Initial Remuneration Notices – guidance on when the ‘20 business days’ period starts

AFSA Regulation has been asked to provide guidance to trustees on their obligation to send an initial remuneration notice (IRN) in circumstances where a sequestration order (SO) has been made and the regulated debtor (the bankrupt) has attempted to file a Statement of Affairs (SOA) with the Official Receiver (OR), but it has been returned as incomplete.

It appears there is some uncertainty about interpreting the words in subparagraph 70-35(5)(b)(i) of the Insolvency Practice Rules (Bankruptcy) 2016 which provides:

70-35 Initial remuneration notice 

 …

(5) The initial remuneration notice must be in writing and must be given to the regulated debtor and creditors:

(b) in any other case:

(i) within 20 business days after the day the trustee receives the regulated debtor’s statement of affairs; or (emphasis added)

The question which arises in SO matters is whether the relevant date for sending the IRN should be based on when the trustee receives the SOA, whether directly from the bankrupt or indirectly from the OR, and regardless of whether it has been accepted by the OR or not (i.e. because it has been returned as incomplete).

In short, the relevant date for counting 20 business days is the date from when the trustee is notified of the SOA being accepted by the OR and receives a copy of the SOA from AFSA Registry. 

This is important because there may be a material delay between when the bankrupt first attempts to file the SOA and when it is accepted by the OR, after initially being returned as incomplete.

The bankrupt’s duty to file a SOA and give a copy to the trustee is set out in subsection 54(1) of the Bankruptcy Act 1966 which provides:

54 Bankrupt’s statement of affairs

  • Where a sequestration order is made, the person against whose estate it is made shall, within 14 days from the day on which he or she is notified of the bankruptcy:
  • make out and file with the Official Receiver a statement of his or her affairs; and
  • furnish a copy of the statement to the trustee.

Penalty: 50 penalty units.

The OR may refuse to accept a SOA in SO matters which is not signed, dated, in the approved form, illegible or substantially blank or incomplete. The OR’s discretionary power to accept or reject a SOA was considered by the Federal Court of Australia in Wangman v Official Receiver, Insolvency & Trustee Service Australia [2006] FCA 202.

This is discussed in IGPS 14 – Referring offences against the Bankruptcy Act 1966 to the Inspector-General, with paras 2.10 to 2.13 extracted below for reference:

Statement of affairs

2.10 Subsection 6A(2) of the Act states that:

'A reference in a provision of this Act referred to in subsection (1) to a statement of affairs is a reference to a statement that:

(a) is in an approved form; and

(b) includes a statement identifying any creditor who is a related entity of the debtor or bankrupt; and

(c) contains a declaration that, so far as the debtor or bankrupt is aware, the particulars set out in the statement are correct.'

2.11 In Wangman v The Official Receiver [2006] FCA 202 the Federal Court also considered the extent to which a statement of affairs needed to be completed before it could be considered to be a valid statement of the debtor's affairs. In his judgment at first instance Jarrett FM stated that a statement of affairs form must carry sufficient information for it to be considered a statement of the debtor's affairs and to assist the trustee in the administration, otherwise it fails to comply with the Act. His Honour dismissed the application and found, inter alia, subsection 306(1) Bankruptcy Act was of no assistance to the appellant, for the reason that the defects in his Statement of Affairs were so significant that the document could not be said to be a statement of affairs at all. On appeal, Collier J endorsed this finding and noted that “[o]bviously, it would not satisfy s 54(1) for a bankrupt to seek to file a blank statement of affairs in the form approved by the Inspector-General without including the personal information required by the form, because then the form would not be a statement of the bankrupt’s personal affairs as required by the section.” Further elaboration provided on appeal, citing Nilant v Macchia [2000] FCA 1528, was that “the lack of information inserted by the appellant into the 1998 Statement of Affairs meant that the document was not a valid statement of affairs within the meaning of s 54(1) Bankruptcy Act. It was clearly not a statement of the appellant’s affairs. This is not to say that any omission from a statement of affairs sought to be filed by a bankrupt would render the document so defective as to be invalid for the purposes of the section.”

2.12 Due to the operation of subsection 6A(2) of the Act, subsection 54(1), and further supported by the line of authority cited in Wangman v The Official Receiver, the Official Receiver has a discretionary power to either accept or not to accept a statement of affairs as being a valid statement of the debtor’s affairs.

2.13 Should a trustee receive a completed or partially completed statement of affairs from a bankrupt, that document (or an original copy of it) should be forwarded to the Official Receiver for consideration as to whether or not it has been properly completed. It is not appropriate for trustees to make a determination as to whether or not such a document is properly completed and therefore acceptable to the Official Receiver. To facilitate this process, statement of affairs forms may be delivered or posted to any AFSA Registry or emailed to registry [at] afsa.gov.au.

Based on the above, the better view is that the relevant date to determine when an IRN should be sent is the date that the trustee receives the bankrupt’s SOA which has been accepted by the OR for filing.

Trustees should note that it is the OR’s practice to notify them when a bankrupt has filed (or made an attempt to do so) and when it has been accepted (or rejected and returned as incomplete). This is outlined in ORPS 3 – Bankruptcy by sequestration order at para 9.8, which is extracted below for reference:

9.8. Where a statement of affairs is not accepted and is returned to the bankrupt, it is sent by Registered Post (with a requested delivery confirmation) with information regarding the reason why it was not accepted and the corrective action that need to be taken. Copies of the deficient statement of affairs are retained by the Official Receiver and provided to the trustee, but the statement of affairs is not available for public inspection.

The trustee will receive an OR letter by email from AFSA Registry which either states:

  • Please be advised the Statement of Affairs for the matter of <Bankrupt’s name and number> was not accepted by the Official Receiver for the reason/s listed in the attached letter ;or
  • Please be advised the Statement of Affairs for the matter of <Bankrupt’s name and number> lodged on <date> was accepted on <date>.

The relevant date for counting the 20 business days in subparagraph 70-35(5)(b)(i) of the Insolvency Practice Rules (Bankruptcy) 2016 should therefore be the date from when the trustee is notified of the SOA being accepted by the OR under paragraph 54(1)(a) of the Bankruptcy Act 1966 and receives a copy of the SOA from AFSA Registry. 

Paul Eric, Assistant Director National Allocation
AFSA Regulation