Debt Agreement Service Newsletter February 2009

Notification by Debtors intending to propose a Debt Agreement
When debtors or their proposed administrator inform creditors of their intention to propose a debt agreement, creditors should make their own assessment of how they wish to proceed. Creditors are not obligated to cease collection action but may raise questions about the progress of preparation of a debt agreement proposal with the debtor or the proposed administrator.

When a debt agreement proposal is accepted by the DAS and recorded on the NPII, creditors may contact debtors but must suspend collection action. This means:

Applications for enforcement or recovery action against the debtor or their property must cease;
A sheriff must not take action to execute or sell property under any process; and
Creditors must suspend deductions by garnishee from the debtor’s earnings.

Debtors must decide whether to maintain payments to their creditors both whilst they prepare their debt agreement proposal and during the voting period. This is because creditors may vote to reject their proposal and debtors find their debts are further in arrears.

Fees Paid to a Debt Agreement Administrator
A number of questions were raised at the 7th ITSA Bankruptcy Congress about fees charged by administrators and the extent to which they are scrutinised and regulated.
There are two types of fees charged:

Set Up fees; and
Administration fees.

Set Up fees relate to the time taken by an administrator in giving information on options to the debtor and in satisfying their understanding of the debtor’s income, expenses and level of unmanageable debt. This may include contacting and dealing with creditors, obtaining exact details and evidence of income, assets and debts. Debtors must disclose the amount of Set Up fees on the Explanatory Statement. Set Up fees range from nil to $4500. Where Set Up fees are not charged, it is likely the costs of preparing the proposal are included in the administration fee.
Administration fees relate to the duties undertaken to administer the debtor’s agreement, including the distribution of dividends to creditors, notifying creditors of default, dealing with variations and ensuring the debtor complies with their agreement.
The legislation does not regulate the amount of fees charged but does regulate for administration fees to be:

Expressed on a proposal as a dollar amount;
Expressed as a percentage of the total amount of payments by the debtor; and
Taken as a percentage of each payment by the debtor.

For example, a debtor proposes to pay $10,000.00 over 4 years. Administration fees charged are 22%. The debtor’s proposal must show administration fees as $2,200 and as 22%. The administrator may take no more than 22% of each payment by the debtor.
To scrutinise the disclosure of fees, the DAS has implemented a Compliance Program. This involves phoning a sample of debtors to verify they have gone through an adequate process in preparing the proposal. The debtors understanding and awareness of Set Up and Administration fees is checked against the information on the debtor’s proposal. Prior to recording completion of a debt agreement, the DAS scrutinise the administrator’s notification and compare remuneration taken against the debtor’s proposal. Fee increases can only occur by creditor’s acceptance of a variation proposal.
The DAS sees that a debtor agrees with fees by disclosing the fees and by signing the proposal. This gives creditors the opportunity to raise any matter about fees with the debtor’s administrator. Creditors have provided feedback to the DAS that they “are less willing to approve proposals if they considered the level of fees were not reasonable”. The DAS has noted some creditors have used their own knowledge of what they consider reasonable within the market and have contacted administrators regarding the extent of their fees.
Where instances of non-compliance are identified, the Debt Agreement Service refers the matter to ITSA’s Bankruptcy Regulation. Creditors should refer matters relating to non-compliance with the provisions or any other administration issue to ITSA’s Bankruptcy Regulation. They can be contacted through ITSA’s Information Service 1300 364 785.

Quarterly Debt Agreements and Bankruptcies

	Mar 2008	Jun 2008	Sep 2008	Dec 2008
Debt Agreements	1504	2040	2202	1991
Bankruptcies	6306	7058	6693	6649

The DAS is continuing to see an increase in the acceptance rate of debt agreements. The number of debt agreements made in the December quarter is an increase of 37.12% over the same quarter in 2007.

“eSolve” The New IT System for DAS
The DAS has commenced to work with the project team on eSolve; the new electronic data interchange system which will streamline processes and communication with creditors and administrators.
We will be looking to involve creditors and administrators in the design requirements starting in March 2009.

Feedback
ITSA values the participation of our stakeholders in the debt agreement system. Digby Ross, Official Receiver and National Manager of the DAS can be contacted on (07) 3360 5400 and Vanessa Goodey, Deputy Official Receiver and Operations Manager on (07) 3360 5435. Please continue to direct your queries on individual matters to the DAS team in Brisbane.

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OFFICE ADDRESS: Level 16, 340 Adelaide Street, BRISBANE QLD 4000
PO Box 10443 ADELAIDE STREET, BRISBANE QLD 4000
TELEPHONE: 1300 364 785 FACSIMILE: (07) 3360 5494
EMAIL: debtagreementservice@itsa.gov.au INTERNET: www.itsa.gov.au
OFFICES IN ADELAIDE BRISBANE CANBERRA HOBART MELBOURNE PERTH SYDNEY TOWNSVILLE

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