“The new world of banking is not geared towards farm credit,” the Master of the High Court, Edmund Honohan, said last week shortly after his retirement.
Put simply, the banks aren’t “getting” farming – their business model won’t allow it,” he added after the first phase of the passage of a law he drafted aimed at giving family farms better protections in dealing with banking provide financial system.
An outspoken figure, Mr. Honohan has attracted a great deal of attention in recent years for criticizing financial institutions for their handling of debtors.
He tells them Independent Farming his interest in the treatment of borrowers by financial institutions increased after the crash.
“Before that, most people were unaware that loans are securitized. Nobody really understood what that means. They had a vague idea that the bank didn’t have that kind of money on deposit.
“What the banks did was say, ‘We’ll give you a mortgage, you give us the house and we’ll mortgage that back to some funding source – it could be a hedge fund in New York, or pension funds in the UK, or in Holland, or some other sane one facilities.
“The banks basically turned it around. This was the cause of the massive spiral of inflation in housing construction.
“Of course, everything was fine until house prices plummeted. Then there is an argument about who gets the collateral back.
“I could see all of this when Master looked at the files. You would see patterns emerging very quickly.
“One wonders if the market benefited everyone equally, if some people benefited to a degree that wasn’t really fair.”
Although Mr. Honohan was not a judge, he held a quasi-judicial position in the legal system. He made sure the correct procedures were followed and the paperwork was in order before taking the matter to the High Court.
Many of the cases he has dealt with have involved farmland and family farms, and he believes new legislation is needed to underpin the specifics of the sector.
“Why bother with agriculture?” he asks rhetorically. “Because there was a lot of need. People came to me with anecdotal stories of suicides and whatnot.
“You’re doing everything to see if you can definitely find a glimmer of hope. Is there anything worth investigating, worth putting the case on hold for further matters to be investigated?
“In other words, to give the defendants the idea that the entirety of their relationship with the bank is disclosed to the court and the court can form its own opinion.”
Mr. Honohan believes there is a mismatch between banking as we know it today and agriculture as we know it today.
“In donkey years, the banks dealt fairly with the farmers. ACC was formed to give them credit…they were also very supportive and understanding of the seasonal nature of the agribusiness.
“You also understood, if you will, the honor system with banks.
“There was a tacit understanding that things were quite flexible and the profitability of any given farming business was being looked at over the long term. It was really very practical and personal.”
But after the bank collapse in America, “the banks ran for cover.”
“They said, ‘Oh God, we’re in trouble here. That honesty system is gone – we will now pierce people with the letter of the transaction they signed.
“And there’s no way the banks are going to admit that there was any kind of tolerance built into the transaction,” says Mr. Honohan.
“Up to a point, the banks did business with the farmer and then they said, ‘To hell with that, let’s sell the loan to someone else’.
“So then you have hedge funds and alternative investment funds all interested in tapping cash flows … they don’t want to know anything about the business of the farm …
“They say, ‘Look, you signed on the dotted line … we bought the loan from the bank, now you have to refinance it or give us the land.’
“So the ‘neighbourhood’ of the credit system with the peasants was lost and so was the honor system. So we have a situation where farmers are left stranded.”
Provisions in Mr. Honohan’s proposed legislation include the legal underpinning of a moratorium period overseen by a trustee so that parties can consider a sustainable solution to any financial difficulties that may arise.
During the moratorium, the recipient is not permitted to negotiate the sale of the security or place it on the market, and farming continues as usual.
After the moratorium, a Farm Debt Settlement Arrangement will be subject to court approval and the veto power available to the court under PIA Section 115A, which would allow the borrower to keep the farm after a reasonable settlement of the structured debt.
The bill also attempts to protect the family farmhouse in cases of evictions.
Since the Personal Bankruptcy Act 2012 was signed, every effort must be made to settle the debtor’s affairs so that he and his family can continue to reside at home.
Mr. Honohan says the provisions in his bill are a logical extension of this principle to agricultural debt cases.
The farmhouse should be considered separate from the farmland and subject to different procedures, although both “plots” are not distinguished to that extent in the loan and mortgage documents.
The bill also offers protections to “inactive co-debtors”. This, says Honohan, is the classic “kitchen table” picture, where the co-owner can casually be involved as a co-borrower despite not being a farmer.
“Say, the husband says to the wife, ‘Oh, the lawyer gave me these papers, you have to sign them,’ and she says, ‘What is it about?’
“He says, ‘Oh, this has something to do with the bank,’ so she signs it, but actually she’s a co-owner and could be treated like a borrower for repayment purposes, guarantees and all that stuff.”
The bill, Mr. Honohan said, offers an approach to credit and impaired loans that is “sui generis” or “of its kind” and unique to agricultural businesses.
“It is an invitation to all stakeholders to engage in a thorough reassessment of the current malfunctioning banking model as it applies to Irish agriculture,” he says.
“It’s about protecting the little man or woman from predatory financial institutions”
The Impaired Farm Credit Bill, sponsored by the six rural independent TDs, also includes provisions that would give the state an advance denial for farmland with no choice but foreclosure.
Recently retired Chief Attorney General Edmund Honohan says there could be cases where farmland is at risk of foreclosure and for whatever reason there is no prospect of an agreement to pay off the farm’s debt.
He says that in these circumstances, the land should be given to the state as an option for full state ownership again.
“Why shouldn’t the states have a right of first refusal when the land has to be sold by the creditor?” he says.
“The state, as sovereign, should have the option of a right of first refusal, and it should say, ‘Well, actually, we don’t want this land to be sold to a Dutch pension fund. Coillte wants this, for more afforestation or for this land to be protected for biodiversity.”
The bill also provides for “proactive measures to secure the future” and recognizes that agriculture needs more credit.
However, Mr Honohan says the current banking system will not be enough. The state, especially the central bank, has the opportunity to create cross-border access to liquidity pools itself.
Mattie McGrath, TD of Independent Tipperary, presented the bill in the Dáil last week and said it would create a political platform to tip the scales back in favor of landowners and farmers.
“It’s about protecting the little man or woman from predatory financial institutions,” he said.
“There are many families like that. We all have them in our constituencies. We’ve had all the occasions where we’ve tried to help and found that the tide was too strong in favor of the institutions, whether they were banks, vulture funds or whatever.
“Many laws have been introduced, including the hearsay laws, which have opened the floodgates for the vulture fund’s carry-on.
“Without any significant local, locally owned agriculture, such as B. Family farms, our cities will be corrupted and rural Ireland will continue to deteriorate.”
https://www.independent.ie/business/farming/agri-business/finance/how-this-high-court-heavy-hitter-is-fighting-to-force-the-banks-to-deal-fairly-with-farmers-41608179.html How this Supreme Court heavyweight fights to force the banks to deal fairly with farmers