Rather than continue the committee’s earlier scrutiny of the role of “non-mainstream advisers,” the final hearing of the Senate Select Committee Inquiry into Lending to Primary Production Customers returned to an examination of the work of receivers (transcript here).
A focus on one case in particular highlighted the most difficult and challenging aspects of a receiver’s work, and provided outsiders with a clear understanding as to why the Court officials responsible for taking possession of properties will sometimes involve the local police.
One receiver gave evidence about ‘personal threats’ made to ‘numerous parties’ – including a contract truck driver who had his arm broken. When asked why the farm in question had been left idle for four years the receiver explained that although he had found tenants to farm the property, they withdrew because they believed that they would not enjoy quiet occupation of the property. He likened the situation to ‘trying to plant wheat in the middle of a Balkan war.’
His partner addressed some of the broader issues raised in earlier hearings, pointing out that:
- Although in theory the costs of a receivership were charged to the borrower ‘in the majority of cases, where there’s a shortfall, the cost is paid by the bank and borne wholly by the bank’ – who scrutinised those costs very carefully.
- Comparing a sale price to a valuation was problematic. Not only because valuation can move – with examples of ’40 per cent in a year for grazing properties’ – but the reality was that receivers ‘can’t force people to pay more’ than they think a property is worth.
- There was an ‘expectation gap’ between the value of a property bought ‘when it was going well,’ and sold when it was not.
One committee member raised the idea of a prohibition on the appointment of receivers to ‘family farms’ – an idea which is discussed in more detail in End of the line?…..should we ban receiverships? – but which is problematic for at least two reasons.
The first is that the core problem is severe financial stress. Preventing a lender from appointing a receiver may only mean that the enterprise will trade a little longer until it is wound up by another creditor – quite possibly the ATO. The failure of the business will not be any more pleasant for the proprietors simply because it is a liquidator rather than a receiver who sells the farm, and in many cases, other creditors will be in a worse position because ongoing trading has increased the amount they are owed.
The second issue is that – as one of the witnesses explained – if lenders are unable to take the steps to recover debts due it seems likely that it will impact their lending decisions. Higher risk operators may find themselves paying a higher rate, or unable to borrow as much as they wish.
The final report is due on 29 November 2017.
Other posts about the hearings of the Senate Select Committee Inquiry into Lending to Primary Production Customers: