Banking royal commission: 'Destructive' rural receivers won't be questioned

The behaviour of receivers will not be investigated by the banking royal commission, despite a witness accusing them of causing a "massive destruction of value" for farm businesses.

In the opening address of the round four hearings, counsel assisting Rowena Orr announced the commission would not asses the role of receivers in farm foreclosures because it was not in the terms of reference.

"The conduct of receivers does not fall within the terms of reference of this royal commission because receivers do not fall within any of the categories within the definition of a financial services entity," she said.

"A receiver cannot be considered to be a person or entity that acts or holds itself out as acting as an intermediary between borrowers and lenders."

Farmers in attendance, many of whom had travelled from interstate, were visibly upset with the announcement.

"While receivers are appointed by a bank, they are generally stipulated to be an agent of the borrower and they are subject to a separate and distinct regulatory regime under chapter 45 of the corporations act," Ms Orr said.

Farmers in the audience applauded witness Chris Wheatcroft, from Rural Financial Counsellors WA, who appealed to the commissioner to reconsider.

Mr Wheatcroft accused receivers of wasting farmers' money when they took over a property and managed it until a buyer could be found.

"It is a massive destruction of value and that sits deeply with people," he said.

"I wonder if the commission could look at [the reasons] why receivers are put in, as opposed to the practice of receivership.

"There is nowhere to go once receivers are in, and in terms of values, farmers will see their hard-earned money-farm-asset disappear under a receiver like you've never seen," he said.

"They would perceive the money as absolutely wasted and I would be hard pressed — with my background from farming or business management — to say that is not correct".

Mr Wheatcroft also said the receivership process was not good for anyone involved — farmers or banks.

"The act of putting in a receiver never benefits the client, I categorically say that," he said.

"I actually think in most cases it doesn't benefit the bank [either]."

Dennis McMahon from Legal Aid Queensland, who also gave evidence at the royal commission, said farmers were often too stressed to engage with receivers, and might not be aware of the trouble they were in.

"Some of those people may have been through years and years of drought or had to destroy all their livestock, so they may not have any income for the foreseeable future," he said.

"I've been to properties where there is three months' worth of mailing sitting in the corner and they [farmers] are unable to open it.

"The bank manager complains that person isn't responding to their requests for information, but those people are sick, they are suffering from depression.

"They need a lot of assistance and time to work through their problems, and don't know who to go to."

Ms Orr said the Commonwealth Bank told the commission it took enforcement action against 82 agriculture customers in the past decade, while ANZ said it took enforcement action on 30 farm businesses in the last four years.

Calls for receivership reform

New South Wales National Party senator John Williams, who agitated for a royal commission into the banks, said he was disappointed the behaviour of receivers would not be probed.

However, he said hoped banks were now reconsidering their reliance on insolvency practitioners in future, arguing the process was too stressful for family-run farms.

"I'm disappointed, but it's not for me to direct the royal commission," he said.

"The Government set the terms of refence, but that doesn't stop us in Government working with banks to get things changed.

"I've said to banks and the Australian Bankers Association, 'please do not send receivers into family farms'. It's all good to send them into corporate farms because the management is retained.

"So even if the royal commission isn't looking into it, I hope banks don't send receivers into family farms."

In 2017, the Select Committee on Primary Production Lending recommended the Australian Bankers Association revise the Code of Banking Practice to stipulate that if farmers and banks cannot come to an agreement and foreclosure is inevitable, receivers should not be appointed.

The committee also recommended the farmer and his or her family be allowed to stay on the property and manage it, while being paid the minimum wage, until it is sold.

It also recommended insolvency practitioners be more transparent by providing an estimate of receivership costs in advance, and monthly reports to the lender and the borrower afterwards.

"A key problem we found [in that inquiry] was with receivers when they ran the farm — the cost of running them [was high], we had evidence of farms for what I considered to be sold for far below their value," Senator Williams said.

"I've seen some situations where sometimes it's not done well and it's an utter disgrace how receivers manage the livestock and the property.

"Farmers need to be treated with respect and dignity, and sending in receivers is too hard and there's a huge cost they charge, which means less money for the banks anyway, so it's better for banks to work with farmers on an exit plan."

Senator Williams said he hoped the royal commission's failure to probe receivers would lead to a renewed push for a national farm debt mediation scheme, where banks would be forced to offer mediation to farmers before foreclosing on them.

Currently only New South Wales, Victoria and Queensland have legislated farm debt mediation schemes in place, while South Australia has a voluntary one.

Ms Orr said "several" financial service entities had told the royal commission "they would support a uniform farm debt mediation act".

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