation and allow matters to be straightened out under the normal procedure of foreclosure and bankruptcy. So many are involved, however, that such a course would lead to chaos, and it is significant that practically every agricultural country in the world has deemed it advisable to protect its farmers from dispossession of their land. The justification for such action lies in the fact that the impact of the heavy fall in prices is felt directly and most heav : !y by the farmers, whose plight generally is entirely due to causes beyond c ‘‘.oir control. Furthermore, if a farm is being efficiently worked, there is n 'thing to be gained and perhaps something to be lost by turning the present mortgagor off the property. If such a farm is mortgaged for more than its full productive value, part of' the mortgagee’s investment and also the farmer’s equity has gone. This fact would probably be recognised in most cases, and suitable permanent adjustments made but for the possibility that prices might recover. There appears to be little likelihood of it, but a mortgagee naturally hesitates to write off capital as lost until he is sure that it is irretrievably gone. Justice to Mortgagees. Any scheme of reconstruction must be fair to mortgagees, and the basic difficulty is that at present there is no reliable basis of valuation for farm lands. An average of recent years’ prices is unsound in view of the heavy fall that has taken place, and it is not possible to forcast prices during the next few years. The farmer’s capacity to meet his obligations in the meantime is obviously governed by present prices, but to write off debts or otherwise make arbitrary adjustments between debtors and creditors as part of a final settlement based on present prices might turn out to be most inequitable, and, if done precipitately, would destroy all confidence in mortgage investments and thereby react to the detriment of farmer borrowers. While mortgagors must be temper arily relieved of charges which they cannot possibly meet to-day, any final settlement, other than by voluntary arrangement, must be postponed long enough to make reasonably sure that the mortgagee suffers no avoidable loss. Even so, it is essential that there be provided now a basis for final settlement that will induce the farmer mortgagor to carry on in the expectation of again enjoying, within a reasonable period, the use of his property subject to such charges as he can meet by farming efficiently. Any scheme which provided for an indefinite continuance of a mortgage liability in excess of the productive value of the land, unless, of course, the mortgagor had other assets, would provide no real solution. Merely placing the excess liability that cannot be carried to-day in a “Suspense Account” with the vague hope that it might be liquidated sometime in the future would mean leaving the mortgagor in the depths of despair. Unless the farmer is given the incentive of a definite chance to win through to a position where he can meet his commitments and make a reasonable living for himself, it is idle to expect him to do his best and work hard to maintain and improve the farm as a productive unit. It is not enough to promise the farmer that his debts will be reduced to the valuation of the farm at the end of a given period of years, and it is in the interests of creditors to

agree to a scheme that will give the farmer some equity in the property at the end of the period. Then his own interests will be linked up to doing his best for his creditors. A further aspect of the matter is that if the final settlement does not leave the farmer with some equity in the property, it is not a permanent solution, as without an equity the farmer could not hope to renew mortgages or arrange for any fresh finance required for improvements. The present mortgagors relief legislation is in the nature of a moratorium provision applicable to individual cases 'by order of the Court. Any scheme of reconstruction must deal with individual caser on their merits, and it is clear that the existing legislation must be left in operation to protect mortgagors until their cases can be dealt with under the proposed arrangements for final settlement. As each case is dealt with, however, it will automatically pass outside the scope of the mortgagors’ relief legislation. Special Court of Review. Having regard to the conflict of interests involved, it is inevitable that judicial powers will be necessary to deal with cases in respect of which no settlement can otherwise be arranged. Accordingly, it is proposed to set up a Special Court of Review, consisting of an independent chairman, and two associate lembers, one representing mortgagors’ interests generally and one mortgagees as a class. The present Adjustment Commissions or others constituted on similar lines w ; ill function regionally under the supervision of the Court. The ideal method of settlement of a mortgagor’s difficulties is a voluntary arrangement between the parties concerned without any intervention at all, and every encouragement should be given to the making of such arrangements. Provision will be made for the terms of any such settlement to be incorporated in a form of agreement binding on all parties after the approval of the Court has been given. This approval will have the effect of removing the farmer concerned from the protection of the mortgagors’ relief legislation and is intended to be a final settlement of his case. The settlement may mean an immediate adjustment by existing creditors or involve an arrangement with the Mortgrge Corporation or other third party to take over part of the existing indebtedness. In such cases the corporation would pay in cash or bonds as may be agreed upon. Alternatively, the voluntary arrangement may provide a basis for settlement after a period of farming under supervision or otherwise as may be agreed upon. Next should come measures for conciliation in an endeavour to bring about a voluntary settlement. The present Mortgagors’ Relief Commissions now have an extensive knowledge of mortgagors in difficulties and could be utilised for this purpose.

If the parties are unable to reach an agreement, it will be open to a mortgagor or any of his creditors to bring the case before the Adjustment Commission for the district. The first duty of the Commission will be to endeavour to formulate a rehabilitation scheme acceptable to all parties. If it is successful the procedure will be the same as outlined for direct voluntary arrangements. In cases w’here agreement cannot be reached, the Adjustment Commission will be required to investigate the case and submit a report thereon, together with a statement by the objecting party concerned, to the Court of Review. The Court will be given full powers to refer the matter back to the Adjustment Commission with directions for further consideration, hear the whole case itself, or otherwise determine the issue.

Failing consent of the persons concerned, however, the Court will not be authorised to order any immediate writing-off of capital, but if it is satisfied that the case is one for administration under the statutory scheme of rehabilitation the Court will be empowered to make a ‘‘stay order,” the effect of which will be to prevent action being taken against the mortgagor, provided he carries out the terms of settlement. In fairness to the mortgagees, however, the Court will have power to refuse a “ stay order ” in cases where a review of a debtor’s position reveals the fact that his rehabilitation is impossible, either because the debtor is incompetent, or from the extent of his liabilities, or because the property does not lend itself to profitable farming, or for any other reason. Fanning Under Supervision. In cases where a “ stay order ’ is granted, the property will come under the supervision of an administrative officer of the Court, who will probably be designated the Rehabilitation Commissioner. This officer will operate through Farm Supervisors appointed generally on the recommendation of the creditors. In the large number of cases where the Mortgage Corporation is or becomes the principal creditor, the Farm Supervisors will probably be members of the field staff of the Corjporation, but in other cases they may be stock firms, accountants or other qualified persons. The mortgagor would be called on to farm the property for the benefit of the creditors and himself, the interest of each being defined, but that of the mortgagor being made conditional on his satisfying the Rehabilitation Commissioner of his faithful discharge of the control directions under which he working the security during the period of the “stay order”—i.e., for the first five years after he becomes subject to the provisions of the Act. The basis of control will be farming under supervision on a budgetary system, the income from the farm being apportioned on a predetermined basis. This control will operate for a period of five years, after which a valuation will be made for the purpose of ascertaining the meantime fixation of the capital charge against the security. This valuation will generally be based on the productive capacity of the farm during the stated period. Unless the Court determines otherwise, 80 per cent of the valuation will become a fixed < harge in favour of the creditors, due regard being given to legal priority of claims. The remaining 20 per cent of the valuation will represent the equity to be allotted to the farmer. Final Clearance of Excess Liabilities. At this stage control of the farming operations and of the income derived [ therefrom will cease, but the proposal [ contemplates a further five years before the mortgagor can claim a clearance of ; | his excess liabilities. In all, therefore, each mortgagor subject to the provisions of the proposed Act would be restrained to a more or less degree from dealing with his property for a period of ten years, at the end of which should be little room for dispute as to the permanent losses involved. At the end of the second five-year

period a further valuation would be made of his property and 50 per cent of any additional equity then existing would be liable to be secured in favour of his creditors unsatisfied at the end of the period of budgetary control. Any liabilities not provided for at the end of the ten-year period will be automatically cancelled. There should be a further provision also for the charging-up in favour of his creditors of any free assets that the mortgagor might have or become entitled to during the period of his control by the Court. Gradually all mortgagors subject to the terms of the proposed legislation would, over a period of years, be able to rehabilitate themselves on a defined basis. The method of ascertaining the maximum liability the property can carry would be fixed at the beginning, and certain definite objects would be achieved, viz.: (a) A final termination of relief. (b) The mortgagor would get his property at a payable price, (c). The average productivity of the security over a period of five years under control would provide a basis of valuation, (d) During this period the creditors themselves, through their nominee, would supervise the mortgagor in his operations. Provision will, however, be made that at any time during control by the Court debtor and creditors may come to a voluntary arrangement which, if confirmed by the Court, will immediately free the property and place the parties outside the scope of the proposed legislation and also of the present relief legislation. It will also be open for the Court, during the second five-yearly period, to review’ the position, either on its own volition or on application of the debtor or creditor should the special circumstances appear to warrant an alteration being made. An unexpected rise in prices could possibly be dealt W’ith by general order of the Court. Assistance from Mortgage Corporation. The Mortgage Corporation will assist ir- the rehabilitation scheme by offering mortgage finance at a low r er rate of interest; and the lower the rate of interest on the new’ mortgage, whether obtained from the Corporation or otherwise, the greater the amount of existing debts that can be satisfied under any arrangement made. To extend the scope of the Corporation to render assistance, it is proposed to authorise it to take over at its discretion existing mortgages up to an amount not exceeding 80 per cent of the productive value of the security. The Mortgage Corporation will be able to take over a portion of ’ the mortgage charges at the beginning or at any time during the budgetary period, perhaps on a flat mortgage, and when the valuation has been made at the end of the period the investment of the Corporation could be increased to 80 per cent of the valuation, and the whole covered by a table mortgage. The bondholders of the Corporation, howrever, will not be prejudiced by this lowering of the margin of security on the mortgage, for the risk on the additional amount over and above the maximum provision of 70 per cent for Corporation mortgages will be carried by the State. This will be achieved by utilising the machinery outlined in a previous article for dealing with the same problem in connection with mortgages taken over from the State—that is to say, any losses in respect of an 80 per cent mortgage from the Corporation up to an amount equal to one-eighth of the original amount of such mortgage, less repayment of capital to date, will be written off against the suspense item previously referred to as the “ Contingent liability to the State.” This special rehabilitation concession will disappear in due course, leaving the permanent provisions of the Mortgage Corporation standing clear and undamaged. The whole of the proposals outlined will, it is considered, provide a practical scheme that is permanent, sound and equitable for overcoming the present mortgage difficulties of farmers and at the same time place mortgage finance generally on a much improved basis for the future. WELLINGTON WOOL Range of Price*. A Press Association message from ; Wellington gives the following as the range of prices, together with that of the opening sales last year:— Dec. 8. Dec. 7.

Merino. 60-64, 1934 64-70— d. Super 101 to d. 12 1933. d. d. Average ... Si 10* 16 to HI 141 to 151 Fine Half-bred, 56-58— Extra super . 11 3 to 12 21 to 211 Super 10 J to 11 ISi to Average 9 4 10 15 lb* Inferior SJ Mer " T ''i«'-bred, to 9 12 to 141 50-56— Super 10 J to 11 16* to Average . • 81 1 4 to Inferior . 5J to 7* 10 is* Extra Fine Crossbred, 48-50— Super 8 to 9* 13| to 16* Average ... 6 to 7* 131 Inferior • • - 4 4 5i 9* Fine Cross-bred ; Super 6* to 7* 11 to 5 h Average ... 54 to 6* Inferior ... 4 to 51 63 to Med. Cross-bred, 44-46— Super 5| 6* !>t to 121 M 9h Inferior • • • 31 to 4* 5* to 7* Coarse Cross-bred, 40-44 — Super 5J 6! 81 to 1*1 «* to Inferior ... 3* to 4 to ti Low Cross-bred. 36-40— Super 5 5t ♦1 71 to 7* Average .. 4 4 Inferior ... 3* 6* to 4 6 to Hoggets— 48-50 6 to 11 121 to 16 Fine 46-48 . 5* to 8* 9 3 14 Med.. 4 4-46 . 54 91 1 1 1 Coarse. 40-4 4 4* to M to 10 Low, 36-40 . . 4J S« to y* Bellies And Pieces— Merino— Good to super 5| to SJ 13 to 13* Half-bred— Good to super 4 8 12 153 Low to med. 21 4 101 to 11 s Cross-bred— Good to super 51 71 to 111 Low to med. 31 to 5 5 74 Crutehings— Med. to good 4 to 51 51 to 7 Seedy and inf. 2 4 3* 31 to 51 Locks— Cross-bred . . 21 to 31 31 6 Lambs— Down, 50-56 . 7 91 to 15 Fine, 44-50 . 7 Med.. 40-44 . to 9i 11 lo» to is* 12 Seedy and inf. 21 to 6* 7 1 to 111