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For farmers, drought not the most dangerous predator on the horizon

Unfair lending practices and a system that favours bankers over farmers is threatening rural Australia’s livelihoods, says a Queensland farmer and grazier. Freelance journalist Amanda Gearing hears his story.

Lack of water can be the least of a farmer’s worries in times of drought. Predatory banks can be just as deadly to a farmer’s livelihood.

Former Queensland farmer and grazier Lynton Freeman has become increasingly anxious about the financial tightrope being walked by Australian farmers as the record floods of 2011 have given way in only three years to savage drought. He fears for hundreds of family farmers at risk — not from lack of water, but from lack of knowledge in how to manage their businesses through the drought and keep their heads above the financial water that will threaten many before this drought breaks.

Freeman’s concern is born of experience. During the 1990s drought, his farm was declared viable and qualified for the federal government’s drought assistance package. Freeman was granted an interest subsidy, to help with payments to his bank on a $500,000 loan against his $2.5 million property.

His finances were robust, as he had five income streams — a herd of 2500 head of beef cattle, grain cropping, timber harvesting, a heavy earth-moving contracting business and mining royalties for gravel sales — three of which were drought resilient. He didn’t miss a payment, yet his banker would not accept the government subsidy and tried to force him to sell up in 1998.

Freeman’s background in accounting and in law as a court registrar gave him a rare perception of the struggles ahead when his bank did not accept his government drought interest subsidy.

His struggle continues despite 15 years locked in litigation, but he remains hopeful of a resolution. “I haven’t won, but I haven’t lost, either. I’m still fighting,” he told Crikey.

His first court case led to a judgment in favour of the bank, which he believed was not just. He dissected the judgment clause by clause and systematically addressed each part over the following years in an attempt to prove to the courts, the bank and government inquiries and commissions that there had been several mistakes in not only his case but in many others as well.

He identified systems within the banking industry and their corporate cultures that he believes are toxic to the sustainability of Australian farming business enterprises — especially when they are stressed by the financial risks of the familiar cycle of drought and flood in this country.

His contention is that when swathes of country are drought-stricken, banks don’t foreclose on every over-stretched loan, because this would jeopardise real estate prices. Instead, he believes prime rural properties — those with drought-resistant incomes — are targeted for bank loan enforcement because of their superior resale potential during a drought.

These properties are also more likely to be ruled viable, qualifying the owners to receive government assistance. Yet the banks can subsequently rule the properties unviable and foreclose.

His cash supplies long gone, Freeman represented himself in the Queensland Supreme Court and Court of Appeal from 2001-2010 and the Federal Court of Australia from 2001-2012. He took his case to the High Court in 2003.

Freeman has documented his experience and his analysis of problematic banking and judicial processes in reports and submissions to the Australian Prudential Regulation Authority, the Australian Securities and Investment Commission, the Australian Competition and Consumer Commission, the Productivity Commission and various parliamentary committees.

These submissions have contributed, he says, to rulings that have required bankers to refund more than $1 billion to 400,000 customers so far.”

These submissions have contributed, he says, to rulings that have required bankers to refund more than $1 billion to 400,000 customers so far.

Despite gains in competition policy, Freeman is fearful there will be another spate of rural bankruptcies as the speed of the drought-flood cycle increases due to climate change, putting added — and in some cases, insurmountable — strains on farm businesses that have been able to cope in the past.

While floods can cause costly damage and stock losses, they also yield crops and feed for stock in the longer term. Droughts, on the other hand, don’t have an upside. Droughts also have a sting in the tail — no one knows when the drought will end, so anyone trying to keep livestock alive has to make the invidious decision week by week to spend money they may not have to feed their core herd. Or watch them starve. Or make a safe financial decision, stop spending money on fodder, and sell or shoot their stock.

Government drought aid in the past has combined interest subsidies, fodder and transport subsidies and in some cases exceptional circumstances payments, the equivalent of unemployment benefits. The difficulty for farmers, bankers and governments during droughts is that decisions about whether a property is viable cannot be known until after the drought ends.

Recent court cases in England, Ireland and the United States have made rulings against the same types of banking practices that have been used in the past against Australian farmers.

Freeman sees many failings in the current system in which banks and courts process farmers out of business in a court system that he believes is heavily stacked against the farmers’ interests. In a bid to remove what he sees as the worst of the injustices, he has compiled a list of suggestions, which he has dispatched to Agriculture Minister Senator Barnaby Joyce.

Freeman’s plan calls for a system of mortgage guarantee insurance and income equalisation deposits that would buffer primary producers from the vagaries of climate risk and would support or replace drought interest subsidies.

The benefit would be more certainty for both farmers and banks, reducing the risk of banks leaving the rural sector because of the increasing riskiness of agriculture.

Freeman also sees positive flow-on effects. “If the income equalisation deposits are used as a seed capital borrowed by a mortgage guarantee insurer, through assignment it may create capital equivalent to a sticky deposit under APRA tier-two guidelines,” he said.

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  • 1
    paddy
    Posted Friday, 7 March 2014 at 3:40 pm | Permalink

    Bloody good article Amanda. I’m much better informed after reading it. Kudos.

  • 2
    zut alors
    Posted Friday, 7 March 2014 at 4:03 pm | Permalink

    If Mother Nature fails to inflict enough cruel blows on our farmers the banks can be relied upon to finish them off. Surely the men & women on the land are the bravest Australians.

    An interesting article, thanks.

  • 3
    Shaniq'ua Shardonn'ay
    Posted Saturday, 8 March 2014 at 11:23 am | Permalink

    Excellent stuff.

  • 4
    Liamj
    Posted Sunday, 9 March 2014 at 12:56 pm | Permalink

    Good article, unheard-of in mainstream media, but why no naming of the bank in question (NAB) or the many similar cases? See http://www.independentaustralia.net/business/business-display/the-nab-small-business-and-the-wilful-ignorance-of-judges,5426 for a wider view.

  • 5
    Roy Finch
    Posted Sunday, 9 March 2014 at 1:28 pm | Permalink

    Great stuff, Amanda.

    ” His contention is that when swathes of country are drought-stricken, banks don’t foreclose on every over-stretched loan, because this would jeopardise real estate prices. Instead, he believes prime rural properties — those with drought-resistant incomes — are targeted for bank loan enforcement because of their superior resale potential during a drought “

    I think this para is the essence of your entire article.

    Thanks for all the interesting info and keeping us semi-ignorant city folk up to speed with the realities facing our country cousins.

    Can’t wait for your next piece.

  • 6
    Altakoi
    Posted Monday, 10 March 2014 at 9:18 am | Permalink

    Concerning, because we need to make food much more than we need to make bank dividends. I think the great tragedy of the boom years in Australia is that all that money was largely captured by the financial sector and misallocated for its gain. The house price fiasco is not nearly as much a problem because of unaffordability as it is in representing a few bazillion dollars sunk in non-productive assets rather than better farm infrastructure or insurance, for example, or education, or transport. Australia is bleeding to death through a parasitic financial sector which is only really interested in capturing all the free income to service retail debt. I’m not sure than, failing the sort of cheap access to funds a national development bank might afford for example, Australian farms can survive as anything other than large corporate enterprises. If you are a big corporation, sure, free money abounds - international lenders, governments on the ‘too big to fail’ trail etc. Only a large organisation can absorb the risks of an increasingly erratic climate, an even then only up to a point.

  • 7
    klewso
    Posted Monday, 10 March 2014 at 9:50 am | Permalink

    Yes, but handing over a list of suggestions to counter injustices to one of those “Darling shower” locusts, “Farmer’s Friend” Cousin Jethro - “Captain Cubby” (dehydrating those downstream) - member of the party that decimated dairies?
    Who has a penchant for saying one thing to one audience and something else to the next?

  • 8
    Take A Letter Maria
    Posted Monday, 10 March 2014 at 12:01 pm | Permalink

    @Altakoi

    I agreed with the first half of your comment, but corporatizing farms on a broadbrush scale is not the answer either. Approaches like that cause too much of a disconnect between rural and city or visa versa. Besides that it smells of Corporatocracy.

    Reigning in the parasitic financial sector is within context of better farm practises and management.

    Michael West wrote an excellent article in this morning’s Age.

    He railed at the this Govt’s mollycoddling of the Big 4 and the winding back of previous proposed legislation for financial services.

    To answer why the Big 4 receive so much pandering all he has to do is research the biggest shareholders in all of the Big 4, or even the shareholder base of the lesser banks and lenders and then it will all unfold.

    Up to 25% holding is all off-shore nominee trustfunds. In other words, they are untraceable. Nuff said.

  • 9
    klewso
    Posted Monday, 10 March 2014 at 3:27 pm | Permalink

    When you get too big to fail, you’re big enough to scare the government.

  • 10
    lynton Freeman
    Posted Tuesday, 11 March 2014 at 11:40 am | Permalink

    Comment Lynton Freeman.
    I agree incorporating farms is not the answer nor is necessarily bigger holdings. Efficiency in the use of resources is the important factor.

    Secondly when dealing with banks and courts an individual must remember the bank will do anything to avoid liability and will not admit they are wrong even though they have publicly admitted the facts and wrongdoing.

    They will manipulate the customer by various representations and using outside persons and forces easily recruited by such powerful organisations.
    These include, Police (false criminal charges where police take into evidence property needed by another party to press that party’s claims against the bank),
    Receivers (where their indemnity under the mortgage provisions allows them to sell property not subject to mortgage and have bank protection even to the point where the bank takes responsibility for the receivers accounting in indemnity);
    and Bankruptcy Trustees- (Bankruptcy Trustees have the right to call on the Inspector General to provide court funds to allow them representation when banks are involved this happens and when the Trustee is eventually proven to be wrong the funds are not required to be refunded by the Government.
    Court Officers, are like other employees with limited authority, when bank legal representatives appeal to them to use their authority against an individual they may accept the representation and be used to further the banks’ case.
    Valuers, do not want to be sued and so keep that in mind when dealing with bank situations so bank and bank valuer representations have to be treated with scepticism;
    selling agents etc. who in turn apply their skills to support the bank with the use of their support mechanisms and will allow themselves to be manipulated to further bank desires. Eg . In my case the selling agents sold cattle as unbranded under stock squad supervision where in the same sale yards others where being charged with the offence of selling unbranded cattle.
    I my charges for stealing the prosecution before the trial started, but on the day of the trial. dropped the offence from 450 cattle to some 100 cattle of other entities held in evidence they said I stole. However all the transactions accept one had been completed through the my NAB accounts and this was confirmed. When the prosecution closed their case the judge asked if their was any justice in this case as the only cattle that could be stolen were 8 head on his reckoning. In fact the 8 head were part of a consignment of cattle valued at $10,000 where the transaction was made through two entities both banking National and the transaction was known to the bank.

    Why did the NAB allow this to happen? It may be attributed to their corporate culture as described by APRA in March 2004 and published.

    I HAD DEFINED THE NAB CORPORATE CULTURE IN AUGUST 2003 AND ADVISED SAME to NAB.

    We had two hearings in the Federal Court between that date and the public admission of the culture by NAB March 2004. Both involved incorrect facts presented by NAB and I lost both.
    NAB refused to settle using my material facts defining the corporate culture and they were that NAB had falsely debited accounts with Debit Tax, falsely claimed interest payments, collected incorrectly levied default interest and levied incorrect fees against accounts.
    I then advised APRA of these facts in April 2004.
    By 20 October 2004 APRA and ASIC had signed an Enforceable Undertaking with NAB where NAB were required to audit individual accounts. The following 6 years saw NAB not properly complete the audits (there are 4 headings not included that I know of) but NAB did not correct one court judgment voluntarily, including mine and denying all their admissions in the courts. The judges accepting their incorrect affidavits and representations.
    NAB was aware when they proceeded in the courts against me that their accounting was incorrect and may be a fraud pursuant to various acts but continued the bluff with judicial support except for a few judges who have my respect.They did not always give me the judgment but did admit things were not correct when it was brought to their attention.
    The upshot is that depending on the value the NAB may have claimed interest subsidy from about 95,600 farmers accounts where they admitted the incorrect manipulation of default interest and other acts back to 1992 the date of commencement of the interest subsidy scheme.
    The result is it may be claimed NAB spent a $1M to cover up its refunds to the Interest Subsidy Commonwealth and State schemes and farmer subsidies to leave the land and paid out $1bn to customer refunds. The bank has now redacted its website for customer refunds taking away the refund for default interest admitted publicly and defined in an article by Marc Moncrief “NAB in $4.7bn comeback” “The Australian” 10 November 2005 and the redaction shown in “National Australia Bank redacts website to hide customer refunds” published ‘Independent Australia’ 1 April 2012.
    The point being as described above but possibly also because both Bank of Queensland and the ANZ may have paid incorrect interest refunds beyond the 6 year statutory limit when not admitting but probably considering these overcharges could be fraudulent.
    In my particular case if the courts had allowed me discovery I may have shown that my account refunds for incorrect charges and refused deposits and property sales exceeded the value of the judgment against me.
    In order to stop me from giving evidence against the bank in other actions the bank had the same judge as found me bankrupt whilst extending the NAB Petition beyond the date of extinction (against the Bankruptcy Act) to make me vexatious. However he made the mistake of publishing my defence which in short read ;
    NAB did not discover the requested evidence including bank statements,
    NAB discovered evidence at a time advantageous to the bank but not when requested disadvantaging myself,
    Issued incorrect documents,
    Bank representatives made incorrect statements to the court including bank statements.
    To prove these one need not go past the published article “National Australia Bank redacts web site to hide customer refunds” in ‘Independent Australia’ 1 April, 2012. and the article by Marc Moncrief “NAB in $4.7bn comeback” ‘The Australian’ 10 November 2005.

    For a back up, in 2013 in another refund where the Clydesdale Bank a NAB subsidiary sought to avoid liability by blaming the customer refer to the British APRA site where the Clydesdale Bank paid a fine of about 9M pounds after a forgiveness of about 3m pounds for prompt admission to about 42,000 customers of an average refund of 1000 pounds when the bank undercharged their interest on home loan accounts and then made incorrect representations to have the customers pay their unlawfully charged interest. Refunds paid by the bank included values up to 20,000 pounds. The question is how many customers did Clydesdale sell up between the period 2005 and 2013 when they were forced to make the refunds and did the bank admit and compensate those persons. It may be the CEO of NAB Australia Cameron Clyne could still be the Chairman of this British Subsidiary. It also appears Clydesdale is a participant in incorrect mortgage insurance representations and will have to refund customers again

  • 11
    Itsarort
    Posted Thursday, 13 March 2014 at 11:17 pm | Permalink

    Jeez Lynton, how’s the average cockie supposed to sort that mess out? Perhaps Barnaby and the rest of the Nationals can set-up a fund for a ‘Farmers’ Legal Aid to tackle these unscrupulous banks. I’m sure Tony won’t mind…

  • 12
    lynton Freeman
    Posted Saturday, 15 March 2014 at 12:18 pm | Permalink

    Lynton Freeman.
    You are correct , previously the Commonwealth funded a legal service, I believe that is extinct. Dealing with banks is very litigious, everything they do say and don’t say is to the banks advantage, not the customers except in competition for the banks commodity, money and even then that can be doubtful.
    The days of trusting your bank is finished, especially for small business. The problems for NAB in their British subsidiaries came about because of incorrect written customer information. Do you think that does not happen in Australia? WE need the class action law firms to take bank actions seriously and not say we will not fight banks because in the end they do not pay and the Reserve Bank , APRA and ASIC to enforce the law against banks not pay pats’ on the head to large bank mistakes or unlawful acts. A bank saying we won’t do it again to a judge or other authority is not good enough any more. The social impacts and conditions surrounding people being sold up may be a joke to a bank officer and his colleagues but when it is just to put profit in a bank annual budget, on the bank ruling an industry is at risk. It is a social condition that the Commonwealth has to address and right now funding for mental health for farmers is the social condition that is being addressed. Financial pressure in some cases created by debt from bankers selling money to trusting customers believing the bank will be lenient to their future needs and bank policy stops that proposition.Is that ruled by the courts in favour of the customer?
    They are the questions farmers have to ask themselves.
    Remember adjudicators have a tendency to believe authority because they are acting as authority in their position. Big corporations can argue forever where customer persons are finite all these things allow banks to separate a customer from his home, occupation and future earnings in time for a quick fix on an incorrect viability assessment overseen by the bank under their formula. A Qld. Supreme Court judgment McDonald v Holden (2007) (where Holden was the CEO of QRAA) identifies certain assets etc to be included in viability assessments. I suggest any business termed unviable especially rural businesses consider that judgment. It is available on austlii under Qld. Resources, Supreme Court judgments and the year (2007) or the Qld. Court library website under Supreme Court judgments and the year.
    Only 20% of account holders check their bank account statements because in Australia the bank is responsible for the accuracy of the statement but if it is never checked how does the customer know it is accurate.
    In about 2003 Elizabeth Cunningham MP placed before the Queensland Parliament a Farm Debt Mediation Bill but this was rejected by all parties. I made representations last year to the Premier for a proposed Farm Debt Mediation Bill he forwarded the proposal to the Primary Industries Minister. To date the Government has been extremely silent on the issue especially considering the drought situation. That would be a process for Government supplied legal advice and if necessary forensic accounting to be useful to all parties.

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