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'Financial Delinquincey' fortells failure for farms

Rural News
'Financial Delinquincey' fortells failure for farms

As commodity prices tighten, those with high debt get more exposed and while low interest rates will delay the inevitable, in agriculture coping with that poor season is always the key.

So many factors are out of farmers control, be it the weather,  markets,  pests and diseases or increasing costs and big debt loads expose operators when the year turns sour. Many in agriculture are conservative in nature but it is these factors that has made them so and the ability to survive when times get tough sort the men from the boys.

This insolvency expert has a check list of tell tale signs that warn financiers of future problems and ideas how to manage your way out.

Do you see problems appearing in your farming district and do the lenders need to take some responsibility for financing such high levels of debt in the first place?

As farms continue to go into receivership and be sold off, the country’s only rural insolvency specialist believes more rural businesses will face going to the wall in the next 12 months reports Scoop. Dennis Wood, who heads Act Three Rural Insolvency and Investigations, predicts rural receiverships numbers will keep pace with rising rural bank debt, currently around $49 billion.

He says that a disproportionate number of rural businesses account for a higher percentage of that debt, as the currency remains high and NZ continues to be exposed to global market forces. Many rural businesses particularly in dairy, sheep & beef, viticulture and horticulture are experiencing acute financial stress.

Mr Wood says that some of those in receivership are extreme examples of “financial delinquents” who fail to heed warning signs or listen to financial advisors or bankers. He says they are often “cowboys (sometimes entrepreneurial);” those who must live on ‘credit’ and are poor listeners and managers.

Their accounting finesse is often ‘zilch’ and they don’t know the meaning of a forecast cash flow,” Mr Wood says. “Some seem to have an unwitting desire to be dealt with by a ‘commercial undertaker.’ Others will go to great lengths to hide toys or valuable assets when they are placed in receivership.”

Mr Wood, an experienced farmer, business & financial management consultant and former Police Detective Inspector, works nation-wide with the country’s leading rural, banking, legal and commercial sectors to help resolve insolvency, taxation, shareholding and financial issues or other situations for which sometimes there isn’t succinct or clear cut description.

Since early 2011 there have been at least 50 rural receiverships and since the beginning of the Global Financial Crisis around 200 receivership appointments. Mr Wood says that doesn’t include the huge number of rural businesses that have voluntarily been wound up, liquidated and/or are the subject of mortgagee sales.

Options may include initiating debt management plans; reviewing & restructuring cash flow; refinancing; introducing equity partners; formal creditor compromises; arranging payment plans; formal proposals for debt repayment to IRD (who are often more sympathetic than many would have you believe).

Mr Wood says that rural businesses that fail often have the same tell-tale signs; • Liquidity problems • Owners who think they know best and won’t listen to advice from their banks manager or financial advisers; • Owners not focusing on their business because they have other businesses; • Owners constantly “fighting fires’ – with legal arguments draining cash flow; • Disputes with debtors and creditors; • Poor management decisions; • Diverting funds – fraud & theft; • Debt out of hand; • Lots of inter-company debt; • RMA issues – compliance and prosecutions; • Animal welfare issues; • Not resident on property – overseas; • Excessive capital expenditure; • Board & Governance issues; • Excessive personal drawings; • Spending on ‘toys’ • Not paying tax obligations such as ‘PAYE;’ • Lenders’ ‘equity’ at risk; • Disgruntled creditors taking action to windup which in turn causes breach of banking covenants e.g. caveats and charges on titles

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2 Comments

Farm debt is not all about farmer financial delinquency as stated,Many of the farmers up North, dairy are dealing with post drought issues when they had to roll over Od's when there was loss of production through drought and what many people forget is the after effects of drought on rural busness is  not only with cash flow but also fertility of cows post drought.

The other issue is the large number of farmers that are locked into Swaps and paying 9% plus for mortgages and as much as 25% on OD. Many of the farmers I deal with on a daily basis live on the smell of an oil rag and have cut costs so drastically often due to banks reducing OD limits monthly that the business becomes very threatened, coupled with the predicted fall in land values, especially Dairy as there is ever increasing concern due to the fall in pay out this seaon. Northland hasn't sold one dairy property  since the lowered payout forecast though there are approximately 40 farms under pressure in one area.

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Here Here Janette

Then there are the Banks out canvassing for business with integrity, ethical practice and responsiblitiy and an undertaking to do the right thing.

Well..... Well thats what there "Core Values" say. Look up the internet there they are all proud and present.

So these farmers, are they not supposed to believe these "Core Values".

Isn't a "Core Value" a Core value of the organisation.

Doesn't it mean that, that is the sole of the organisation and if they are not practiced then that organisation is worthless in value.

Or does the mighty $$$ over ride all of that.

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