Michael Johns - Maddocks

Agribusiness - Harvesting the Lessons

Michael Johns | Partner

Marelda Hibberd | Partner

Melbourne Forum Cairns August 2012

Agenda Introduction

Carbon Tax – Carbon Farming Initiatives

Personal Property Securities Act 2009 (Cth)

Security over Water Rights

Farm Debt Mediation

Foreign Investment Review Board

Introduction

“…notorious problems face Australian farmers. They include harsh climatic conditions, the vulnerability of crops and animals to disease, unpredictable volatility in prices on world markets, the tendency of farmers to be asset-rich and cash-poor, their dependence on loans, the risk of speedy ejection from their land if there is entire freedom for creditors to enforce their general law rights, despite the possibility of remedying defaults if climatic and market conditions change…” Heydon J Waller v Hargraves Secured Investments Ltd [2012] HCA 4

Introduction

Importance of agribusiness to Australian economy

135,000 agribusiness in Australia

375,000 people employed in the sector

Insolvency in the supply chain

Introduction

Supermarket price wars

Live export ban

Carbon pricing scheme – carbon farming initiative

MIS

“chook-lit”

Carbon Tax - Legislation

From 1 July 2012 businesses charged for each tonne of carbon they emit into atmosphere

3 year fixed price period

– Unlimited supply of ACCUs at set price (initially $23 per tonne)

Floating price period

– Number of available permits set 5 yrs in advance

– Permit numbers will reduce over time

– Price ceiling $20 above international rate and floor $15

Carbon Tax – Who Pays

500 big polluters – NGERS

www.cleanenergyfuture.gov.au

Criteria:

– Direct emitter with ‘operational control’- owns, operates, liable for, joint venturer in facility that emits certain gases

– Meet threshold of 25,000 tonnes CO2 per annum

Carbon Tax - Exclusions

Various exclusions exist in the scheme including:

– Agricultural emissions

– Transport fuels (until 2014)

Carbon Tax – Forecast

ABARES modelling shows reduction in value of farm production approx 1 to 2 percent

Dairy industry impact 2 to 3 percent

IBISWorld predict carbon tax will wipe $3.2 billion from operating margins

Rise in cost of fertilisers, electricity and transport post 2014

Carbon Farming Initiatives

Farmers, Landfill Operators, Land Managers earn ACCUs by storing or reducing green house gas emissions on their land

Can trade the ACCUs – Kyoto and Non-Kyoto

ACCUs are financial products under Corporations Act

Likely to need an AFS licence to trade

Carbon Farming Initiatives

Two main categories of offset projects:

1. Reducing or avoiding emissions

2. Carbon Sequestration

CFIs must be approved by Govt

– Stringent requirements include must satisfy additionality test. Not required by law, going beyond “common practice” in the industry

– Approved methodologies – eg. Native Species Planting

PPSA – Livestock, Crops and Wool

“agricultural PMSI” (purchase money security interest) – Explanatory Memorandum

Intended to replace crop and stock liens under State based laws

Enables farmers to obtain additional finance using crops and livestock as collateral

Crops, livestock and wool are included in definition of “goods” under Act

PPSA – Livestock, Crops and Wool

Crops, livestock and wool defined terms under section 10 of PPSA

Proceeds defined s31(4) – (6)

Crops as fixtures on land?

– Distinction between annual crops produced by annual labour and all other crops

– Land/Fixture on land excluded from PPSA

PPSA - Livestock, Crops and Wool

(1) Relationship between interest in land and interest in crops

(2) Attachment of security interest to crops and livestock

(3) Priority between security interests in crops and livestock

Relationship – land and crops

Section 84 PPSA

– Security interest in crops will not affect the rights of a mortgagee or lessor of land on which the crops are growing if:

those rights existed at the time the security interest was created; and

lessor/mortgagor has not consented in writing to the security interest

Relationship – land and crops

Perfected interests in crops are not affected by a sale, lease or mortgage of land on which the crops are growing

Attachment

Section 84A: perfected security interest may attach to crops while they are growing and to products of livestock before they become proceeds (eg. wool on a sheep’s back before it is shorn)

Priority of interests

Section 85 (Crops) and section 86 (Livestock)

– perfected security interest granted in crops or livestock or the proceeds of crops or livestock has priority over any other security interest granted in the same crops/livestock or proceeds if:

granted for value; and


granted to enable the crops to be produced/livestock to be fed or developed; and

Either:

– the crops are growing/livestock held at the time the security agreement is entered into; or

– the crops are planted/livestock acquired during the 6 months after the date of the security agreement


Competing interests:

– under sections 85 and 86; or

– between an interest created under these sections and a PMSI

Water Rights

Unbundling of water rights in Victoria in 2007

New water register established

Examples - Murrumbidgee irrigation system

Water Rights

High and low reliability water shares

Delivery shares

Water use licenses

Take and use licences

Water Rights

Water rights excluded from PPSA

Security can be recorded on water register

Issues where security contains specific description of earlier (bundled) rights

Farm Debt Mediation

Background

– NSW: commenced in 1994

– Victoria: commenced in December 2011

– SA, WA and Qld: rely on voluntary scheme advocated by those States’ Farmers Federation

Farm Debt Mediation

Concepts

– Applies to ‘Farm Mortgages”

– Requirement to give notice

– Obligation to attend mediation

– No costs jurisdiction?

Farm Debt Mediation

Requires a creditor to provide a farmer with an opportunity to mediate before taking enforcement action/possession

Cannot contract out of obligations

21 days notice of creditors’ intention to take enforcement action

Farm Debt Mediation

Within 21 day notice period, farmer entitled to request mediation

Small Business Commissioner to manage mediations

Prohibition certificates v exemption certificates

Overview: Victoria so far…

39 Disputes

– 34 creditor initiated

– 5 farmer initiated

Farmers often in denial

Advisers from Rural Financial Counselling important

Farm Debt Mediation

Waller v Hargraves Secured Investments Ltd [2012] HCA 4

– NSW Act

– 2003: Ms Waller borrowed $450,000 from HIS secured by an “all moneys” mortgage over her farm [“farm mortgage” under the Act]

– 2004: default/HIS served notice of intention to enforce the mortgage

Farm Debt Mediation Act 2011

– Ms Waller requested mediation

– Mediation took place, parties entered into a further loan agreement in 2005 – increased loan to $640,000 repayable in 2006

– August 2006: further default, parties entered into new loan agreement repayable in 2009

– October 2006: no interest payments, HIS issued a certificate allowing for enforcement on basis that a mediation had taken place


– HIS obtained orders from NSW SC for possession of the farm and judgment for principal and interest

– Ms Waller appealed to NSW CoA – dismissed

– Ms Waller sought special leave to the High Court


– HC was asked to consider whether:

the mediation undertaken in respect to the first loan agreement applied to the third loan agreement?

Does prohibition of enforcement extend to seeking recovery of moneys by way of judgment?


– HC held:

the third loan agreement created a “new interest” over Ms Waller’s farm and the certificate related to an earlier farm debt

“enforcement action” extends to any other action to enforce a mortgage including recovery of a money judgment

FIRB

Australia’s agricultural sector is attracting increasing interest from abroad due to food security concerns and the need to feed an expected world population increase of 2 billion people (27% increase) by 2050

Source: UN Population Division, The World at Six Billion (1999)

FIRB

Australia’s food security?

– Cth senate enquiry

– Report on the level of foreign investment in Australia’s agribusiness sector

Acquisitions of farm land or agricultural businesses valued at under $244m by non-government foreign investors do not need FIRB approval

FIRB

Proposed Register of Foreign Interests

National Interest Test

Agribusiness - Harvesting the Lessons

Michael Johns | PartnerDirect 61 3 9288 [email protected]

Marelda Hibberd | PartnerDirect 61 3 9240 [email protected]

Michael Johns - Maddocks

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