PART 1 – PRELIMINARY
1. Name of Instrument
This instrument is the Regional Investment Corporation Operating Mandate Direction 2018.
2. Authority
This instrument is made under subsection 11(1) of the Regional Investment Corporation Act 2018.
4. Definitions
Note: A number of expressions used in this document are defined in the Act, including the following:
(a) Agriculture Minister;
(b) Board;
(c) Corporation;
(d) Desertification Convention;
(e) farm business loan;
(f) responsible Ministers.
In this instrument:
Act means the Regional Investment Corporation Act 2018.
Agriculture Department means the Department administered by the Agriculture Minister.
drought loan means a farm business concessional loan that helps a farm business to prepare for, manage through and recover from periods of drought.
farm business concessional loan means a farm business loan offered under the farm business concessional loan program.
farm business concessional loan program means the farm business concessional loan program described in Schedule 1 to be administered by the Corporation in accordance with this instrument.
PART 2 – DIRECTIONS
5. Introduction
(1) The Corporation will administer farm business loans. It will provide streamlined and nationally consistent Commonwealth concessional finance supporting regional Australia.
(2) The Corporation will undertake its functions in an efficient and effective manner to meet its policy objectives. It will treat clients fairly and equitably providing a nationally consistent service.
(3) The Corporation will assist the Commonwealth in effectively responding to the needs of Australian farm businesses and regional communities, and supporting the growth of regional economies across Australia.
6. Policy objectives
(1) In establishing the Corporation, the Commonwealth is providing practical support to help rural and regional communities achieve economic growth and agricultural productivity.
Farm business loans
(2) The farm business loans will provide low cost finance to farm businesses that are in financial need of assistance, to recover from short‑term hardship, but are assessed as financially viable over the long‑term and able to repay.
(3) The Corporation will deliver farm business loans that will:
(a) support the long‑term strength, resilience and profitability of Australian farm businesses by helping them to build and maintain diversity in the markets they supply, and take advantage of new and emerging opportunities across Australia and overseas; or
(b) assist farm businesses to prepare for, manage through and recover from periods of drought.
(5) The full policy objectives of the farm business concessional loan program are detailed in Schedule 1.
7. Funding arrangements
(1) The Corporation will be funded by an appropriation through an Act of Parliament.
Farm business loan funds
(2) Funds for farm business loans will be provided to the Corporation upon the Corporation’s request to enable the Corporation to advance loan funds to recipients as required. The Corporation must:
(a) only request funds as they are required to advance loan funds to recipients;
(b) only use funds provided for farm business loans for that purpose.
(3) The Corporation is authorised to collect all loan repayments (including principal repayments and payments of interest) from farm business loan recipients.
(4) Subject to subsection 7(5) below, all loan repayments (including principal repayments and payments of interest) received by the Corporation from farm business loan recipients must be paid to the Commonwealth as soon as reasonably practicable.
(5) Any funds received by the Corporation from farm businesses under section 47 of the Act to reimburse costs the Corporation has incurred in relation to the farm business loan may be retained by the Corporation and do not need to be paid to the Commonwealth.
Administrative expenses
(8) Funds provided to the Corporation for administrative expenses must only be used for that purpose.
8. Interest rates
(1) For each program of farm business loans that the Corporation administers, the Board must set a variable interest rate for each program and apply that interest rate to all farm business loans offered within that program.
(2) The Board must set interest rates in accordance with a methodology that is agreed by the responsible Ministers. The methodology will include the following:
(a) The interest rate will cover only the Corporation’s administrative costs to deliver concessional loans and the Commonwealth’s borrowing costs.
(b) The interest rate for each program will be reviewed every six months in November and May and revised if necessary in line with material changes to the Commonwealth 10‑year bond rate, where a material change is taken to be a movement of more than 10 basis points (0.1 per cent).
(c) Any change in the interest rate will take effect from 1 February or 1 August each year as applicable.
(3) The Corporation will notify loan recipients in writing in advance of any changes to the interest rate.
9. Farm business loans
Program guidelines
(1) The Corporation must develop and publish guidelines for each program of farm business loans consistent with this instrument and in consultation with the responsible Ministers.
Offering farm business loans
(2) The Corporation is to administer the farm business concessional loan program. The Corporation can only offer farm business loans under the farm business concessional loan program in accordance with the specifications set out in Schedule 1.
(3) In administering the farm business concessional loan program, the Corporation must be satisfied that an applicant fulfils the mandatory requirements set out in Schedule 1 before the Corporation offers that applicant a farm business loan.
(4) The Corporation will offer and promote refinancing to eligible farm businesses under the farm business concessional loan program. This may include debt from previous concessional loan programs.
(5) For each program of farm business loans that the Corporation administers, the Corporation should be mindful that the Commonwealth is not seeking to impede appropriate structural adjustment nor be the lender of last resort to the farming sector. To this end, the Corporation should not provide loans to applicants who have intentionally pursued high risk strategies and practices without adequately assessing risks and seeking to mitigate them where possible.
(6) The Corporation will ensure that farm business loan applicants are informed of the outcome of their loan application as soon as practicable after a decision on their application has been made.
11. Loan management
(1) The Corporation must undertake all aspects of its loan management in a prudential manner to minimise the risk of default.
(2) The Board must ensure that prudential and arrears management policies and procedures are developed and applied by the Corporation. The Board must ensure at all times the loan management, arrears management, recovery action, foreclosure arrangements, waiver of debt, write‑offs and dispute/complaints handling are undertaken in accordance with those policies and procedures.
Farm business loans
(3) In developing its policies and procedures in relation to farm business loan management activities, the Corporation is expected to have regard to the concessional nature of the farm business loans and consider the impact on the farm business of any proposed action in relation to the farm business loan. The Corporation must offer, and undertake where required, farm debt mediation.
(4) The Corporation may take farm business loan recovery and foreclosure action. Any decision on foreclosure of a farm business loan must be made by the Board and cannot be delegated.
(5) The Corporation may waive an unpaid farm business loan debt, in accordance with its arrears management policies and procedures. Before waiving any unpaid farm business loan debt, the Corporation must consult with, and take into account the views of the responsible Ministers. Any decision to waive an unpaid farm business loan debt must be made by the Board and cannot be delegated.
12. Internal review
(1) The Board must ensure that an internal review procedure for decisions to grant or refuse farm business loans is developed and applied by the Corporation.
(2) The internal review procedure is required to be transparent, robust and fair. Specifically the internal review procedure:
(a) will require the internal review to be carried out by a person who was not the primary decision‑maker in the original decision;
(b) will require the decision on the internal review to be made by an officer within the Corporation who was not the primary decision‑maker in the original decision (who may be the same person referred to in paragraph (a)); and
(c) must be consistent with principles of procedural fairness.
(3) The Corporation must include details of the right to request an internal review of application decisions and the process for requesting such a review in the farm business loan guidelines.
13. Service provision
The Corporation is expected to develop and implement service level standards to ensure the Corporation and any external service provider contracted by the Corporation to deliver services on its behalf, treat applicants and stakeholders in a fair, transparent and timely manner. These standards should be developed in accordance with benchmarked best practice standards.
14. Support from responsible Ministers
The Corporation must consider, and use as appropriate, the support made available by responsible Ministers to assist in its establishment. The Commonwealth, through the Agriculture Department, will provide guidance and options including to establish organisational structures, logistical arrangements and corporate and operational policies, as well as draft program guidelines and documentation to assist with procurement processes.
15. Communication and stakeholder engagement
(1) For farm business loans the Corporation must undertake ongoing engagement with relevant industry stakeholders to ensure loan products offered can respond to issues as they emerge. The Corporation will undertake communication activities to promote the Corporation and manage and drive demand of programs, ensuring in‑need eligible farm businesses are aware of, and have ready access to, concessional finance.
(3) The Corporation must also work flexibly and constructively with Commonwealth entities to ensure the implementation and ongoing administration of farm business loans are undertaken in a manner that is consistent with broader government policy and supports timely responses to emerging issues and/or industry‑specific crises.
16. Reporting
(1) The Corporation must provide a farm business loan report to the responsible Ministers as at the end of every March, June, September and December in respect of each farm business loan program it administers. The farm business loan report is to include information regarding the uptake of loans for each program, details of the loan portfolio, financial performance information and any other matters requested by the responsible Ministers.
(3) The Corporation must provide any additional information requested to either responsible Minister as and when requested.
17. Other advice
(1) The Corporation is expected to proactively advise the Commonwealth on matters that will improve the operation and policy outcomes of farm business loans.
(2) The Corporation will keep abreast of ongoing and emerging agricultural industry issues to manage demand for finance and ensure assistance is reaching eligible farm businesses that are most in need.
(4) On request, the Corporation will provide advice to responsible Ministers on the application of this instrument to an emerging issue or industry crisis, including how, where appropriate, the Corporation can respond.
18. Corporate Governance
The Corporation is expected to have regard to principles of best practice in determining its approach to corporate governance principles, including environmental, social and governance issues.
19. Reputation
The Corporation must not act in a way that is likely to cause damage to the Commonwealth’s reputation.
20 Regional Investment Corporation Operating Mandate Amendment (Drought Loans—Interest‑free Period) Direction 2019—transitional and application provisions
Definitions
(1) In this section:
amendment means the amendment of Schedule 1 made by the Regional Investment Corporation Operating Mandate Amendment (Drought Loans— Interest‑free Period) Direction 2019.
commencement means the commencement of the Regional Investment Corporation Operating Mandate Amendment (Drought Loans—Interest‑free Period) Direction 2019.
Drought loans offered after commencement
(2) The amendment applies in relation to a drought loan offered by the Corporation after commencement.
Drought loans offered before commencement but not yet drawn down
(3) Subject to subsection (5), if a drought loan was offered to a farm business at any time before commencement, but the loan had not been drawn down immediately before commencement:
(a) the amendment applies in relation to the loan; and
(b) despite the actual terms and conditions of the offer, the loan is taken to have been offered on the basis of an initial interest‑free period of 2 years, followed by an interest‑only period of 3 years; and
(c) the Corporation must give a written notice to the farm business stating the effects of this subsection and subsection (5) in relation to the particular circumstances of the loan.
Note: Paragraph (b) does not affect the terms of the offer as they apply in relation to the period of the loan remaining after the end of the interest‑only period mentioned in that paragraph.
Drought loans drawn down before commencement
(4) Subject to subsection (5), if a drought loan was drawn down by a farm business at any time before commencement:
(a) in relation to the 5‑year period starting on the day the loan was drawn down, despite the actual terms and conditions of the loan, the loan is taken to have been made upon the basis of the following terms:
(i) an interest‑only period starting on the day the loan was drawn down and ending on 31 December 2019;
(ii) an interest‑free period starting on 1 January 2020 and ending on 31 December 2021;
(iii) an interest‑only period for the remainder of that 5‑year period; and
(b) the Corporation must give a written notice to the farm business stating the effects of this subsection and subsection (5) in relation to the particular circumstances of the loan.
Note: Paragraph (a) does not affect the terms of the loan as they apply in relation to the period of the loan remaining after the end of the 5‑year period mentioned in that paragraph.
Election for amendment not to apply
(5) If a farm business to which a drought loan has, before commencement, been offered or made gives a written notice to the Corporation before 1 January 2020 electing not to be covered by subsection (3) or (4):
(a) the amendment does not apply in relation to the offer or the loan (as the case may be); and
(b) the farm business is not covered by subsection (3) or (4) (as the case may be).
21 Regional Investment Corporation (Drought and Small Business Drought Loans)(Cessation of Interest‑Free Period) Amendment Instrument 2020—transitional and application provisions
(1) In this section:
commencement day means 1 October 2020.
Note: This is the day on which the instrument that made the relevant amendments commenced.
relevant amendments means the amendments to this Operating Mandate made by the Regional Investment Corporation (Drought and Small Business Drought Loans)(Cessation of Interest‑Free Period) Amendment Instrument 2020.
(2) Where an application for a drought loan was made before the commencement day, this Operating Mandate applies in relation to the application and any loan offered on the basis of the application as if the relevant amendments had not been made.
SCHEDULE 1 – FARM BUSINESS CONCESSIONAL LOAN PROGRAM
Policy objectives
Farm business concessional loans seek to support the long‑term strength, resilience and profitability of Australian farm businesses by helping them to:
(a) build and maintain diversity in the markets they supply and take advantage of new and emerging opportunities across Australia and overseas; or
(b) prepare for, manage through and recover from periods of drought.
Loan specifications
Offering farm business concessional loans
The maximum amount of an applicant’s farm business concessional loan or loans is the lesser of:
(a) an amount that would result in the farm business having 50 per cent of its total debt in Commonwealth funded concessional loans; or
(b) $2 million in total.
Note: ‘Total debt’ is the sum total of debt established on commercial terms, at commercial interest rates, plus all Commonwealth funded concessional loans provided to the farm business; and
‘Commonwealth funded concessional loans’ includes the Commonwealth loans identified in the program guidelines.
The Corporation has discretion to set the terms and conditions upon which a farm business concessional loan is made, provided that the farm business concessional loan:
(a) falls within the definition of a ‘farm business loan’ in the Act;
(b) has an initial loan term of ten years;
(c) has an initial interest‑only period of five years; and
(d) allows full or partial early repayment (of principal and/or interest) at any time without penalty.
Loan security and capacity to repay
The Corporation must not approve a farm business concessional loan application unless:
(a) the farm business is assessed as having the capacity to repay the loan; and
(b) sufficient security for the loan is provided by the farm business.
The Board has discretion to determine what security it requires for each farm business loan.
The Corporation must develop guidelines regarding the type of security that it will consider for a farm business concessional loan. The Corporation must consider at least the following types of security:
(a) registered mortgage over land;
(b) registered livestock mortgage; and
(c) registered security interest in water rights.
Mandatory requirements
Eligibility
A farm business will only be eligible for a farm business concessional loan if the loan falls within the definition of ‘farm business loan’ in the Act. Generally, eligible farm businesses will either:
(a) solely or mainly supply, or intend to solely or mainly supply, products interstate or outside Australia; or
(b) be located in an ‘affected area’ as defined in the Desertification Convention and have a drought management plan which outlines the activities the loan will be spent on.
In addition, eligible farm businesses are those:
(a) who are in financial need of a concessional loan;
(b) where at least one member of the farm business is an Australian citizen or a permanent resident as defined in the program guidelines;
(c) that are assessed as financially viable, or as having sound prospects of a return to financial viability within the term of the concessional loan;
(d) that have existing commercial debt and the support of their commercial lender to the proposed concessional loan;
(e) that undertake all primary production aspects of the business wholly within Australia;
(f) where at least one member:
i. has experience operating a farm business; and
ii. has the farm business as their principal business pursuit (in terms of being where they contribute the majority of their labour and where they derive the majority of their income)
(g) that operate as a sole trader, partnership, trust or private company;
(h) that are registered for tax purposes in Australia with an Australian Business Number (ABN) and registered for GST; and
(i) that are not under external administration or bankruptcy.
Approved loan purpose
Broadly, farm business concessional loans will be made available for debt restructuring, and new debt for operating expenses, productivity enhancements, drought preparedness, management and recovery activities, in line with the policy objectives of the program.
Specific eligible and non‑eligible loan purposes will be outlined in program guidelines.
