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Rural Debt Mediation – Caution Required
Here’s a general principle: be very cautious about letting your client sign a Debt Mediation Agreement. In most cases they put the client in a worse position and make it easier for the bank to take possession. Of course there can be good outcomes, but we find these can be negotiated better from outside the pressure tank of formal ‘do-or-die’ round table ‘us-versus-them’ atmosphere. Here’s why …
I’ve attended several of these forums recently. It usually goes like this – the banks roll out the 5 person show and immediately say how much they appreciate the contribution agriculture makes to the Australian economy and way of life, and how they respect all the hard work your clients have done. Then, we appreciate the spirit of cooperation being shown here today and our objective is get this resolved the best way for everyone. End of speech! Your client is then invited to say something and heads are nodded and at the end of 6 hours of this, the bank says what it will accept and presents the rural client with a pre-prepared agreement. Your client then signs something absolving the bank of any damages arising from its previous conduct; your client agrees to all manner of reporting, possession and access unless payments or asset sales are completed on schedule. Basically the clients give up all their rights and are emotionally wrung out like a twisted wet towel.
There are better ways – for both the bank and for your client. All financial institutions are now required to include in their documentation the undertaking to be ‘fair and ethical’. You won’t find this phrase highlighted in their documentation but for any borrower having problems, it is absolutely crucial they know how to use it and what it may mean for them. Clients should only be encouraged to sign a mediation agreement if they are satisfied they have every reasonable prospect of complying with the terms. If the client suspects the terms of the proposed agreement cannot be met there is no point in signing. It is better to continue negotiation after the mediation has concluded. Remember also that if a client comes to you within 14 days of signing and is concerned about complying the agreement can be rescinded and probably should be.
I work with a solicitor in Sydney on these matters and the experience he has with the banks is vast. He has been known to turn up to court on Christmas day to demand an injunction against foreclosure/possession by a major bank and won. His charges are remarkably low ($880 for unlimited preliminary advice prior to court in one matter) and his advice is accurate.