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Questions on insolvency

Questions on insolvency

TYSON CATTLE    Farm Weekly   04 July 2013 02:00 AM
RECEIVERS and lawyers have been placed in the spotlight by Member for Eyre Dr Graham Jacobs.

Addressing Small Business Minister Liza Harvey in State parliament last week, Dr Jacobs questioned some of the fees and charges made by receivers once a farm goes into insolvency.

And he presented the almost step-by-step process encountered by farmers in financial trouble.

"A number of farms, usually the larger operations over recent times, have followed a pattern to insolvency," Dr Jacobs said.

"Farms under financial pressure due to lower rainfall years and poorer crop yields have their properties revalued by the bank.

"The valuation costs incurred by the bank are usually upwards of $10,000 and allocated to the farmers' overdraft.

"The valuation reduces the farmers' equity making his operation even less viable according to the bank's farm lending criteria.

"Finance is then advanced at much higher rates of interest or withheld due to a higher risk profile."

Dr Jacobs said high levels of interest of more than 13 per cent, led to the likelihood of a farmer defaulting on loans.

"Default leads to freezing of accounts and no further finance is made available," he said.

"While default interest is accumulating at 16pc and above, a farmer has no income-generating ability to repay the interest with everything frozen.

"The bank then usually commissions an independent farm review.

"The review then recommends whether the farming enterprise is viable or not and the bank can use that report as support for appointing receivers and administrators to the business."

Dr Jacobs is well connected on the issue of farm insolvency with more than a few farmers in his electorate in receivership.

Agriculture and Food Minister Ken Baston said in May that under 40 farm businesses in WA had not received carry-on finance for this year.

In the most recent survey commissioned by the Department of Agriculture and Food (DAFWA), Broadacre Farm Business Financial Health said 35pc (140 farm businesses) had experienced alterations in their contractual finance arrangements.

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