AFSA, through its Regulation and Enforcement (R&E) staff, have been recently engaging in work investigating instances of untrustworthy advice being provided to bankrupts and debtors and have seen some trends worthy of being on the lookout for. The trends include:
- Advisors are actually calling creditors such as banks and the ATO and asking them to abstain from voting to assist their clients in gaining annulments. While there is nothing unlawful in doing that, it clearly demonstrates the lengths some advisors will go to achieve the outcome they want. In another matter, the advisor was trying to eliminate all of the creditors from voting so that the only creditor left was the advisor who was looking to vote for zero cents in the dollar return to creditors in an estate where there was concealed equity in a property.
- The use of fabricated caveats and mortgages in bankrupt estates in an attempt to soak up equity. While it poses a hurdle and hindrance to realising properties, once the bankrupt and or creditor is asked to provide satisfactory evidence of the loan subject of the caveat/mortgage, they are unable to do so, ending with the caveat/mortgage being withdrawn.
- Using fabricated creditors in PIAs and Compositions where bankrupts seek to include false debts in their statements of affairs or put one forward at the last minute before the creditors meeting is held. Their objective is to be able to rig the voting and gain the approval of 50% in number and 75% in value. In most cases, as with the use of fabricated caveats, once the creditors are asked to show one or two levels of proof, they aren’t able to and withdraw it.
In terms of dealing with pre insolvency advisors it would assist R&E if trustees and their staff could ask debtors and bankrupts what advice and instructions they were given by the advisors and document it in the event it becomes relevant at a later time. While R&E are aware some advisors tell their clients not to speak with trustees, their staff or AFSA, they do have an obligation to engage and answer questions relevant to their administration.
If any suspicious activity is identified trustees and staff should feel free to contact R&E for assistance. R&E are continually adding information into our intelligence holdings so please feel free to send an email to the fraud enquiries email box (enforcement [at] afsa.gov.au) so that it can be included and searchable.
Assistant Director – Enforcement