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Parliamentary Joint Committee on Corporations and Financial Services
Impairment of customer loans

McMahon, Mr Denis Darcy, Senior Lawyer, Farm and Rural Legal Service, Civil Justice Services, Legal Aid Queensland

CHAIR: Welcome. Thank you for attending today's hearing. We have received your submission, which we have numbered as submission No. 55. Would you like to make a short opening statement before we proceed to questions?

Mr McMahon : Yes, thank you. Without expanding on the submission with any great voracity, my service is a free legal service. We act for farmers and rural based businesses, but primarily for farmers, who are in financial crisis with their lenders. Most of our work is undertaken in conjunction with the Rural Financial Counselling Service, but we also work with clients' accountants, agri-advisers, agronomists, lawyers and others. The work is limited to providing general advice, but we also negotiate with the banks and sometimes with unsecured or secured creditors, and we attend farm debt mediations and other negotiations. All of this is, of course, subject to capacity. I have said 'we'—unfortunately for some years now it has been me. We do not do work outside of those areas. We do not do court work, normal conveyancing or other sorts of functions that the private profession fulfils. It is state-based; I travel the state. Last week I was in Cairns and clients were right throughout the whole state. Wherever possible we try to attend on farm, but, obviously, that is very difficult and it certainly has been in the last few years.

The profile of clients—for your consideration—they are usually individuals or mainly family operations. They trade mainly as sole traders or partnerships and sometimes accountants have them put into trusts and companies or a combination. The vast majority are unsophisticated borrowers who possess varying levels of education or business experience. Most often, they possess no greater business skills than the normal man in the street. The theme that often comes through when you first meet with them is they have had great trust in the banks. They have trusted them and they have also often taken the bank manager's word on where things might go. Often, the debts are intergenerational. Sometimes, the debts can involve all family members, including members off farm. I had one instance where a personal guarantee was required by a bank from an 18-year-old university student who was studying vet science and whose parents lived in Central Queensland because he was a potential beneficiary of a discretionary trust, and, of course, that guarantee continued even after he obtained his degree and was out working. When the business did experience some difficulties, he was then called upon by the bank. Others are indirectly affected by what happens on the family farm. Quite often, the children work, as they are paid employees on the farm. So it is not just the debtor themselves; it is a complete family. We have had instances where even grandparents have been involved, and certainly they have provided cross-collateralisation, securities, guarantees and the like.

As we all know, farmers are price takers and they have no control over the price they receive for their product. They operate in a very volatile market. It is directly affected by external matters completely outside of their control. We are all aware of the extreme weather events that have beset Queensland—certainly in my time with LAQ—since the early 2000s. There was the millennium drought and cyclones Yasi and Larry, plus quite a number of less intense cyclones that were still damaging in very localised areas. There were extremely destructive fires and unprecedented flooding events, and then, of course, it has now been followed by 80 per cent of the state being back in drought. They are also exposed to the vagaries of market forces and manipulations and movements of the Australian dollar and crop loss, diseases and all sorts of other things I am sure you are quite aware of. With those things, we have families that are facing challenges which are more extremely varied than most other businesses would ever contemplate. But the loans are deemed to be commercial, and they are deemed to be commercially sophisticated by the very nature of the obligations contained in their loans, and also there is no protection, such as under the consumer credit regulation et cetera.

There is often a lack of understanding of the terms of the loans and the powers that the bank has contained in the documentation. I was discussing this with a colleague this morning, and she specialises in consumer credit. She said, 'Really, it's like a hybrid loan where people's families and their homes'—and it is quite often multiple homes on the one property—'are all subject to these commercial loans, but they don't, by their very nature, have the same protections that others do have.' The loans are very, very personal. As we all know, on these farming properties, they work there, they live there and at their very being they would do anything to retain them. Security is taken by banks, generally, over everything and, as we have indicated, often outside of the farm.

There is a massive power imbalance in the bank lending. Bank documents are nonnegotiable with regard to standard terms and conditions, and they are prepared by a bank's lawyers to accommodate every imaginable thing that might arise to protect the bank's position at the expense of the customer. They also determine the amount of the loan, how a loan is to be structured and how it is to be repaid. But the documents also contain some 'get out' clauses for them.

I have a sample of a letter of offer that a client is required to sign when they are taking out facilities—and this is not in any way reflective of this particular bank. It is an 18- or 19-page document, which enables the bank to, for example, conduct annual reviews, and also says that the bank, at its absolute discretion, may change interest rates and interest margins which, in a reasonable opinion of the bank, is caused by market volatility and/or adversely affects the banks cost of funds; that loan-to-value ratios are to be maintained at a level acceptable to the bank; that the bank reserves the right to vary terms and conditions, including repayment arrangements, should there be a material adverse change, including deterioration of business performance; that the bank reserves the right to terminate any facility following a review or impose any other conditions that it considers appropriate for the continuation of the facility; and that the bank may postpone or waive the requirements for these reviews.

The document also describes what an acceptable evaluation is to the bank, and when have I asked them what that means they say it is for their own internal purposes. They obviously use it at various times for different reasons. If an adverse circumstance arises the bank need not provide or continue the facility if, in its opinion, a circumstance or fact exists or arises which adversely affects or could adversely affect the security or the ability of the borrower to make payments to the bank. If an event of default occurs the bank reserves the right to require immediate repayment of the facility and exercise its rights under any such security. Each bank has its own letter of offer and the way in which it is drafted; however, that is some of the samples of the material that the client is confronted with.

Mr RUDDOCK: Have you ever seen any variations to those? A client would often go in and renegotiate those terms and conditions, wouldn't they?

Mr McMahon : What I have seen is actually quite the reverse. At review time the client or their adviser might go in with the cash flows and other materiel and then the bank will make a determination and send out the letter of offer. As I have indicated in the submission, they will change the terms quite considerably.

Mr RUDDOCK: To benefit the client?

Mr McMahon : I only see the clients that are in financial difficulties who have received requests to go to mediation or just prior to mediation. Unfortunately there is quite a number of them. The ones who I have seen—

Mr RUDDOCK: You are suggesting—

CHAIR: Mr Ruddock, will you let Mr McMahon finish his evidence and then we will come to questions. Finish your opening statement please, and then we will come to questions.

Mr McMahon : I can answer that. On some occasions, if we can establish to the bank's satisfaction that the material has been provided, there can be variations in favour of the farmer. Generally speaking, in the documentation that I see, the farmer is given letters of offer at review time that they have not had an opportunity to review—they have sent it out to them and said, 'This is the letter of offer we are now providing you for this facility.' And they have changed the lending criteria quite substantially. The work that we undertake is under the Queensland Farm Finance Strategy. I have copies of the strategy here for members, and I also note that there have been discussions with the previous person about the Code of Banking Practice. There are copies here if you would like copies of them.

The strategy provides a framework when farmers are in financial difficulties, or banks have expressed concerns about the banking relationship. Its purpose is to 'promote an objective assessment of financial viability', to 'resolve financial problems' and to 'achieve a timely and dignified conclusion to matters' by encouraging all parties in the 'early recognition' of financial problems. It refers to ending the farming operation in a 'professional and sensitive manner', and a key element is to 'resolve financial problems in a fair and reasonable manner, including the availability of mediation …'. It requires 'open levels of communication' and financiers are required to act in a 'fair and reasonable manner' should adjustment to interest rates and fees be warranted. There is a commitment to 'communicate openly and honestly', to 'share information and documentation', to treat each other 'with dignity, respect and courtesy' and to 'act in good faith'. Page 3 talks about the 'fair and reasonable manner'—it is right at the front of the document. At page 5 it talks about 'open levels of communication'—that is at 2.1. At 2.2 it requires financiers to act in a 'fair and reasonable manner'. At page 7 at 2.4, there is a commitment to 'communicate openly and honestly' and to 'share information and documentation'.

You have mentioned the Code of Banking Practice in the previous matter. Clause 3.2 of that says:

We will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.

Clause 27 says:

Before we offer, give you or increase an existing, credit facility, we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay the credit facility.

Mr RUDDOCK: The Queensland Farm Finance Strategy is from 2008.

Mr McMahon : That has been reviewed every couple of years. The Queensland Farmers Federation and the Australian Bankers Association and all other interested parties meet regularly to discuss it. There are discussions afoot at the moment in relation to national—

CHAIR: Roughly how much longer do you want for your opening statement before we go to questions?

Mr McMahon : I will just go down to the bottom of this page here. I thought I might offer some solutions, because I have come in with this farm finance strategy and the code of banking.

CHAIR: Please proceed.

Mr McMahon : The sentiment of both the Queensland Farm Finance Strategy and the Code of Banking Practice requires the banks to act fairly and reasonably towards their customers. It is a fundamental proposition that the banks must act reasonably towards their customers. We place great faith and reliance on banks to act in that manner. What other commercial arrangements exist where one party possesses so much power that the other is given the unilateral opportunity to change the terms of the contract at its sole discretion? Given this extraordinary power, it must be exercised with great caution and integrity. The problem we see is that an alarming number of clients have taken out loans where it has become evident that there was no ability to repay the loan within the term, particularly in relation to fixed terms et cetera, or to have the facility increased in circumstances where there were no reasonable prospects of being able to be repaid—although in some circumstances that is quite an agreed option.

As a generalisation, it should not have happened if the bank had prudentially considered the matter in the first place, as is required of it under the Code of Banking Practice, which I have just read to you. In other words, in our work most banks are not prepared to provide the information or the documentation where they have applied credit assessment methods to form their view that the client has the capacity to repay. We are suggesting that the bank be required to provide this information. The farmer would be armed to understand how the bank reviewed each customer to ensure that the material used was accurate and correct. We are not suggesting that it should be provided when a loan is declined. But when the contract is being entered into, why shouldn't there be openness and an understanding of how the bank has assessed the facility? In some instances, the bank has prepared all the cash flows and the applications, and in some instances that documentation is clearly wrong.

When problems are identified the banks will often not make any concessions relating to that particular identified problem during negotiations, whether in mediation or otherwise. Obviously this is due to the massive power imbalance that exists. There is no way to force the bank to act fairly or reasonably, although the mediation process does provide that the bank must act in good faith, which is a different concept to fair and reasonable. For an issue arising from any of those sorts of matters, it would be far more powerful that there was some other way of having that particular issue looked at—and looked at independently. Because of the financial limitations with people who are in financial difficulties, clearly it is the role for FOS powers to be expanded to investigate those particular issues. FOS has the knowledge and experience to manage those types of matters and to make reasoned decisions binding on both parties. If there was even that option available, I am sure it would be a catalyst for the banks to act more fairly and reasonably in certain circumstances.

I am not saying that the banks do not act fairly and reasonably, but in some matters they do not, or they might have other reasons that they will not divulge but, if they did, would not allow the client to proceed and to get a resolution with the bank. But no LAQ client has financial ability or—and this is very important—the emotional strength to continue pursuing any rights that they might have in a court. If they went to a court the court would say 'Yes, you've got to provide all this information.' So why not short-circuit it? For the parties to negotiations, where an impasse has arisen, there may be a role there—issues of fairness, reasonableness, could be looked at by FOS. That was something that had not been included in the submissions in the first place.

CHAIR: Thank you. In other inquiries conducted by the parliament we have seen where banks have had remuneration structures that incentivise financial advisers to falsify documents in order to gain clients and sell advice. Have you seen any evidence that would lead you to believe there are remuneration structures for lenders to write loans and that perhaps part of the reason the documentation is not made available is that there are falsifications in that documentation as to the ability of the client to actually meet the terms of the loan facility?

Mr McMahon : The vast majority of my clients do not have other mortgage brokers or the like doing their documentation. Quite often the documentation is prepared within the branch, with the bank manager, but often the clients are not provided with the materials—the cash flows or whatever—that are done there. But some of them are very good with cash flows and will come in with them and provide them. However, we do not know whether they are the documents that are being relied upon.

CHAIR: You say mediation must be offered if the debt is up to $10 million but one major rural lender refuses to mediate. Who is that?

Mr McMahon : It has been the Rural Bank. But since the submission was done, in the last couple of weeks, I have been advised that there has been a mediation conducted. As a result of some of the meetings with the Queensland Farmers Federation, the Bankers Association and others, including all the other banks, we have emailed them several times suggesting that they might get on board. We have never received a reply. But I believe they have offered mediation in recent times.

CHAIR: In your submission you make the point that letters are often sent out with an accompanying letter advising the bank is pleased with the new facilities, but nowhere in these letters is it outlined that changes have been made to the accompanying letter of offer. Is that commonplace? Do you think there is scope for specific highlighting of changes from the initial letter of offer?

Mr McMahon : It certainly would be a way of bringing it to customers' attention. So often they receive the letter and a look at the figures—'Yes, it's the same figure'—but do not read down to where it says the loan has been restructured and a principal payment is going to have to be made at a certain time. There are some that have been dramatically restructured and the clients, to their own detriment, have not gone through them. I had one where the bank had asked a client to repay more than the loan for the purchase of the property within 12 months of the purchase happening.

CHAIR: You comment that, in other matters, valuations were not obtained by the banks when properties were purchased but, shortly after the loan, they imposed conditions upon the facilities requiring farmers to trade within a certain LVR. Can you give us examples of where a loan was written without a valuation but an LVR was imposed subsequent to the loan being signed?

Mr McMahon : I have included that. I have had two or three matters where that has happened—and there are certainly other matters where there have been no valuations taken at all—but the imposition of an LVR is not as common as other impositions on customers.

CHAIR: We have had a number of people talk about being pressured to sign new documentation upon threat of their facility being withdrawn. In your experience in helping people to work through or work out of difficulty, what sort of time frame is commercially realistic for somebody to seek alternative finance?

Mr McMahon : It is very, very difficult since the GFC to get refinances. When I first started in this role back in 2003, the vast majority of my work did not require us to go to mediation. Clients could achieve refinances. Banks were prepared to do debt write-down. Banks were prepared to provide finance to clients who were in asset management and who had a debt write-down, as long as the cash flows and the other aspects of the facility stacked up. Since the GFC, there has been a distinct lack of appetite for funding, and one of the very difficult things for a lot of my clients who are in asset management, particularly if they have been through mediation, is trying to get a refinance.

CHAIR: What about before asset management, at the point where a bank has a date that a facility is expiring, perhaps in December, and if the client decided that they would like to refinance rather than renew with that bank—how long would that take? So they are not in default; it is not a non-performing loan. How long would it take? What is a reasonable time frame?

Mr McMahon : Depending upon the structure of the business, and the timing—for example, if their crop is coming in, or if they are a breeding operation and their weaners are being sold, or sugar coming in et cetera, although sugar is far more reliant on having its income spread out over the period of time. So it will depend on the cash flow, but it is certainly months. It is not an easy task at the moment. One of the problems that we have—we are talking about fixed term loans—when they are expiring is: a lot of the people are not aware that they are going to expire, but if they do expire that is an event of default unless it has been rolled over. With such a difficult imposition on them, there should be reasonable notice prior to that. If the bank is going to roll it over, that is not a problem; that is fine. But if the bank is concerned about it or is not going to roll it over, the bank should have a fair indication of that well before it actually pulls the pin.

Mr RUDDOCK: You were just talking about the difficulty of refinancing related to the GFC; is that mainly in relation to farms?

Mr McMahon : That is all I do.

Mr RUDDOCK: So it is not a general proposition? That was the only thing I needed to clarify in relation to that.

Mr McMahon : I have no experience whatsoever in the other areas. And I also do not manage the refinance. The rural financial counsellors may assist the clients with cash flows, statements of position and the like, but approaching the banks is not part of the function that I do.

Mr RUDDOCK: One of the concerns I have is that this farm finance strategy has signatories; they include Bankwest and the Commonwealth Bank and others about whom concerns have been raised during the course of this inquiry. So the issue of concern to me is that you note: in most instances, genuine attempts are undertaken by the banks to find solutions to issues. That seems to be at variance with a lot of the evidence we have received, and I would not like to take that at face value as an assertion in relation to all of the institutions that are signatory to your document—unless you are asserting it.

Mr McMahon : It depends on the matter. Every matter has its own set of circumstances.

Mr RUDDOCK: But you are giving us evidence that in most instances genuine attempts are undertaken to find solutions. We are getting examples that that appears not to be the case. I am interested to test your evidence as to whether or not, for instance, Bankwest in most instances would have undertaken genuine attempts to find solutions. Is that what you are saying?

Mr McMahon : If you are talking about a particular bank, I am not sure whether I should be. Put it this way: Bankwest was not a major lender, but during that particular period of time I had a considerable number of mediations involving Bankwest. If a customer had not been migrated over to Commonwealth Bank they were not going to get migrated over, and the information we received was that at some stage the customer would have to refinance or the relationship would be terminated. I can also say that if a lot of Bankwest customers who had good businesses and cashflows went to another bank they could not get through the front door. This is the information I am getting back from customers, from clients: if you were a Bankwest customer the other banks would not consider you—which left them in a great limbo. I am dealing with customers whose relationship is terminating.

Mr RUDDOCK: So it would be fair for me to read into your evidence—not that I would want to, but I am reading into it—that you are of the view that the Bankwest loan book was severely impaired and that other banks would not lend against it?

Mr McMahon : No, I am saying that in some instances some of the customers who were not migrated over to the Commonwealth Bank who still had good businesses were then being asked to end the relationship and when the relationship was being terminated that left them with very few options. They had very great difficulty in refinancing. Unfortunately, the time when Bankwest was undertaking these processes was when it was very difficult to sell country. The prices were depressed. It was a very unhappy event if you happened to be a customer.

Mr RUDDOCK: I was not a party to the earlier inquiries, so I know nothing of the evidence. I have not heard the Commonwealth Bank in relation to these matters, but I suggest that what I am going to hear is that when they took over Bankwest they had been a lender of last resort and their package of loans was so impaired it was reasonable to assume that many more of them would go bad, because they just had a bad loan book. You are appearing to support that view.

Mr McMahon : I think that some people would certainly fit those criteria, but others did not.

Senator O'NEILL: Mr McMahon, can I just take you to your earlier evidence around sophistication. We were talking about farm businesses, which usually trade in reasonably large dollar terms.

Mr McMahon : Quite a number do but quite a number do not.

Senator O'NEILL: What is the average turnover of businesses that you are dealing with predominantly?

Mr McMahon : I have clients who have debts of well over $10 million down to some who are in the hundreds. But they are generally outside of the jurisdiction of the Financial Ombudsman Service—there is no doubt about that—and the value of the dispute is more than the Financial Ombudsman Service could have jurisdiction to hear.

Senator O'NEILL: I want to go to the Financial Ombudsman in a minute. In terms of sophistication, running a going concern as a farming business takes a fair degree of skill. People seem to have managed it very well, yet when they have had these encounters with the bank we are hearing stories of all of their acumen being insufficient for them to manage contracts with the bank. What I think I have been hearing you say is that the term 'absolute discretion' in the contracts that people are signing, as commercial contracts with the banks, is creating a context in which they are simply not sophisticated—no matter how sophisticated they might be, in other contexts—in their capacity to manage that contract.

Mr McMahon : If anyone in the room went to a bank they would not have a capacity to negotiate the standard terms and conditions of the facility. Those standard terms and conditions of the facility have clauses in them that are drafted in favour of the bank. As far as sophistication is concerned, they could be good farmers. Often, their accountants have set up trusts and the like. They do not understand the trusts, to a large degree. Some of them do; some of them do not. But the way in which the loans are set up, often, they do not have any control of that. They do not have any control, if it is going to be reviewed, of the outcome of the review. They can, certainly, go and negotiate outside that. They can go back to the bank and talk to them about it and see whether they can get it changed to suit their needs, but there is no obligation on the bank to do so—and there is no obligation on the bank to continue providing facilities. If they wish to withdraw the overdraft, that is an event of default and the bank can ask you to pay back everything.

Senator O'NEILL: The letter of offer that happens at negotiation of the establishment of the loan, you have indicated is up the review annually.

Mr McMahon : Most would be. If it were a principal and interest loan, no. That is one where, generally speaking, if the payments are being kept up to date, I have not seen one where there has been a problem. It is where most businesses, and certainly farms, have overdraft facilities. They are open for review annually. Also, if they have market-rate facilities or other master-asset facilities, where they might have all of the loans under one particular master-asset facility, that gives the banks the opportunity to review them. The vast majority of loan structures are that way.

Senator O'NEILL: A master-asset facility puts everything into one basket.

Mr McMahon : Each bank has a different name for it. Some have all-n-one accounts et cetera.

Senator O'NEILL: That gives the bank more security because it spreads the risk over a number of different assets.

Mr McMahon : No. It is the way in which the loans are set up.

Senator O'NEILL: In what way?

Mr McMahon : If you are purchasing a property and you already have a debt with the bank, they might combine the debts or they might keep one debt separate and have the other debt over there. They can restructure them, however they deem appropriate.

Senator O'NEILL: There is an awful lot of power there, with the bank. I take you to the FOS. You indicated the need for expanded powers to make binding decisions. We also heard some evidence around adjusting the amount that might trigger the engagement of FOS. What would you say needs to happen?

Mr McMahon : I would say that the Financial Ombudsman Service jurisdiction does not accommodate the vast majority of such matters. If mediation has been offered, the Financial Ombudsman Service cannot look at it, although we recently had one where it was prepared to look at it. The problem we have is that for the majority of times neither the farm financial counsellors, myself or other advisers have an opportunity to identify what the problems are until after mediation has been offered. When that has been accepted, then the Financial Ombudsman Service cannot look at it. Because of the obvious constraints that the Financial Ombudsman Service would have within their own capacities, the level of dispute—often it is not the full amount of the loan, but it may be expanding. I think at the moment they can only award $280,000 or some figure like that. If the dispute was a systemic dispute, where the bank has exercised some of its discretion, it does not matter what level of loan it is that could be investigated; having a cap on the value creates the same difficulties.

Mrs SUDMALIS: Thank you so much. Expanding on that in relationship to FOS, and you did mention the code of banking practice, from my very vague and scanty reading of that there is actually a clause in there that precludes—it is an either/or route of appeal for a problem. If mediation is being considered as your right of appeal it precludes you from going elsewhere. I have already flagged this in my own readings that that needs reviewing because it closes the door on possible other alternative pathways for complaint. We have been informed that a $500,000 cap would barely cover an urban mortgage these days, so we will be seeking redress and information on where that cap should be aimed and whether there should be some form of indexing going along with that because it is a problem. That is just a comment, I guess.

In your submission, you have made a couple of references. The first is that the power is with the bank, and that has been reiterated a number of times. Have you and your organisation, or the people who you network with, considered a list of ways that would address that imbalance of power that could be looked at? I am not thinking just for farm loans; I am thinking for other loans. Have you formulated that yet?

Mr McMahon : No, I cannot say I have formulated it. The power imbalance is obvious. There are protections under some of the other codes and acts, but the Financial Ombudsman Service powers—it would be great if they were expanded. If you are saying that having them in some way looked at for all of the different types of lending facilities to individuals or to small businesses, that certainly would assist. But, no, I cannot say I have a definitive suggestion at the moment, but I certainly can consider it and talk with colleagues who deal with the Financial Ombudsman Service on a regular basis. Unfortunately, because of the structures, I do not get to deal with them.

Mrs SUDMALIS: It would be really worthwhile, so I would appreciate it if that can be taken on board. On page 6 of your submission you make some comments about the banks' allocations of valuers to interpret in a different way to renew the circumstances. Have you got any specific examples where a bank has taken a different valuation from within their bank in order to meet a purpose that the bank has designed?

Mr McMahon : I believe I have one. I think it is page 5. We talk about a valuation that was done by—two valuations were done on the one farm over two years, and each was valued at a significant amount with improvements. That was done by the lending part of the bank. When asset management took over the file, they engaged a different firm of valuers. You can see the value dropped from $7.5 million to $3.4 million and the improvements were taken from $1.9 million down to $340,000. They were the same assets.

Mrs SUDMALIS: From my point of view that causes me great concern. Is that a one-off incident, or do you have more examples of that same activity?

Mr McMahon : It is not something that regularly occurs, and each bank adopts a different approach. We have had some banks which have said, 'The capacity of the business to meet the repayments is more important than the LVRs.' Whereas, I was just looking at some notes yesterday where it was quite the reverse. The bank said there had not been any defaults apart from when a facility was to be rolled over. It had been a six-month facility to be rolled over, the customer was contacting the bank and the bank had not got back to them. It was eventually rolled over on a month-to-month basis, which did not suit the business's needs but, interestingly, the farm was still able to make those payments. At mediation the bank's concerns were (1), about the viability of their business, even though the business had met all payments; and, (2), that the LVR had changed.

Mrs SUDMALIS: I honour the fact that you have said that particularly in farming loans they should be looking at the ability to repay rather than the value of their loan to their asset base. That seems to have been significant in many factors. Do you have any statistics that relate to where a farm has been travelling reasonably well? It has been paying the payments, paying the principle, paying the interest and all of those things, and then the farm has been revalued—possibly according to that weird, whacky, way of two different departments doing the valuation—and then they have been defaulted? Do you have any stats on those?

Mr McMahon : I do not have any statistics on that at all.

Mrs SUDMALIS: Is it only anecdotal?

Mr McMahon : No. I do not have any statistics on it, but I do have files where that happens. I have just quoted the two matters. I do not have the exact figures, but I think that certainly we did over 50 mediations last year. It is somewhere around those sorts of numbers.

Mrs SUDMALIS: Could you come back to us on that actual circumstance, please?

Mr McMahon : Yes, certainly.

Mrs SUDMALIS: Thank you.

Senator WILLIAMS: Should we have farmed out mediation right across Australia, in your opinion?

Mr McMahon : Certainly—

Senator WILLIAMS: The reason I ask that is because we are running out of time, but some of the banks' submissions say that they would welcome that issue. We have had it in New South Wales and I think it is compulsory Victoria.

Mr McMahon : Yes. In Queensland it is a voluntary process. And yes, because we have clients that have properties in Queensland, New South Wales or the Northern Territory.

Senator WILLIAMS: One concern we have had in this inquiry, which I have had for sure, is section 428 of the Corporations Act 2001, where the receivers, the liquidators and the finance companies selling up—acting on their mortgages—must sell at the best price that they can. You would have heard some horrid stories of the selling of assets. Do you see this in rural land when you are carrying out your work—values being put on the property and it being sold way below its value, perhaps not marketed well?

Mr McMahon : Under the Queensland Farm Finance Strategy the banks do not appoint receivers or administrators unless they have been through the farm debt process—a mediation process. Generally speaking, the farmer has tried to sell and has not been able to sell. But you certainly see the results of the property sales. They are certainly significantly different to the value that the farmers thought the properties were. The information that the receivers act upon is information that we do not get to see.

CHAIR: Mr McMahon, thank you for your evidence and for the work you are doing to support many in the ag sector in Queensland. Where you have been asked to take questions on notice, could you come back to the committee by 27 November.

Mr McMahon : Yes, thank you.

CHAIR: That would be great. Thank you very much.