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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.
ITSA started the year with a new structure and with the effects still being felt of the global financial crisis. We ended the year with the announcement of significant ITSA Budget initiatives and the passing of the Bankruptcy Legislation Amendment Bill through Parliament. Numerous key achievements across the organisation were recorded over the past year. Each of these achievements underlines our commitment to innovation and excellence in service delivery – several examples are listed below.
With another full and exciting year ahead, the ITSA National Management Board look forward to working with you to ensure Australia maintains its reputation of having a robust and effective personal insolvency system.
1. Amendments abolishing bankruptcy districts commenced on the day after Royal Assent was given (15 July 2010); 2. Amendments increasing from $2,000 to $5,000 the minimum debt upon which a bankruptcy notice may be issued or a creditor’s petition presented to the court will commence 28 days after Royal Assent (11 August 2010); and 3. Amendments to:
Changes to the Bill made by the Parliament The Bankruptcy Legislation Amendment Bill 2009 (the title of the Amendment Act as introduced into Parliament) also contained amendments to increase by 20% the asset, income and debt thresholds below which debtors are eligible to propose a debt agreement with their creditors. However, these amendments were removed while the Bill was before the Parliament. The Parliament also reduced the proposed increase in the minimum debt2 from $10,000 to $5,000, and the proposed increase in the stay period relating to a Declaration of Intention to Present a Debtor’s Petition from 28 to 21 days. ITSA information sessions on the changes ITSA will conduct information sessions on the amendments for insolvency practitioners, financial counsellors and other interested stakeholders in late August and early September. All stakeholders are encouraged to attend these sessions. Anyone interested in attending should contact Ms Smitha Shankar on 02 6270 3406 or via e-mail to smitha.shankar@itsa.gov.au. Nominations to attend one of the information sessions need to be received by Thursday 12 August 2010. For a list of the available sessions in each city, please see the table below. Session Details Bankruptcy Act & Regulations Amendments Information Session Details
D = Detailed Session O = Overview Session 1 Expectation at the time of going to press/printing. 2 That is the minimum debt upon which a bankruptcy notice may be issued or a creditor’s petition presented to the court
The package of amendments is contained in the Bankruptcy Amendment Regulations 2010 (No.1) (Statutory Legislative Instrument No 195 of 2010). Veronique Ingram, Inspector-General in Bankruptcy and Chief Executive
Jeff Hanley National Manager Regulation and Enforcement
 Brody Clarke 2010 is a watershed year for the personal insolvency regime in Australia as it undergoes reform, review and evaluation. In developing legislation, a comparative analysis of law reform initiatives throughout international jurisdictions is useful and in this regard DAPA has found the recent approach taken in Canada illuminating. In response to heightened rates of consumer insolvency (personal insolvencies increased 45.5% from Sep-08 to Sep-09),3 Canada implemented reforms in 2009 to significantly increase the threshold for Consumer Proposals4 – which are largely equivalent to Debt Agreements – from $75,000 to $250,000. The aim was to increase accessibility to Consumer Proposals as an alternative to bankruptcy – an approach that seems to be gaining momentum globally and to a certain degree, in Australia (unlike the Australian experience, a debtor who proposes a Consumer Proposal does not commit “an act of bankruptcy”). Canada also made it compulsory for the debtor to attend counselling as a condition of the issuance of a certificate of full performance of his or her Consumer Proposal. An analogous process of debtor education exists in the United States and is also likely to be introduced into the Australian legislation in some capacity sooner rather than later. Personal insolvency law is a relatively esoteric subject and appears to go through cycles. In today’s consumer capitalist society, an effective insolvency law is once again viewed as crucial to sustaining confidence in the credit system that underlies the economy – a theme apparent during Victorian society of 19th century England. International perspective will also be important as the Government undertakes reform to modernise the Australian regime, and countries such as Canada, the United States and the UK are an initial reference point. The present feedback emanating from the DAPA member-base suggests that professional demand is for reform that is intellectually rigorous and generates useable and effective outcomes. Brody Clarke Executive Director Debt Agreement Practitioners Association and Registered Debt Agreement Administrator3 Source: Office of the Superintendent of Bankruptcy 4 Consumer proposals were introduced into the Bankruptcy and Insolvency Act in the early 1990s.
 Fiona Guthrie This is the first time that AFCCRA – the Australian Financial Counselling and Credit Reform Association – has contributed to this newsletter. AFCCRA is the peak body for financial counsellors in Australia. Financial counsellors, as insolvency practitioners will no doubt know, help people in financial difficulty, by providing information, support and advocacy. For example, this could involve negotiating hardship variations with creditors, providing information about credit legislation or debt collection laws or the pros and cons of bankruptcy or a Part IX agreement. We obviously have a similar client group to at least some insolvency practitioners. AFCCRA’s role as a professional peak body is no different to any other body of this nature: to advance the standing and recognition of the profession and to work with, in our case, state financial counselling bodies to provide support and ongoing professional development. We also have a strong policy development and advocacy role in relation to issues affecting our clients. Our current work in this area includes a project on comparative debt enforcement laws across Australia, working with the banking industry to improve hardship processes and a submission on the next phase of credit law reform. 5 The US civil rights lawyer, Dudley Field Malone, famously observed that he had never in his life “learned anything from any man who agreed with me.” Financial counsellors will often have different perspectives to ITSA’s other industry stakeholders. For example, we were very disappointed that the change in the threshold for a creditor’s petition will only increase to $5,000 and not $10,000 as the Attorney-General originally announced. On the other hand, there will also be areas where the views of financial counsellors and industry will coincide. These ongoing debates about reform are healthy and we welcome them. Because of the nature of the role, financial counsellors are well placed to comment on the level of financial stress in the community. Although Australia escaped the worst of the Global Financial Crisis – to the extent, it barely rates more than a passing mention in the media any more – this is not what we are seeing on the ground. Anecdotal reports from financial counsellors are that more and more people are struggling to pay their bills. Waiting lists are growing and with the cost of living continuing to rise, for example increasing interest rates and electricity prices, there appears no end in sight. Financial counsellors often lament that people leave it too late to seek assistance: had they sought advice earlier, more could have been done, even to the extent of saving a home. One of our challenges in the future is to understand the psychological barriers that prevent people addressing debt problems. Conversely, we also need to understand the psychological enablers that would encourage early identification. In the end, it would be good to do ourselves out of a job! Fiona Guthrie Executive Director AFCCRA 5 ‘National Credit Reform – Enhancing confidence and fairness in Australia’s credit law’, Green Paper released by Minister Bowen, July 2010
 Helen Wright Over May and June 2010, debt seminars were held in Melbourne and on the Gold Coast by the ATO for key stakeholder groups including insolvency practitioners. The workshops were part of a pilot by the ATO, which looked to engage and inform insolvency practitioners on topical issues about the way the ATO administers its debt collection and insolvency functions. The seminars provided a topical backdrop for new anti-phoenix laws - laws recently passed to curb the liquidation of companies to avoid paying their bills, but who continue to operate under a different legal structure. The laws give the ATO the ability to procure security deposits from taxpayers for existing and future liabilities and will be used on a case-by-case basis for taxpayers who deliberately have not paid their tax. Additionally, the presentation explained the ATO’s guiding principles in collecting debt - understanding the taxpayer’s individual circumstances, considering each case on its merits, assisting those who are attempting to engage with us and do the right thing, and being fair and equitable. The seminars gave practitioners a chance to meet face-to-face with senior ATO staff and discuss current issues with them. The free seminars were well received by practitioners. Attendees were given information on resources available to assist their clients, such as the www.ato.gov.au website, which includes products designed to help taxpayers better understand debt collection processes, and options available for tax debts. If you would like further information on upcoming ATO debt seminars, email debtseminars@ato.gov.au. Helen Wright Strategic Communications Debt Business Line Australian Taxation Office
1. Recommended amendment to the Bankruptcy Act 1966 A suggested amendment to the Act recommends that all income received by the bankrupt after the date of bankruptcy be included in the ss116(2) protected property regime and, as such, protect after acquired property purchased with such income. The intention here appears to want to overcome the Rodway decision, where the WA Supreme Court confirmed on appeal that property purchased by a bankrupt with surplus income (which had been subject to an income contributions assessment) was "after-acquired property" and thereby vested in the Trustee. It was also found that the bankrupt should have notified the Trustee when that property was purchased. ITSA’s Legal and Executive Support area have taken note of this recommendation and will consider same in conjunction with the Attorney General’s Department in the course of future reviews of the Act. 2. A suggestion relating to after acquired property – estoppel principles Where a Trustee purports to transfer property (house equity for example) back to the bankrupt during bankruptcy, the after acquired property provisions in the Act work to immediately vest that property back with the Trustee. Some consider this to be a circular and impractical arrangement by preventing a bankrupt from “moving forward” and securing a residence that at the date of bankruptcy has minimal or no equity. A solution that has been proposed is to rely on the estoppel principles set out in O'Brien v Sheahan. It has been suggested by one Trustee that, in these circumstances, the Trustee be entitled to, "sell the equity back to the bankrupt party at the time of bankruptcy either by way of a lump sum or payment by installments.... While this may not be entirely in accordance with the law as it stands at the moment, I believe that once the equity is dealt with, a trustee would be estopped from dealing with the equity a second time (see O’Brien v Sheahan [2002] FCA 1292)." This suggestion appears contrary to the direction in article number 6 of the April 2010 PIR - that such transfers are neither allowed, nor effective - as a matter of law. Mark Findlay (Business Manager, Regulation Central Region) cites 2 decisions, Meriton Apartments Pty Ltd v Industrial Court of NSW [2008] FCAFC 172 and Pascoe & Anor v Official Trustee in Bankruptcy & Ors [2006] FMCA 1099, where the Courts held that the Trustee cannot undertake such transfers- they are 'legally ineffective and improper'. Mark Findlay did however note that these transfers can be affected after discharge. I agree with the principles set down in Mark Findlay's article and while it is always advisable for and open to trustees to obtain and act on their own legal advice, I do not propose that the Regulator endorse the approach above. The after acquired property provisions in the Act would need to be amended in order for these transfers to be legally effective. While I understand your concerns and your desire to give the most practical effect to the law, ultimately however, if you believe the legislation ought to be amended, I invite you to raise this with the bankruptcy policy area of the Attorney-General's Department via the office of Mr Anthony Coles, Acting Assistant Secretary, Bankruptcy and International Legal Services Branch. Jeff Hanley National Manager Regulation & Enforcement
To facilitate the recovery of dishonour fees from debt agreement funds, the DAP and Explanatory Statement form was amended to include an automatic provision for the reimbursement of the dishonour fees without the need to make a specific provision for such expenses at the 'Allowable expenses payable to a third party' line of the DAP. The DAP, which became effective from 23 December 2009, now includes the phrase: 'Dishonour charges incurred in the administration of the agreement with an authorised deposit-taking institution, such as a bank, will be recovered from the debtor's payments''. The inclusion of this phrase overcomes the difficulty debtors (and administrators) faced in not being able to estimate dishonour charges at the time of submitting the DAP. It also allows administrators to recover any dishonour fee expenses that have been incurred in relation to a particular debt agreement from that administration’s funds provided the DAP was lodged on the current form. This amendment does not apply to debt agreements which came into effect where the DAP was lodged on the old form 6 and did not include any provision for such an expense to be reimbursed from the debt agreement funds. Where there have been multiple instances of dishonour fees incurred by an administration, which will have a material effect on the dividend payable to creditors, it is expected that the administrator will notify creditors of this and the effect on the dividend rate. For further information regarding what constitutes an expense of a registered debt agreement administrator, please refer to Inspector-General Practice Direction 3, which can be viewed at this internet link. For any queries or further information please contact your regional Regulation office or Tim Cole, Regulation’s Practice Manager. Jackie Walkom Senior Inspector – Central Region Regulation & Enforcement 6 The form that pre-dated the one that took effect on 23 December 2009
The Government decided that the additional funding should be fully offset by cost savings and cost recovery measures. The cost recovery measures include the introduction of a modest fee payable by debtors upon the lodgement of debt agreement proposals, to be introduced from 1 October 2010. Although the exact level of the fee has yet to be determined it will not exceed $200. ITSA and the Attorney-General’s Department will be undertaking a consultation process on the new debt agreement proposal lodgement fee and the increase in the realisations charge. The new debt agreement proposal lodgement fee is consistent with the Government’s cost recovery policy which generally requires the beneficiary of Government services to pay a fee which recovers the cost of providing those services. Debtors receive significant benefits from ITSA’s role in ensuring compliance with the legislation which also assists in ensuring debt agreements are appropriate in their circumstances. If you have any queries or concerns in relation to the new debt agreement proposal lodgement fee, please contact Katrina Woodrow, Acting Client Manager, Debt Agreement Service at katrina.woodrow@itsa.gov.au or via the ITSA information service on 1300 364 785. Katrina Woodrow Acting Client Manager Debt Agreement Service
 On 1 July 2010 ASIC became the national regulator of consumer credit, with enhanced powers under the National Consumer Credit Protection Act 2009. This new legislation replaces existing state and territory legislation and will provide a nationally consistent framework for the regulation of consumer credit, credit providers, brokers and other intermediaries. If you registered with ASIC by 30 June 2010, you may continue engaging in credit activities until 31 December 2010, by which time you must apply for your licence or become a credit representative of a licensee. If you are not registered, you must immediately suspend credit activities until you become registered, obtain a credit licence or become a credit representative of a licensee. If you have not registered and are not an authorised credit representative of a registered entity you should contact ASIC immediately to discuss your options. Under the new law, ‘credit activity’ includes suggesting that a consumer apply for a particular product, or an increase in existing credit, with a particular credit provider or acting as an intermediary between the credit provider and a consumer for the purpose of obtaining credit (or further credit). Where an adviser provides budgeting or debt management advice, their activities may require a credit licence, depending upon the scope of the service provided and whether it involves renegotiating credit contracts or suggesting particular credit products or providers. The law exempts not-for-profit financial counselling services. Registered debt agreement administrators are exempt for the preparation and administration of a Part IX debt agreement. This exemption is not extended to other commercial debt management services. If you provide budgeting, debt management advice or other debt management services to consumers, you should consider whether you will need a credit licence. ASIC's Regulatory Guide 203: Do I need a credit licence? assists businesses in determining whether they will require a licence and is available on www.asic.gov.au/credit. 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
With reference to the previous article on this topic (article number 11) in the April 2010 edition of the PIR, we would like to clarify one segment of the article that read as follows: In the interim, Trustees are reminded that under the current legislative requirements, notices of meetings of creditors must be published in both a national daily newspaper that is circulated throughout Australia, and in a regional daily newspaper of the State or Territory in which the debtor or bankrupt resides. As correctly pointed out by a number of trustees, the requirement to advertise the notice of a meeting of creditors is only relevant in respect of Part X and section 73 meetings. It does not apply, as a matter of course or a stipulated statutory requirement, in respect of general Part IV creditors meetings. Update As Trustees would be aware, where creditors meetings are called pursuant to sections 73 or 188 of the Bankruptcy Act, Regulation 4.19 and Schedules 2 and 6 of the Bankruptcy Regulations 1996, require such meetings to be advertised in a manner approved by the Inspector-General. Currently, this requires all such Creditors Meetings to be published in:
ITSA has received feedback from trustees and creditors criticising this method of advertising creditors meetings, claiming it is cumbersome, archaic, inefficient and expensive. Some of the criticisms leveled towards the current advertising requirements refer to:
ITSA is proposing to alter the current Inspector-General requirements surrounding the advertising of such meetings as follows:
ITSA intends to display the advertisement links on its home page under the Part X Menu tab; on the Creditors Menu tab, on the Side Bar and, for a short time, as a flashing icon scrolling across the Home Page itself. ITSA also recommends Trustees amend their initial notification to creditors correspondence by adding a simple sentence and / link into their existing letters promoting the change. This cosmetic change could be as simple as, “To locate information about any Creditor Meeting that might be called in relation to this administration please refer to ITSA’s website www.itsa.gov.au under the “Creditors” Menu tab.” ITSA is confident this new facility will be widely embraced by all stakeholders as it will:
Other enhancements are also being contemplated to improve this facility even further and these shall be communicated in due course. Practitioners are also invited to suggest any other ideas they might have in order to make this facility as user-friendly and efficient as possible. Jeff Hanley Mark Findlay National Manager Regulation Business Manager – Central Region Regulation and Enforcement Regulation and Enforcement 7 That is, the current approximate cost of $1,800 less the proposed cost of $275.
(R4641 December 2009) Can a firm acting for a bankrupt in a matter leading up to the bankruptcy later represent the spouse of the bankrupt as against the trustee in bankruptcy? Firm A acted for the bankrupt in several matters prior to the bankrupt becoming a “bankrupt’. C was eventually appointed as the trustee in bankruptcy. The trustee in the bankruptcy sought to lodge a caveat over the bankrupt’s home, the registered proprietor for which was not the bankrupt, but the bankrupt’s wife. Firm A then sought to assist the wife in removing the caveat. The trustee in bankruptcy claimed Firm A was in a position of conflict on the basis that Firm A had previously represented the bankrupt, and that the trustee was now standing in the shoes of the bankrupt. Recommendation In the opinion of the Ethics Committee and on the information presented: Firm A was able to continue to act for Mrs. K, the wife of the Bankrupt, in the caveat matter as there did not appear to be any confidential information from the previous retainer that was relevant to the current issue. Sourced by Brett Hereward, Inspector, ITSA Regulation Southern Region Reproduced with permission of the Law Institute Victoria
On 28 May following the 2010 review, the Inspector-General wrote to ITSA’s stakeholders to provide early notification of the amounts that would be proposed to the Attorney-General for approval. The Attorney-General approved those changes which came into effect on 1 July 2010. The changes are:
Any fees charged by ITSA that do not appear in the list above remain at the same level. Adrian Wilson Client Services Co-ordinator Corporate Strategy and Support8 This applies to all types of personal insolvency appointments regardless of the date the estate or administration began. That is it applies to receipts received in all estates and administrations on or after 1 July 2010.
All Trustees and Debt Agreement Administrators should have received their spreadsheets by now. If you haven’t please contact your local ITSA Registry staff who will be able to assist. The due date for returns is 4 August 2010. If a Trustee or Administrator is registered for Online Services they may lodge the AER online. If you are not registered for Online Services and would like to utilise the service please go to the ITSA website and complete the application. Payment of Realisation Charges and Interest Charges (RCIC) is due by 4 August 2010. Amounts due for multiple estates or administrations can be made with a single payment. It is not necessary to provide a cheque/payment for each matter. Trustees and Administrators are requested to send payments and AER documents to ITSA as soon as possible and not leave it to the 4 August. This will assist registry staff in managing workflow. Also, if it is necessary to contact trustee/administrator with reconciliation issues, it provides your staff with the opportunity to rectify these before the due date. If you require any assistance please contact your local registry. Linda Bloomfield Business Services Manager Information and Registry
Personal Insolvency Regulator (PIR) Editors 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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