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Agribusiness - Harvesting the Lessons
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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
Priority of interests
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
Priority of interests
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
Farm Debt Mediation Act 2011
– 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
Farm Debt Mediation Act 2011
– 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?
Farm Debt Mediation Act 2011
– 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 0565michael.johns@maddocks.com.au
Marelda Hibberd | PartnerDirect 61 3 9240 0772marelda.hibberd@maddocks.com.au
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