Karen Walsh: Best to tackle bank debt early on

Irish farmers and farming business development in general has been suppressed in recent years due to high levels of bank debt.

It is enshrined within the Irish way that a farmer’s land is his pride and joy and heaven forbid anything would happen to it, least of all, for it to be repossessed by the bank.

Bank debt can arise out of a number of different scenarios.

The most common bank debt is mortgage debt. When a farmer purchases land or buildings, they normally will require a mortgage facility from the bank to do so.

A mortgage can also be taken out to carry out works on the land such as constructing farm buildings.

Under the legal process, the land is registered under the farmer’s name as the legal owner, and the mortgage is registered as a charge on the land. 

This means that if the farmer wishes to sell the land at a later stage, they will require the bank’s consent, if the mortgage has not been paid. 

Normally, when the mortgage has been paid, you apply to remove the bank’s charge from the land.

It is common for farmers to require overdraft facilities from a bank to pay for the day-to-day running of the farm, which could range from paying creditors to buying feed.

Throughout the recession, it was not difficult to find farmers who had invested too heavily, and were then under pressure to keep the farm and pay the banks, as farming revenues deteriorated due to low grain, dairy and beef prices.

This can cause stress and pressure, and there is a risk of losing the farm. However, there is always a solution and it is advisable to speak with a solicitor or a financial advisor at an early stage, with a view to rearranging the debt or the possibility of a write-down.

It is recommended that the bank or financial institution be approached, with a view to renegotiating the debt.

This would normally entail changing the repayment structure, based on what you can afford to pay.

A writedown of the debt may be considered, by selling some assets with a view to paying off the debt at a reduced figure.

The value of the land or buildings may have reduced from when it was purchased and when the mortgage was taken out. This is known as negative equity. In this scenario, the banks can be amenable to a writedown of the debt in order that they can recover some of the debt.

There are clear Central Bank regulations stating the framework lenders must use when dealing with borrowers in mortgage arrears. This is known as the Mortgage Arrears Resolution Process.

It requires lenders to handle all such cases sympathetically and positively, with the objective at all times of helping people to meet their mortgage obligations.

You’ll normally be required to provide the bank with a statement of means which sets out all your assets, income, liabilities and expenses and will show your net worth. This assists the parties in ascertaining a viable repayment structure.

It is vital you keep up-to-date financial records, with copies of all receipts and invoices, and engage an accountant to prepare financial accounts, to see if the farm is running at a loss or profit.

If you do not do this, you are in a far weaker position if the arrears are significant, because a court will also wish to see such documentation.

If a farming business can show some liquidity, and efforts being made to keep the farm, such as business innovation or business development with the view to making better profits, this will be beneficial. 

In this regard, it would be advisable to approach an accountant or a financial advisor with a view to putting a proposal to the bank.

In the event that the arrears are large, the bank or financial institution will more than likely bring court proceedings against you to recover the debt.

There are a number of courts, the district, circuit and high court. Which court proceedings are brought in depends on the amount of the debt.

The bank normally brings two types of proceedings —debt claim or possession. 

The former is where the bank seeks to recover the amount due to them; in the latter, they seek an order for possession of the mortgaged lands/property with a view to selling.

There is still a possibility to negotiate with the bank after court proceedings have been issued, and it is advisable to do so, to try and reach an amicable solution.

A judge will not normally give an order unless they believe there is no other option, and a complete lack of engagement or co-operation from the borrower. 

Judges often stay orders for a number of months, igiving the farmer time to put his or her affairs in order and sell the property without the necessity of the bank doing so.

There is always a solution to bank debt, and it is best to tackle it early rather than leave it build, and it is recommended you should get professional advice from a solicitor, accountant, personal insolvency practitioner or financial advisor to assist making an approach to the bank.

In the event there are court proceedings, you should consult with a solicitor.


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