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26 November 2020

FPM Secure Landmark Debt Deal To Save ‘Asset-Rich, Cash-Poor’ Farms

In the first deal of its kind, Lenders have agreed to a debt deal allowing a couple to keep their €1.5m dairy farm despite falling into arrears.

The Irish Independent Reports

The significant court decision will offer a lifeline to farmers faced with losing their home and livelihood to banks or vulture funds.

In the first case of its type, a dairy farmer and his wife were able to secure their family farm through the agreement of a personal insolvency arrangement (PIA) put together by FPM’s Debt Recovery Director and Personal Insolvency Practitioner, Gary Digney.

The arrangement, which involved the restructuring of €1.1m in debt, is being seen as a game changer as until now the debt resolution mechanism has been predominantly associated with safeguarding family homes.

The couple got creditor and court approval for a deal covering both their home and farm.

They did not seek a debt write-down, but will get improved interest terms and an extended period of 25 years to clear what they owe.

The arrangement, which was approved at Kilkenny Circuit Court earlier this month, is the first in around 30 similar FPM PIAs currently working their way through the system.

A feature of the case was that the farmer and his wife were asset rich but cash poor.

Their home was valued at €220,000 and farm at upwards of €1.5m.

While they were in positive equity, they did not have the required cash flow to repay their debts when these were called in.

The couple can make interest only repayments for the first six years of the arrangement. The deal also involves the restructuring of debt secured against their farm.

The six-year holiday on repaying the principal will give the couple breathing space to repay unsecured creditors, which is seen as vitally important. Unsecured creditors can include service providers such as silage contractors, creameries and vets, whose goodwill is essential for the farm to prosper in future.

Under the arrangement, the couple’s arrears were capitalised and spread out so they can be repaid over a longer period along with their principal debt. This is a normal solution in debt deals on family homes, but would not have been seen before in farming.

In court, the farmer’s counsel, Keith Farry BL, instructed by Elizabeth Howard Solicitors, said any alternative to the proposed arrangement, such as the sale, surrender or repossession of the property, would result in his client being made homeless and the farm repossessed.

Personal Insolvency Practitioner, Gary Digney of FPM Accountants told the Irish Independent that people wrongly believed PIAs were only about the family home and people in negative equity.

He said while the family home must be part of the arrangement if a court is to review it, a PIA could cover all secured debt, including that linked to other assets, such as a farm.

“I think there is a major problem for farmers whose loans have been sold [by the banks]. What is happening is the vulture funds are bankrupting them. These PIAs are the only way to address it,” he said.

Mr Digney said while some future farm-related PIAs may involve a write-down, many won’t.

“A PIA isn’t necessarily a write-down. A PIA is based on affordability,” he said.

“In a lot of cases, the farmer’s assets are a lot higher than their liabilities. So there will not always be a write-down. But what there would be is an extension of time or a revision of interest rates just to allow the farmer to pay their debt.”

While courts do not tend to approve PIAs which would end after a debtor’s 68th birthday, Mr Digney said farmers could work well beyond that age.

He also said succession will be a feature of proposed PIAs in the near future, where courts could be asked to sanction arrangements where any remaining debt would be serviced by a son or daughter after inheriting the farm.

ICMSA president Pat McCormack said the approach taken was legally and financially sound.

“We’re absolutely confident this is going to be a way forward for many farmers in this quandary,”

The Personal Insolvency Arrangement put together by FPM is being seen as a ‘game changer’ as the debt deal offers a lifeline to farmers faced with losing their home and livelihood to banks or vulture funds.

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At FPM, we believe it is always important to speak about debt rather than to hide behind it and we know from experience that there is usually a way out of even the most difficult situations if you are willing to seek help.

We negotiate with banks, loan and credit card companies on a daily basis so we have strong relationships which we can draw on to find workable solutions. You can find out more about our Restructuring Services here.

Our dedicated team is approachable and non-judgmental. If you are worried about debt and would like to talk to us,  contact us by completing a contact form or call us on +353(0) 1691 3500 (RoI) or +44(0) 28 9024 3131 (NI)

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Gary Digney / Debt Recovery Director

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