How PIAs can give farmers enough time to pay their debts
The Personal Insolvency Act can be used by farmers to restructure debt and retain the family home and land.
But many farmers are not aware of these mechanisms available to them, that were established by the Personal Insolvency Act 2012.
“It’s a game-changer”, says personal insolvency practitioner (PIP) Gary Digney, who addressed the recent Irish Creamery Milk Suppliers’ Association (ICMSA) webinar on debt resolution.
“What has come out of that is the personal insolvency arrangement (PIA) which can help farmers to restructure debt and, critically, retain the land.”
How do farmers get into debt in the first instance?
ICMSA president Pat McCormack says the reasons are varied.
“There’s no doubt that making the kind of investments in new equipment and storage does entail serious borrowings.
“And when that is set against low margins and fluctuating income and prices, you will have some farmers getting into difficulties. We’re not sure, either, that some new entrants completely appreciate that milk price can and does fall below the costs of production. As recently as 2016, milk price fell below the costs of production for a full calendar year, seriously impacting on farmer income.
“There’s the whole area, too, of personal and family developments such as family members going to third-level education. Certainly, family situations can mean a sizable bank loan.”
Mr McCormack also points to the transition to low emissions, which means additional costs and more regulation for farmers.
“Because farming margins are so low, the tendency has been to scale up so that the increased volumes can make up for those low margins,” he said. “If we see unjustified pressures towards lower volumes kick in over the next few years, then we’re going to come up against problems, where repayment schedules for bank loans that were premised on higher volumes will come under pressure.”
Mr Digney, a chartered accountant with PKF-FPM in Balbriggan, Co Dublin, and a PIP with a specialism in farming debt, told the ICMSA webinar that a PIA will allow for restructuring of secured and unsecured debt.
“PIAs were brought in originally so that people could restructure their mortgage debt and retain their homes, and the legislation has now been utilised to address farming debt,” Mr Digney said.
“But if a farmer can afford to pay the debt, then the debt will be paid. If the debt can’t be paid, then a write-down becomes a possibility, which is based on affordability.
“However, in a PIA scenario, you cannot write a debt down below the value of the asset it is secured against.
“A PIA can give an extension to an expired loan or expired mortgage and restructure it over a period of time that will allow the farmer to pay the debt on an affordable sustainable basis.
“Most farmers just want time to pay their debt, and a PIA can achieve this.
“It can also allow for reducing or fixing the interest rate for the lifetime of the restructured loan.”
Loan sales, and vulture funds, have however, complicated matters in recent years, and this was also highlighted during the ICMSA webinar. The experts said “they will appoint receivers, they will sell the land, and they will petition for bankruptcy”. The Irish banks, meanwhile, have traditionally been reluctant to repossess farms.
“One of the most important elements in all of this for farmers who are experiencing unmanageable debt is to seek advice early, from an experienced PIP, so they can find out how personal insolvency applies to them and where it will work,” said Mr Digney.
“In successful cases to date, the main ingredient was early engagement by the debtor farmer.
“The worst thing that can be done is to leave engagement and reaching out to a personal insolvency practitioner until all other options have been exhausted.
“A PIP can work with an accountant, solicitor or advisor, only a PIP can apply to court to grant the court protection that prevents a creditor from suing, bankrupting, or appointing a receiver on a debtor.
“The new legislation is all-encompassing and will give farmers a full protection period to engage via an appointed PIP will all creditors in one go, a one-stop solution that is dealt with once and for all.”
