Agriculture Debt Options

The agricultural industry is influenced by a multitude of factors, many of which are beyond the control of a local producer. Fluctuating commodity prices, escalating input costs and weather conditions are only a few of the variables which make it extremely difficult to predict your future cashflows and manage your debt obligations.

If you are struggling to meet your payment obligations and the stress is keeping you up at night, below are some of the approaches that may assist in managing your agricultural debt. 

Negotiate Directly With Your Creditors

If you are comfortable with this option and have only a few creditors, you may wish to inform your creditors about your difficulty making payments as early as possible. Subject to a review of your current circumstances and the security you have pledged to them, they may be willing to amend your payment requirements accordingly.

If you have been unsuccessful at reaching an acceptable conclusion negotiating on your own, you may wish to consider the additional options below.

Farm Management Consultant Debt Review

MNP’s Farm Management Consultants can review your existing debt structure and determine if it is appropriately structured for its’ purpose. For instance, you may be using operating funds to acquire long-term farm assets, leaving inadequate capital for your daily needs. You may work with a consultant and your lender to refinance your existing debt in a manner consistent with your individual circumstances and long-term goals.

If your debt has been properly structured and you continue to face challenges meeting your obligations, perhaps your farm operations have been performing below your expectations. You may want to enlist a consultant to optimize your cash flow by identifying the drivers behind your farm’s profitability. Chances are, your business may be just a few key steps away from higher profitability and cash flows – leaving you free to focus on your farm operations and without the stress of creditors calling!

However, if your debt has reached the point where legal action is imminent or underway and you need to stop your creditors, formal options may then be more appropriate.

Farm Debt Mediation

The Farm Debt Mediation Service offers financial counseling and mediation services to farmers who are having difficulties meeting their financial obligations. It is a free and voluntary service for producers that helps bring farmers and their creditors together with a mediator in a neutral forum to reach a mutually acceptable solution. In order to make an application under this federal legislation, a farmer must meet specific qualifying tests. The results of this process may be a legal stay (stopping) of proceedings by all creditors for an initial 30-day period until such time an agreement is reached. 

Legislation requires that any secured creditor who intends to enforce their security against the property of a farmer is required to provide that producer with written notice of their intention to do so and also to advise the producer of their right to make an application under this legislation.

A successful result of the Farm Debt Mediation process is an agreement signed by all parties modifying debt repayment requirements in a specified way.

Proposal to Creditors

If an application under Farm Debt Mediation is not practical because your creditors are too numerous or collection proceedings are too advanced to reach a mutually acceptable solution, a Proposal to your creditors under federal legislation may be a viable alternative.

A Proposal is a formal settlement offer to your unsecured creditors, which may also be offered to your secured creditors under certain circumstances. Your Proposal is administered by a licensed Trustee who negotiates directly with the creditors for settlement on terms you and they mutually agree to. Upon filing the proposal, your creditors are automatically stayed (stopped) from all collection activities until the end of the voting period and / or creditor meeting date. As long as a majority of creditors have approved the proposal during the voting period, the Proposal is binding upon all unsecured creditors (and in some cases secured creditors, if they were addressed in the Proposal).

A typical Proposal may be a payment plan consistent with your cash flow availability, or it may consist of proceeds from the sale of assets or a refinancing plan. It can be as flexible as the majority of your creditors are willing to approve and it usually legally compromises a significant portion of your debts. The important consideration is that your assets are not affected – you can continue to repay those secured creditors you wish to retain, while allowing you to return assets with no equity that you no longer require and cannot afford to repay. This debt restructuring option allows you to continue operating the farm in the ownership structure you prefer, while being relieved of payments to numerous creditors.

Bankruptcy

If the aforementioned options are not available or are unsuccessful, bankruptcy may be the best option. With bankruptcy, no creditor approval of your filing is required but you are subject to specific duties with the Bankruptcy Trustee during a minimum 9-month process. The cost of filing bankruptcy will vary by the assets you hold and the income you earn from your farm operation or other sources for a specified time period after filing. Each province in Canada allows exemptions of varying amounts for the farm assets that you may retain after filing bankruptcy. As with a Proposal, you may also wish to continue paying secured creditors outside the bankruptcy process where you have little or no equity in the assets held as collateral. In some cases, both farmland and the equipment required to farm it for a certain time period are exempt (protected) to specified limits.

Bankruptcy generally allows you the most generous relief from your creditors, often at the lowest cost. However, the resulting impact on your credit may be the longest of any of the alternatives noted. Like the Proposal option, bankruptcy allows an individual producer to continue in the business of farming, subject to reaching an agreement with the Trustee for continued use of farm assets that are not exempt. Alternatively, you may decide to discontinue operating and obtain relief from all your creditors for potential deficiencies after the return of secured assets.

In summary, you have options available to you in managing your agricultural debt. As matters concerning agricultural debt can be very complex, we recommend you discuss your particular circumstances with a licensed MNP Ltd. Trustee.