Debt Agreement Service Newsletter July 2008

Single Creditor Proposals
Debt agreements are designed to help debtors to collectively deal with several creditors by offering a proposal. If debtors only have one creditor the more appropriate way may be to use the hardship variation provisions of the Uniform Consumer Credit Code. This imposes an obligation on credit providers to try to help debtors overcome their financial difficulties by working with them to develop a repayment plan. For example, this may amount to reducing payments or forgoing interest.

Proposals may not be accepted to send to creditors for voting where there is one creditor listed on the explanatory statement and statement of affairs and the debtor has not attempted to negotiate directly with the creditor or use hardship variation provisions available from the creditor. This is because the creditors’ interests may be better served by not accepting the proposal.

Major credit providers have confirmed their commitment that they will help debtors when they contact them to explain how to apply for hardship variation. We are working to help you assist debtors who only have one creditor by ascertaining the relevant contact numbers of major creditors. The phone numbers or details of their processes for dealing with debtors with unmanageable debt are intended to be distributed to administrators.

Rejection Reasons on SOCAVs
The Statement of Claim and Voting form provides for a creditor to explain the reasons why they do not support the debtor’s proposal. Where reasons are provided to the DAS, these are provided to the administrator to allow them to gain a better understanding of the creditor’s decision or where the proposal may lack clarity. The explanation given by creditors on their vote is a way for creditors to directly communicate with administrators reducing the need for further discussion by phone.

Debtor’s Previous Bankruptcy
There have been several instances where proposals have been lodged where the debtor has been a bankrupt during the 10 years immediately before the proposal was lodged. These proposals are unable to be accepted to send to creditors to vote as the debtor is ineligible to propose a debt agreement. Currently this is the most common reason why a debtor’s debt agreement proposal is rejected by the DAS.

Administrators need to confirm with the debtor through close questioning, a search of the NPII or other method to determine if the debtor has been subject to an administration in the last 10 years before preparing a proposal for a debtor. Administrators wishing to obtain information about debtor’s insolvency history on the NPII may contact ITSA’s Information Service on 1300 364 785. The cost for this service is $20.00.

Debtors may obtain information relating to their own personal insolvency history held on the National Personal Insolvency Index (NPII) by contacting ITSA’s Information Service on 1300 364 785. This information is provided free to the debtor. The debtor may choose to pass this information to their administrator. This will prevent unnecessary work by administrators and delays in dealing with the debtor’s unmanageable debt.

Quarterly Debt Agreements and Bankruptcies

	Jun 2007	Sept 2007	Dec 2007	Mar 2008	Jun 2008
Debt Agreements	1992	1624	1452	1504	2040
Bankruptcies	6572	6330	6267	6306	7058

The DAS has noticed an increase in the number of proposals received in the past two months, particularly towards the end of each month. A total of 9118 proposals were received by the DAS in the 2007/08 financial year. Of these, 6619 proposals were accepted by creditors.

The number of debt agreements made in the June quarter is an increase of 2.41% over the same quarter in 2007.

Effect of a Debt Agreement
A debtor’s administrator made contact with the DAS after being unable to convince a creditor of their obligations to cease action in enforcing a garnishee order. The debtor had been unaware the garnishee should have ceased upon entering into a debt agreement and had not been able to maintain their payments towards their debt agreement.

Administrators have a responsibility to assist debtors and creditors to understand their rights and obligations. Paragraph 185K(1)(c) of the Bankruptcy Act provides that, while a debt agreement is in force, there is an absolute bar on the enforcement of any remedy against the debtor's property or person which is aimed at the recovery of a provable debt. In relation to debt agreements, the creditor's right is restricted to receiving payments in accordance with the terms of the debt agreement.

ITSA has assisted the debtor to have the garnishee ceased and their wages refunded.

ITSA’s Fact Sheet in Booklet Form
ITSA has released a new publication for debtors which are a compilation of a number of ITSA's Fact Sheets in booklet form - entitled Personal Insolvency Information for Debtors. The new publication is available on the ITSA website here.

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 teams in Perth and Brisbane.

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