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Farming and Fraud

As the economy tightens people will come under more pressure and then they start doing strange things. My experience has been that the more stress people are under the more likely they are to commit fraud and dishonesty. The same applies to dealing with known dishonest people. If the going gets tough and things fly to bits they will walk leaving you with the mess. This particularly applies to partnerships and companies, once you are in, you're 'caught'. Will your partner stand by you if the going gets tough?

Some of the examples of things I have seen follow. If my experience and examples negate you losing money or wipe out a lot of sleepless nights, then my efforts have not been in vain.

Property

Sale and Purchase Agreements are the big one. Do not sign a contract without careful consideration and not before your solicitor and accountant have checked it. Contracts have been written, read and agreed to, only to find they have been altered at the last minute. These alterations have not been disclosed and you have signed an altered contract. The results can be expensive to say the least and there is some case law around this. It is an area to be careful of.

Ensure that all the titles of the land are included in the contract. I struck a contract where the house title was left out of the contract. The purchaser had no home to go with the farm. Litigation ensued and the purchaser ended up paying another $150,000 for the house title that should have been included in the original Sale and Purchase contract. Nobody was happy.

Chattels

If there are chattels included, detail them carefully with plenty of information. Many chattels have been removed prior to settlement. If it is a going concern make a very detailed list and a detailed description of every item. If it is included in the transaction, document the item. Promises and handshakes no longer seem to work.

Non-Performance Contracts

Another example is where the occasional rat bag has gone around signing up a whole lot of farms in different districts with no deposit and no hope or intention of settling. This has caused a lot of upset for a lot of people. I struck a case recently where a purchaser did not have the cash deposit. He lied about where the money was coming from and wanted mortgage brokers to find the balance on first, second and third mortgages. Fraud ensued and the police got involved.

On-selling

I have seen a purchaser look at a property with potential and then go to the market and try to on-sell the property before even signing a contract with the vendor. Their intentions were clearly dishonourable and there was a lot of upset for the vendor.

The police have the ability to put a watch on your titles in case someone tries to carry out an illegal activity and transfer the titles from your name to their own name.

Stock

This seems to be an increasing area of fraud and dishonesty. A client purchased a dairy farm as a going concern, including land, shares, stock and plant, but when he took possession of the farm, he realised the cows had been switched. This guy was no fool and a good stockman; it was pretty clear to him what had happened. The client found lists of cow numbers in the cowshed that he believed had been switched and collected up evidential information. However, when he tried to press charges, everybody went to ground and it was a hopeless case.

Stock swapping after the sale occurs and before possession, is an increasing problem. Apparently stock swapping in Australia is on quite a large scale. Maybe given the high price of cows it might be an opportunity to take digital photos of every cow with supporting identification and keep very good records.

Some farming agreements provide for the provision of your own calves reared by say, a lessee, in return for grazing of land or leasing of cows. When it comes time for you to get possession of your calves, which are your stock, they are actually somebody else's and not of the same quality. How can you prove it? It's all hearsay anyway. If you are valuing or purchasing livestock it goes without saying you need to sight them. Some sharemilkers have given the industry a bad name by being stock flickers. Watch out and get the correct documentation and do the transactions through a reputable agent. If in doubt make further enquiries through the appropriate people. Sale and Purchase Contracts for livestock without having an agent involved does leave you open to dishonesty.

And then there is the straight stock theft from your paddocks and from your bobby calf pens and so on. Padlocks on gates and Neighbourhood Watch can help here.

Litigation

My recommendation for litigation is that if you have a clear cut case then you can go after it. Under the legal structure in New Zealand you can enter into litigation but it can cost you more to recover debt than it is actually worth. More than that, I think litigation is bad for your health and takes your eye off the ball. "How can a man plough a field if he's looking over his shoulder?" It's such negative energy when you enter into litigation. Many people go to litigation with poor results and wish they had never started.

A really good example is where a farmer sold his stag for $10,000. It was no good. The purchaser wanted to give the stag back and be refunded his $10,000. Apparently it wasn't servicing the hinds. The vendor went to litigation to prove that his stag was in good order. The vendor spent $90,000 in legal fees and never received the stag back. What he should have done here was to say to the farmer "You give me the stag back and I'll return your $10,000 and we'll call it quits". In this case it cost the vendor more to try and prove the stag was fertile than it was worth. Often the obvious solution is to sort it out quickly and not spend a whole lot of money.

Credit Checks and Bankruptcies

Credit checks and bankruptcies is another area that is showing up increasingly. I have seen one person with three different dates of birth and therefore he had three different credit checks making it very hard to track as to whether he was a fraudster or not. 'Life is all common sense and communication', or is it?

Summary

In summary, farming fraud is alive and well. In farming there is a whole range of opportunity for fraud and dishonesty. If we don't do our homework and protect ourselves properly the chances of getting it remedied through the legal and court system, and getting fully compensated, is probably not that great. We need to be aware and be vigilant all the time and take every step we can to protect ourselves. More than that, we should never deal with people who have a reputation for being somewhat shady.

In New Zealand there are only a few 'truly rural' finance people. We all know what's going on and what's happening. Instead of rushing into deals and thinking that you know everything, perhaps a few phone calls could save you a lot of stress and money by talking to these rural professional people.

Finally, use your underground information through the people who know what is happening in the industry to help you make the correct decisions. Ensure you take good legal and accounting advice, particularly before entering into binding contracts.


 

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