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Personal Insolvency Regulator
This client newsletter by ITSA’s independent Regulation and Enforcement branch will be issued each quarter to registered trustees, registered debt agreement administrators and controlling trustees. In keeping with one of Regulation and Enforcement branch’s main purposes it is aimed at informing practitioners of changes to personal insolvency law, both legislative and case law, and discussing areas of practice and Inspector-General requirements. ARTICLES ARE WELCOME and can be forwarded by email to tim.cole@itsa.gov.au or registrations.officer@itsa.gov.au.  Recommended reading for all practitioners Particular interest for registered debt agreement administrators (RDAAs) Particular interest for trustees This issue is also available as a PDF document.
The reports may be accessed on the ITSA website at this link.
The Minutes from the day are available on ITSA’s website at this link. You will note that in section 8 of the Minutes, a graphical representation of feedback from the five RDAA days (since they began in June 2008) has been provided. It is pleasing to see that, on the whole, an overall improvement has been achieved since these days began and I actively encourage all practitioners to attend and participate whenever possible. Should you have any ideas or suggestions for the next RDAA PDD (at this stage planned for September 2011) please do not hesitate to contact either Jeff Hanley, National Manager Regulation and Enforcement or Tim Cole, Practice Manager Regulation. As a result of recent feedback ITSA received from RDAAs and Major Creditors, views were sought as to ITSA facilitating a Registered Debt Agreement Administrator & Major Creditor Joint Forum on an annual basis. This forum would be attended by RDAA and Major Creditor representatives, as well as by ITSA personnel from the Regulation and the Debt Agreement Service (DAS) business lines. RDAAs and Major Creditors have each signalled they are very much in favour of such a Forum being created. Regulation and the DAS will facilitate the first such RDAA-Major Creditor Forum early in the new year – at this stage planned for February 2011 in Sydney.
The remaining amendments commence on a date to be fixed by proclamation. The proposed date was to have been 1 October 2010, but due to the extended caretaker period that was not considered viable. A revised commencement date is now a matter for the Attorney-General and will be announced in due course. Please note however, that if any of the provisions do not commence within a period of 6 months following the date of Royal Assent, they automatically commence on the day after the end of that period - that being 14 January 2011. ITSA will keep readers appraised on any developments in this regard. Some of the amendments yet to commence involve remuneration arrangements for trustees; offence provisions - including the introduction of an Infringement Notice regime and enhanced powers for the Inspector-General to investigate offences; and an increase from 7 to 21 days in the stay period that arises when a debtor files a Declaration of Intention to Present a Debtor’s Petition. ITSA information sessions on the changes ITSA conducted numerous information sessions around Australia on the amendments for insolvency practitioners, financial counsellors and other interested stakeholders in late August and early September. Veronique Ingram, Inspector-General in Bankruptcy and Chief Executive
ITSA’s Chief Executive and Inspector-General in Bankruptcy, Ms Veronique Ingram, confirmed that Desmond Anthony Ryan of Moonee Ponds in Victoria was de-registered as a Trustee in Bankruptcy following extensive investigations that were conducted by the Australian Government’s personal insolvency regulator – the Insolvency and Trustee Service Australia (ITSA). Mr Ryan, who was first registered as a Trustee in Bankruptcy in December 2003, had been the subject of lengthy investigations conducted by ITSA relating to his personal insolvency practice – the most serious of those allegations being that he failed to exercise the powers of a registered trustee properly and that he failed to comply with the standards prescribed for Registered Trustees. As a result of these concerns a statutory Committee was convened by the Inspector-General in Bankruptcy. The Committee included an experienced registered trustee chosen by the Insolvency Practitioners Association of Australia. It was tasked with examining the allegations levelled against Mr Ryan and forming a view as to Mr Ryan’s suitability to keep practising as a Trustee. After weighing the evidence and interviewing Mr Ryan the Committee concluded there was sufficient evidence to warrant the cancellation of Mr Ryan’s registration. Upon being notified of the Committee’s decision Mr Ryan sought a review of the Committee's decision by the Administrative Appeals Tribunal (AAT) which stayed the Committee’s decision pending its review. However, Mr Ryan subsequently withdrew his AAT application, which effectively allowed the Committee’s decision to deregister to take effect on 1 September 2010. The Inspector-General in Bankruptcy immediately moved to deregister Ryan and the bulk of Ryan’s files transferred directly into ITSA’s control. Jeff Hanley, National Manager of ITSA’s Regulation & Enforcement business line said, “This practitioner featured regularly in ITSA’s targeted inspection program. The Committee’s decision to deregister Ryan reflects not only the seriousness of Ryan’s conduct, but is indicative of the deficiencies that were identified across his administrations. Mr Ryan’s deregistration should serve as both a warning and a lesson to others that ITSA is vigorous and it will not hesitate to intervene directly, and with determination, in matters of personal insolvency administration.”
ITSA has released the final version of the Official Receiver’s Practice Statement on Bankruptcy by Creditor’s Petition. This is a useful resource providing general information on the process and ITSA’s role in the registration of creditor initiated bankruptcies. All practices statements and practice directions issued by the Inspector General and Official Receiver are accessible from ITSA’s website under ‘About Us’. A list of published Official Receiver Practice Statements is provided below.
Updated Bankruptcy Notice application form and template Following client feedback, a revised version of the Bankruptcy Notice template and application form is now available via ITSA’s website. One template, which is available in HTML format, allows applicants to select and enter multiple debtors and creditors. The other template, which is available in PDF format, now only provides for a single debtor and creditor. Additional space has also been provided for the applicant to enter further identifying details of each debtor (eg: aliases or business names) in both HTML and PDF versions. Improving information for debtors and creditors As part of ITSA’s ongoing efforts to improve the information available for debtors and creditors regarding personal insolvency, a new Comparative Table on Personal Insolvency Options has been published on ITSA’s website. The table will later be included in the printed version of the Personal Insolvency Information Booklet that is currently published by ITSA. The table enables debtors and creditors to quickly compare the distinguishing features of each option. ITSA Registry lodgment points Insolvency and legal practitioners are encouraged to file documents with the Official Receiver electronically. Contact details for Official Receiver lodgments and applications are
General enquiries can be made by email to info@itsa.gov.au or by phoning on 1300 364 785. Giulia Inga National Manager ITSA Infomation and Registry
 Fiona Guthrie  Cost of Ringing 1800 and 13 number from Mobile Phones AFCCRA has joined forces with two other peak bodies to argue that the cost of calling 1800 or 13 numbers from a mobile phone should be free (or at least the cost of a local call). The Australian Consumer Communications Action Network, the Australian Council of Social Service and AFCCRA have lodged a complaint about the costs of these numbers with the telco regulator, the Australian Communications Media Authority (ACMA). The cost of an eight minute ‘free call’ from a mobile phone is around $7.80. This is a significant amount of money, particularly for low income consumers. In Australia, the number of mobile phones far outnumbers the population, standing at 24 million. In comparison, there are 10 million landlines. More and more of the clients we see in our sector rely solely on a mobile phone, often using a pre-pay plan as this is a sensible budgeting strategy. But when consumers ring say their local telco, utility or government agency using a 1800/13 number they are stung with a high per minute cost. The cost of these calls soon adds up. The reason 1800 and 13 numbers were introduced was to make services accessible for consumers – this has been lost with the increased reliance by consumers on mobile phones. We expect to hear back from the ACMA about the results of their investigation by the end of November. Casework Experiences Financial counsellors are seeing more and more clients facing extremely high utility bills. Some clients have bills running into thousands of dollars – often because of their particular family circumstances, for example, where a family member has a disability. This situation is clearly only going to get worse. Consumers try and manage by paying these bills using credit cards but the eventual result is a spiralling debt trap. Reform of Australia’s Credit Laws Insolvency practitioners will be aware that consumer credit is now the responsibility of the Federal Government, with the new National Consumer Credit Protection Act 2009, coming into effect from 1 July 2010. The second wave of reforms to credit regulation is now being considered. AFCCRA is keen to see stronger consumer protection in a number of areas: broader grounds for granting hardship and more flexible hardship options; regulation addressing some of the unfair practices in relation to credit cards (the way in which interest is charged, disclosure about key conditions and how long it will take to pay off a debt if only the ‘minimum’ payment is made) and the extension of the interest rate cap across Australia (there is currently a maximum interest rate cap of 48% in Queensland, the ACT and New South Wales only). Fiona Guthrie Executive Director AFCCRA
While it is too early to garner any meaningful trends from the first quarter 2010-11 provisional statistics with respect to practitioner registrations and inspections, we do note the following with regard to Part X and section 73 proactive reviews, complaints and Inspector-General reviews.
While a factor in both increasing complaints against trustees and Inspector-General review requests is clearly the increasing volume of bankrupt estates since 2007-2008, it is also reflective of training needs both within practitioner organisations and from a regulatory perspective. With regard to disciplinary action, in addition to the matters carried forward from 2009-2010 that are being reveiewed in the Administrative Appeals Tribunal and other matters currently the subject of investigation, one “show cause” letter was issued to a registered trustee in the first quarter of 2010-11 relative to a conflict of interest issue. Of the two (2) registered trustee involuntary de-registrations in the first quarter of 2010-11, one was due to the death of the trustee, while the other related to the de-registration of Mr Des Ryan (see article no. 2 in this edition). We will continue to report on regulatory activity every quarter to note trends and to provide holistic feedback where improvement or change is required in the personal insolvency system, noting that only those matters that are in the public domain can be communicated.
 ASIC begins nationwide surveillance activities under national consumer credit regime Media Release Thursday 23 September 2010 ASIC has begun its first nationwide surveillance activity to detect unregistered businesses and people under the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (National Credit Transitional Act). Between now and late 2010, ASIC will be in the field, across Australia, to detect businesses or people engaging in credit activities who are not registered with ASIC. As of 1 July this year, it has been an offence to engage in credit activities (e.g. acting as a lender, or as a credit broker) if not registered with ASIC. More than 14,000 people or businesses registered with ASIC before 30 June 2010, as a precursor to applying for a credit licence. Licensing is now underway and will be complete by 30 June 2011 or before. As of 23 September 2010, 292 licences have been issued. As set out in the National Credit Transitional Act, ASIC can prosecute non-compliance or seek a civil penalty from the Courts. The maximum criminal penalties for operating without registration or a licence are $22,000 for individuals and $110,000 for corporations, or two years imprisonment, or both; or civil penalties of up to $220,000 for individuals and $1.1 million for corporations, partnerships or multiple trustees. ASIC’s primary focus of this surveillance activity is to ensure firms and people engaging in credit activities are registered and apply for a licence to meet the requirements of the National Credit Transitional Act. ASIC Commissioner Peter Boxall, said ASIC was most likely to pursue prosecutions where firms or people persisted in engaging in credit activities without being registered or licensed. ASIC may take action - other than prosecution - at its discretion. ‘All indications to date are that the new regime enjoys widespread support from people working in the credit industry, and that people and businesses who have registered welcome action by ASIC to deter non-registered businesses. ‘ASIC is serious about its responsibilities in enforcing the regime and our decision to undertake surveillance action - shortly after registration has closed – demonstrates our determination to ensure the effectiveness of the new national consumer credit regime in providing a better business environment for the industry and for consumers,’ Dr Boxall said. If you have any questions in relation to this article please contact Melissa Richards at ASIC on 03 9280 3558 or via email melissa.richards@asic.gov.au. Melissa Richards Analyst Australian Securities and Investments Commission
Due to the extended caretaker period following the Federal Election it was not possible to consult with stakeholders on the proposed fee for processing debt agreement proposals and it was, therefore, NOT introduced on 1 October 2010 as foreshadowed. Details of the consultation process and revised introduction date will be provided as soon as possible. The Bankruptcy Reform Consultative Forum was advised of these developments on 17 September 2010. In preparation for introduction of the fee, Registered Debt Agreement Administrators (RDAAs) and Registered Trustees may choose to apply for an account with ITSA, which will facilitate having the debt agreement proposal fee for proposals lodged by them invoiced on a regular basis after lodgement. This will assist with proposals being lodged and processed in a smooth and timely manner. A copy of the application form has been provided to practitioners who currently administer debt agreements. Alternatively RDAAs need to inform debtors of the requirement to make payment at the time of lodgement. There are a variety of payment options available for debtors including cash, cheque, money order, debit card or credit card either by post, or in person at any ITSA office. The Practice Statement on how the debt agreement proposal lodgement fee will apply is available under ITSA Practices & Policies on the ITSA website. Katrina Woodrow Acting Client Manager Debt Agreement Service
At the forum creditors were advised on the status of ITSA’s current projects including the Bankruptcy Legislation Amendment Act 2010, the Personal Property Securities Register, IT gateway review and ITSA’s name change. Issues of concern to creditors were discussed in an open forum and one of the topics discussed was the information contained in proposals to vary debt agreements. Creditors noted that they are seeing a reduction in the amount of dividends but not a reduction in administrators’ fees and they asked to see more explanation of the reasons the debtor is proposing a variation rather than a justification of the proposed changes to the agreement. Creditors received updates on trends in personal insolvency, the debt agreement system, regulation, enforcement, trustee services, personal property securities reforms, information and registry from National Managers of ITSA’s business lines. Written feedback about the forum and the usefulness of the day was positive and participants provided ideas for presentations at future forums such as the possibility of a joint forum with registered administrators. This was as a result of some creditors identifying the need to improve their communication with administrators. Katrina Woodrow Acting Client Manager Debt Agreement Service
This typically involves practitioners not responding to bankrupts, debtors or creditors reasonable requests for information and not paying dividends in a timely manner. Practitioners may sometimes perceive a creditor or bankrupt/debtor query to be: · unreasonable; and/or · not an influencing factor in realising assets in order to expedite the finalisation of an administration; and/or · not a high priority in the context of the other duties they have in relation to an administration. Given that bankrupts/debtors and creditors are the primary stakeholders in personal insolvency administration it is expected that all reasonable queries be duly respected, given a commensurate level of priority and answered promptly. Practitioners are reminded of their statutory duties and obligations – including:
In addition to the above statutory references, the IPA and DAPA Codes of Professional Conduct stipulate a mandatory framework which it is expected practitioners adhere to. In the soon to be released second draft of the IPA Code, two relevant principles of practitioner conduct are reinforced. “Members must communicate with affected parties in a manner that is honest, open, clear, succinct and timely to ensure effective understanding of the processes, rights and obligations of the parties.” “Members must attend to their duties in a timely way.” In addition to these principles the IPA Code devotes entire chapters to give guidance in and emphasise the importance of, “Communication” (Chapter 8) and “Timeliness” (Chapter 9). In Chapter 8 the IPA Code states, “The timely reply by the Practitioner to inquiries from creditors and debtors will assist in diffusing animosity and concern that they are not being heard.” In Chapter 9 the IPA Code emphasises the need to minimise negative emotion stating, “Insolvency is stressful and traumatic for those involved. Prompt, clear and courteous communications and replies to queries all reduce angst and improve trust in the Practitioner. Many complaints have their origin in the sense of the complainant being ignored rather than in technical or substantive acts or omissions of the Practitioner.” This issue will be the subject of a new Inspector-General Practice Direction (IGPD) to be published early in 2011. Practitioners with any comments or suggestions for the content of this IGPD are invited to contact me by phone on (07) 3360 5411 or by e-mail to tim.cole@itsa.gov.au. Please provide any comments or suggestions by 15 January 2011. Tim Cole Practice Manager Regulation
A review of "Inspector-General Practice Statement No. 11 - Monitoring and Inspection of Bankruptcy Trustees and Debt Agreement Administrators" provides clear guidance on this issue. Paragraph 9 of IGPS No 11 relevantly notes: "ITSA Regulation aims to provide practitioners with at least 7 days notice of the date of its attendance for inspection." Paragraph 10 of IGPS No 11 notes: "As a control to minimise the incidence and risk of fraud, ITSA Regulation’s policy regarding the timing of notice provided to trustees and debt agreement administrators is to provide details of the specific files to be inspected 24 hours before the commencement of the inspection. If ITSA Regulation identifies older files that may be archived, 48 hours notice will be provided to allow for file retrieval". Paragraph 11 of IGPS No 11 relevantly notes: "This practice is used with all practitioners including the Official Trustee." To illustrate; Inspector X contacts Trustee Y on Tuesday, 26 October 2010, and arranges for the inspection to commence on Wednesday, 3 November 2010, with an entry interview at 10am (7 clear days notice). Assuming the estates to be inspected are current, Inspector X would inform Trustee Y of the identity of those estates by no later than 10.00am on Tuesday, 2 November 2010 (24 hours clear notice). Alternatively, should any of those files to be inspected be determined to be older, finalised, and most likely archived, the identity of those files to be inspected would be communicated to Trustee Y by Monday, 1 November 2010 (48 hours clear notice). Practitioners are encouraged to become familiar with these requirements and ITSA Regulation’s inspection process generally, by reading IGPS No 11 in its entirety. A note of clarification however with regard to the above Practice Statement and accompanying illustration. While ITSA Regulation adheres to the above practice in the vast majority of cases, practitioners should note that ITSA is not obliged to give the above notice of an inspection and Regulation Inspectors will not do so should it be determined that forewarning of an inspection would be counterproductive – i.e. in situations where a serious defalcation is suspected and/or has been alleged. Glen Pitt Inspector Regulation – Central Region
Due to a further delay in consultation and cost-recovery requirements being completed, the proposed charging of a fee for advertising of meetings did not commence on 1 November 2010 as previously advised. Trustees will be advised of the start date for the imposition of a fee in due course. ITSA apologises for any inconvenience or uncertainty this further delay causes. From the commencement of website advertising of section 73 and section 188 meetings on 1 September 2010 to the end of October, 140 meetings were advertised using ITSA's website. Based on the numbers of advertisements thus far, annualised at say 840, the savings to debtors of not having to pay for newspaper advertising will total in the vicinity of $780,000 a year.3 It is also pleasing to report that compliance levels for the advertising of section 73 and section 188 meetings have improved with only a few cases of meetings not being advertised on ITSA’s Website post 1 September 2010 having been detected. For practitioners who have used the new advertising service on ITSA’s Website, ITSA invites your feedback on the new facility in order that we can ensure it meets your needs, or if further modification is required. Please pass any feedback to Mark Findlay at mark.findlay@itsa.gov.au
The outcomes sought from these days will include:
2011 Education Program
Based on feedback we have received from the last series of tailored Trustee Information Sessions that were conducted in November 2009 4, the overwhelming request for the next topic - planned for July-August 2011, is "Income Assessments." Trustees and/or their staff who have specific requests regarding those aspects of the income assessment regime that they would like to see covered in these sessions are invited to contact me by phone on (07) 3360 5411 or by e-mail to tim.cole@itsa.gov.au. In addition to the above face-to-face interaction, practitioners can find a wealth of resources available at any time, to maintain relevant knowledge and improve practice where necessary. These information sources include:
ITSA Regulation will continue to work with practitioners in 2011 and beyond, in order to maintain high standards of personal insolvency practice in Australia. If any practitioner or firm of practitioners would like a tailored information session delivered in-house to their practice, please contact either your Regional Regulation Business Manager or myself at tim.cole@itsa.gov.au. Tim Cole Practice Manager Regulation
These reports have referred to a study by the University of Melbourne Centre for Corporate Law and Securities Regulation. In a report titled "Personal Insolvency in Australia", Professor Ian Ramsay and his co-author Cameron Sim focused on profiling bankrupts. One of their findings was that more and more of the middle class are being claimed by bankruptcy. Over the last decade it is evident there has been a dramatic increase in the number of bankrupts being assessed as liable to pay income contributions. In 2000-2001, 1,662 bankrupts were recorded as having been assessed as liable to pay income contributions. In 2009-2010 that number had risen to 6,484 - a 290% increase. Over the same period the number of people actually becoming bankrupt increased by 11% - from 25,313 in 2000-2001 to 28,083 in 2009-2010. This increase has affected the number of reviews and complaints dealt with by the Inspector-General as the Regulator. The following graph illustrates this relative increase by indexing the number of bankrupts assessed as liable to make income contributions and the actual number of bankrupts to the base number of each in 2000-2001.  It is difficult to define middle class from occupational data alone, however, it is noted that the Inspector-General's Annual Reports on the Operation of the Bankruptcy Act, show that while the number of bankrupts increased by 11% over the last decade, the number of bankrupts classified as professionals increased by 120%. Bankrupts classified as technicians, tradespersons, managers and machine operators would also be included in numbers being assessed as liable to contribute. Because the earnings of people in those later categories vary more widely, depending on the industry in which they are involved, a more thorough analysis would be necessary to determine a similar parallel. Another interesting trend is how the number of administrations under Part X of the Act have recovered from what almost seemed like extinction at one stage and made a strong comeback over the last 7 years. The following graph plots the actual monthly numbers of such administrations (you can see how they fell below 10 per month at one stage). For ease of interpretation a trend line is provided.  It will be interesting to see how these trends progress in 2010-11. You are able to access data published in the Inspector-General's Annual Report on the Operation of the Bankruptcy Act at www.itsa.gov.au. Greg Barrett Inspector Regulation - North West Region
It should be noted that a controlling or registered trustee has the power to adjourn a meeting of creditors in the following circumstances. · A trustee may unilaterally decide to adjourn a meeting of creditors pursuant to subsection 64ZA(9) of the Bankruptcy Act 1966 when he or she needs more time to consider a person or creditor’s entitlement to vote. · With respect to a Part X meeting held pursuant to section 204, Schedule 6 Item 14 of the Bankruptcy Regulations modifies subsection 64Y(1) of the Act on “Adjournment of Meeting” as follows: 14 Before subsection 64Y(1) 15 Insert “(1A) The controlling trustee may adjourn a meeting to undertake further investigations, in relation to the controlling trusteeship, that the controlling trustee considers necessary. (1B) The creditors attending the meeting may, by special resolution, revoke the trustee’s decision to adjourn the meeting.” Note: Schedule 2 Item 10A of the Bankruptcy Regulations provides a similar modification to subsection 64Y(1) in relation to meetings held to consider a bankrupt’s proposal pursuant to section 73. It should be noted that a trustee does not have "free rein" to adjourn whenever he or she deems necessary and that in the appropriate circumstances creditors play the deciding role in determining the outcome of a meeting held relating to proposals or motions concerning a debtor’s/bankrupt’s affairs.
How to contact Regulation and Enforcement: For Regulation and Enforcement locations and contacts please click here. Personal Insolvency Regulator (PIR) Editors Practitioners have frequently raised the prospect of submitting articles for publication in the PIR, yet very few actually from practitioners are ever received. If you would like to submit an article for inclusion in the next edition of the PIR please forward it to one of the following. Jeff Hanley, National Manager, Regulation & Enforcement, jeff.hanley@itsa.gov.au Tim Cole, Practice Manager, Regulation & Enforcement, tim.cole@itsa.gov.au Charles Smith, Senior Inspector, Regulation & Enforcement, charles.smith@itsa.gov.au Acronyms that may be used in this Newsletter
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