After seizing their farms in May 2013 and putting them in the hands of Ferrier Hodgson (FH) as receiver and managers and agents for the mortgagee in possession, the National Bank of Australia (NAB), on November 11 2015, informed Harold, Barbara and Christopher Cronin, formally of Chambejo Farms Pty Ltd, that the NAB and FH, over 28 months, spent an amazing $6.0 million dollars, in what can only be called a failed attempt to recover a $6.0 million debt from Chambejo Farms.
Final returns were submitted to ASIC by FH in September 2015. If Harold Cronin had not asked the NAB and FH for the details of the costs and returns regarding the sale of the assets and properties that had comprised Chambejo Farms, recent experience has shown there is no reason to believe that the information would have been volunteered by either the NAB or FH.
On the contrary, FH and the NAB have been obstructive and repeatedly refused to provide information to the Cronins. The Cronins now know why FH did not wish to publicise what some might call their incompetence. We will show that FH were and are obliged by law, to provide detailed information to the Cronins as mortgagors.
As you will see later it is open to question, by their actions, whether both organisations abrogated their obligations under Section 420A(1) of the Corporations Act and their obligations under common law to act in good faith, particularly when it comes the family home.
It is open to speculation if this is what the NAB board and senior management really think of farmers after a couple of bad seasons? It’s certainly not their public position.
Does the NAB management not understand that farming is all about risk? The Cronins weren’t on their own after the bad seasons of 2011 and 2012. The records show many farmers in their region went deeply into debt in those two years.
“It’s ironic,” says Harold, “That 2013/14 was a very good season in the Ravensthorpe area and had we been allowed to put a crop in, it would have solved most of our financial problems.”
It’s the law, stupid.
Harold Cronin is cynical and angry about the whole affair. “My question is a simple one. When the NAB first became concerned about our debt in August 2012, which I don’t deny had grown bigger than I wanted to see it, but we had been through a bad season – why didn’t the NAB let us sell some of our farms after harvest?
“According to the NAB records, not mine, we put that proposition to them on February 18 2013. On April 5 2013, this time through a financial consultant, we put a similar proposition and again we were ignored – what we didn’t know was that the NAB’s plans with FH, who would eventually become the receiver managers and agents for the mortgagee in possession in May 2013 were already well advanced in February 2013. The whole thing was being planned months before it happened it would seem.
“On September 30, 2013 a firm of accountants who specialise in insolvency solutions, put another proposal to FH that we sell enough land to settle the debt. They too were rejected.”
It is quite clear that the mortgagee, the NAB, should have received this advice from their lawyers, and noted this legal precedent and only sold sufficient land to settle the Cronin’s debt to them. It would appear that the NAB had no right to sell all six farms and the Cronins house.
Harold Cronin has every right to be angry and question the intransigence of the NAB and the competence of FH because of this opinion by a distinguished QC:
‘The Receiver and Manager’s agency for the Mortgagor and its Displacement by the conduct of the Appointor. Michael Galvin QC 15 April 2015: here pages 4 and 5.
This is the opinion of Galvin QC, based on the case; MBF Investments Pty Ltd v Nolan:
A mortgagee is not permitted to exercise its power of sale for an extraneous purpose, or a purpose other than recouping the mortgage debt and costs of sale.20 Where a mortgagee holds security over a number of parcels of land, and it is unnecessary to sell all of them to recoup its debt, the choice as to which lots are to be sold cannot be driven by an ulterior purpose, such as the disruption of the mortgagor’s business or the eviction of the mortgagor from his or her home. Such behaviour would be an unconscionable exercise of the mortgagee’s power of sale.
A second opinion is provided by Alison Roberts of Lavan Legal; coincidentally the legal firm that represented the NAB in their action against Chambejo Farms Pty Ltd. Presumably a lawyer doesn’t give an opinion unless asked, even if their client’s action may be unconscionable. This is Roberts’ paper here
This is an extract from that paper that suggests that the NAB and FH were in breach of the law. I am not a lawyer, so make up tour own mind, this is Ms Roberts opinion, a second opinion on the same subject:
Whilst the Nolan decision involved the proper construction of section 77(1) of the Victorian TLA, ( in WA Transfer of Land Act 1893 (section 108) ) its implications are far reaching. In particular it has significant application to the common law duty imposed on mortgagees to act in good faith especially when dealing with a sale of property that includes a family home. It is important to bear in mind, when considering a mortgagee sale, matters other than simply the price that is to be obtained. Lenders should ensure that:
- they do not sell more property than is necessary in order to discharge a mortgagor’s debt; and
- they do not willfully disregard all the interests of a mortgagor including the interests that arise from the right to possession and occupation of property and the right to any surplus sale proceeds.
Agents acting for mortgagees in possession along with receivers are also required to act in good faith in exercising a power of sale. This is because section 420A(1) of the Corporations Act, which provides that a controller must exercise reasonable care with respect to the sale price of property, does not replace the common law duty of good faith: Florgale Uniforms Pty Ltd v NAB Ltd (2004) 22 ACLC 1.
The Mortgagors valuation.
Unaware of the opinion in the case of MBF Investments Pty Ltd v Nolan, the Cronins proceeded to obtain their own valuation:
In August 2013 an independent highly regarded local certified valuer, Peter Briscoe, commissioned by Chambejo Farms, valued the land component, comprising six properties (nine titles), at $9.4 million. (the ‘Chambejo valuation’)
Between May 2013 and March 2015, FH realised $5.6 million from the sale of those same properties, nearly $4.0 million below the Chambejo valuation.
The detailed and thoroughly researched Chambejo valuation using Landgate statistics, shows that the prices obtained by FH for the six properties of Chambejo Farms are by and large inconsistent with prices received for land sold in the same district over the same period.
The clearing sale of Chambejo’s plant, machinery and goods and chattels, organised by FH realised $279,000 or 14% of the value of nearly $2 million, which the NAB had accepted on the 2012 budget. So the Cronins plant and machinery was ‘given away’.
The Sequence of Events.
Harold Cronin explains the sequence of events. “In August 2012 we were told by Mr Leverington our NAB bank manager, that there was a ‘red flag’ on our account. No paperwork just a phone call.
“On November 1 2012, that date is in my wife’s diary, Christopher, our son and sole director of Chambejo Farms, had to stop harvesting and meet with Mr Leverington on the farm.
“He signed a document presented to him by Mr Leverington, where he agreed that we would reduce our overdraft to $1 million by January 2013.
“When we got a copy of that document we noticed it was dated August 13 2012. Someone, not Christopher, because it isn’t his handwriting, had dated the document as if it had been signed in August, the month of the ‘red flag’ phone call.
“We got to our overdraft to below $1 million by December 2012, but like everyone in our area the season was a disaster, we had been washed out at harvest time in 2011, harvesters got bogged and the grain was devalued. Then we had a drought 2012 with no rain between July and December. Two bad years and the NAB knew there were bills to be paid after harvest.
“The NAB dishonoured a cheque in January 2013, and in their rush to force us into a default, didn’t seem to realise that from that day they became the de facto managers of our farms and they failed that test miserably. This was the first time we had ever been in default in fifty years of farming. The NAB must have known their action would force our default.
“It was all down hill after that, both financially and personally. It rained after what was a poor harvest and self-sown grains and summer weeds, under perfect growing conditions, quickly became established and a real problem. It broke our hearts to see our land neglected by the NAB.
“There was nothing we could do; even our credit cards were cancelled. It was a traumatic and extremely distressing experience for my family and I to see a disaster, not of our own making, develop in front of our eyes.”
Ignorance of the law regarding receivership excuses no one.
On May 3 2013 the Cronins and their advisers met in Perth with a Mr Daniel from the NAB. Mr Daniel informed them that as of that day the NAB had placed Chambejo Farms Pty Ltd in the hands of FH as receivers and managers and as agents for the mortgagee in possession.
“I have recordings of some of my subsequent phone conversations with Mr Daniel. I will try and make them available or get a transcript and you can judge his attitude towards me for yourself. He’s a bully. A great ambassador for the corporate policy of the NAB.”
Harold Cronin has also been on a steep learning curve, “I would like to make a few points which might help others. Believe it or not there are laws to protect the mortgagor, laws, which nobody ever mentions and in our case laws that were ignored by the receiver manager, FH and the mortgagee, the NAB.
“This is what Tom Darbyshire from Kott Gunning, Lawyers, has written about the law of this land”: Although such receivers are appointed by the lender, the loan contract almost always states that they act as the agent of the borrower. It is an odd sort of agency. Normally agents have to act in the best interests of their principal, but that is definitely not the case with receivers. The borrower pays the receiver’s fees and expenses, but the receiver’s main job is to get in and sell the assets of the borrower so that the money can be repaid to the lender. It is a little like having to engage a tax agent to ensure that you pay as much as possible to the ATO.
Again Harold Cronin is contemptuous of the receivers and managers, “If the job of FH was working for us and their job was to get in and sell our assets, how come it took them two years, until 2015, to sell some of our farms when farms had been in selling all around us in 2013 and 2014?
“Instead of selling they leased our farms to third parties for a paltry $231,000 over two years. Well below market value. We have asked and FH will not tell us whether they leased our farms to those third parties with an option to buy later? We have noticed that some who leased our farms did subsequently purchase them.”
The Chambejo valuation contains photographs of the condition of all the farms, houses and buildings and some machinery as they were in August 2013. FH have photographs of all of the machinery.
How did the NAB and FH spend six million dollars, lose all the Cronins equity, take twenty-eight months to complete the exercise and still fail? Was it incompetence?
The costs paid by the Cronins
FH charged over $700,000 for their ‘services’. If it was incompetence, is that the price?
The legal bill incurred by FH was over $100,000.
The details of the costs are incurred by FH remain unexplained and unbelievably high at $1.458 million. The Cronins have asked for a breakdown and they have been refused by both FH and the NAB. Is their refusal against the law? See below.
Total asset value of Chambejo Farms accepted by the NAB with 2012 budget was just over $13 million.
The NAB kept the interest accruing on the Chambejo debt during the period of receivership, it amounted to some $2 million. Is this FH acting in the best interests of their client, the mortgagor?
“I don’t understand,” says Harold, “There are still details of the FH receivership that they, FH, will not divulge and it is not because we and our consultants haven’t asked.”
Harold is right the Cronins and others authorised by the Cronins, have asked for and have been refused a copy of any or all of the valuations commissioned by both the NAB and FH. Yet the Corporations Act states quite clearly:
(1) The Corporations Act obliges receivers to keep financial records that “correctly record and explain” transactions they enter into while they are controlling a company. Directors and shareholders of the company have the right to inspect those records. These provisions appear in section 421 of the Act.
The Australian Banking Industry Ombudsman also has an opinion on this matter which appears in the ABIO Special Bulletin number 38:
It is clear law that a mortgagee in possession owes a duty to account to the mortgagor.34 Despite this we often receive complaints that a mortgagee has not notified the mortgagor that a property has been sold. It is not uncommon for the mortgagor to receive none or little information about the costs associated with the sale for which the mortgagor has been charged. ABIO regards the provision of this information promptly and in sufficient detail for the mortgagor to identify and understand all costs to be consistent with the law and good industry practice.
“Calling FH a manager is an oxymoron.” says Harold grimly, “Make some sense of this if you can? FH spent $16,180 of our money on valuations and they won’t let us see them. I believe by law we are allowed to examine all documents. What have they got to hide? Something they are not proud of? We were not told when any of our properties were sold.
“That $16,180 is in addition to a valuation commissioned by Mr Daniel from the NAB, for which we were charged $7,762. That means that FH and the NAB charged us $23,942 for valuations. That’s $3 a hectare. That’s where our money went.
“Add on to that figure over $7000 that we spent on a valuation (Chambejo valuation) and you get over $30,000 on spent on valuations.”
The NAB wrote to Harold Cronin recently, part of their letter reads as follows:
Following the completion of receivership and realisation of all property, the residual debt owing to the NAB was $4,587,458.10. NAB (sic) has not lodged proof of debt with your trustee in bankruptcy in respect to this shortfall and does not intend to take any further action in this regard.
A final word from Harold, “We started off owing the NAB $6 million. They have just written off $4.5 million and FH spent $1.5 million that comes to $6.0 million. Our equity has gone; FH and the NAB have trashed that. The question has to be asked why? Why have they done this to us? What was the point in the whole exercise?
“Is it NAB policy to ruin their customers who are having financial problems? Is this how the NAB make $6 billion profit a year? Is this what their board of directors and shareholders want them to do?”
Were the NAB and FH aware of the law?
Harold asks, “Why were the NAB and FH unaware of the case of MBF Investments Pty Ltd v Nolan? The law it seems to me is quite clear on this matter. The NAB should have only sold sufficient land to settle our debt to them. Instead they chose to sell all of our six farms, trash our equity in our land and plant and machinery, virtually turn us out on the street with nothing – they obviously haven’t read the Corporations Act as quoted by Lavan Legal earlier in this article. They were not allowed, as I read it, to evict us from our family home.
“Then there is the matter of duty of care. Nobody in the NAB or FH showed any real concern for us. Every move they made was to suit their own purposes. They made it look like they were making concessions to us when in fact they were covering their own incompetence. The NAB and their agents FH have done considerable damage to me and my family. They have financially ruined us and totally ruined our reputation in an area in which we had lived for fifty years and it was all so unnecessary. The damage they have done to us emotionally and financially, is immense.
“There is so much more to this story we have decided to put on the Internet through the Global Farmer, so that everyone understands what was done to my family and I. They can make up their own minds regarding the legality of what we were subjected to.
“Then, if we can find the finance, we will put the whole story in a book, which will be stranger than fiction, I can promise that.”
‘The Middle Kingdom.’
Harold is right. One of the intriguing and unanswered questions is why, before they were appointed as receiver managers and agent for the mortgagee in possession, did Paul McKenzie, a card carrying member of FH staff, suggest to Harold and Christopher that they contact a Mr Gapper, a senior manager in Elders Real Estate, who was, they were told, looking for land for Chinese investors?
The result was that on April 23 2013 before Chambejo was placed into receivership, the Chinese investors, Vic Stock Grains, accompanied by Mr Gapper and a Mr Pens from Elders, inspected Chambejo Farms with a view to leasing some or all of the six properties.
On May 30 2013, after Chambejo had been placed in receivership, a Mr Pens of Elders Real Estate wrote to Christopher Cronin to tell him that Vic Stock Grains were no longer interested in leasing Chambejo, partly because of the summer weed growth.
On May 15 2013, less than two weeks after FH were appointed receivers and managers there is an entry in FH Chronology of Events (diary), that they (FH) had been approached by a third party wanting to discuss leasing all of Chambejo Farms. This was before Mr Pens wrote to the Cronins (May 30) telling them Vic Stock Grains were no longer interested in leasing.
On May 29 2013 in the NAB chronology or sequence of events, there is an entry where Darren Weaver from FH informs the NAB, but not the mortgagor, Chambejo Farms, that (lo and behold!) non other than Vic Stock Grains wanted to lease Chambejo Farms and what is more – they had been referred to FH by Elders! The following day (30th) Mr Pens from Elders writes to the Cronins, cancelling any interest that Vic Stock Grains may have had in leasing their farms.
Vic Stock Grains wanted to lease Chambejo Farms before they were placed in receivership. Then when they were placed in receivership, though their agent, Elders, they cancelled, but they didn’t cancel until a month AFTER their first inspection. Then through Elders they again submitted a proposal to lease, this time to the receiver manager.
It is curious that Harold Cronin and Christopher Cronin had no idea that the NAB were going to place them into receivership until they met with the NAB on May 3 2013.
What on earth was going on when FH were keeping the NAB as mortgagee informed on the business of the mortgagor and at the same time, not telling the mortgagor? Why did they do that? It gets more interesting.
On June 5 2013, FH provided the NAB with a draft of the lease of Chambejo Farms, we can only presume from the sequence of events it was for Vic Stock Grains to be the tenant, yet they did not supply a copy to the mortgagor. In fact there is no point in conjecture, we know it was for Vic Stock Grains. They had their machinery lined up in Ravensthorpe ready to go, but the season and lack of information and pressure on the mortgagors beat them. There is a lot more to this story.
As Tom Darbyshire from Kott Gunning wrote: Although such receivers are appointed by the lender, the loan contract almost always states that they act as the agent of the borrower. It is an odd sort of agency. Normally agents have to act in the best interests of their principal, but that is definitely not the case with receivers. The borrower pays the receiver’s fees and expenses, but the receiver’s main job is to get in and sell the assets of the borrower so that the money can be repaid to the lender. It is a little like having to engage a tax agent to ensure that you pay as much as possible to the ATO.
Is this an example of the receiver and manager and agent for the mortgagee in possession acting in the best interests of the mortgagor, Chambejo Farms?
Considering the sequence of events as depicted above, is it any wonder the Cronin family is bitter, broke, destitute and traumatised, and in so many ways suspicious of the motives behind everything that was done to them over more than two years by the NAB, FH and Elders Real Estate.
Were they set up for a quick sale to the Chinese? What sort of games were people playing with the Cronin’s livelihood? That is what we need to find out.
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