Media release: Spotlight on Personal Insolvency Practitioners - Australian Financial Security Authority report

Wednesday, December 21, 2016

The Australian Financial Security Authority’s (AFSA) Chief Executive and Inspector-General in Bankruptcy, Veronique Ingram PSM, today announced the release of AFSA’s annual Personal Insolvency Practitioners Compliance Report (PIPCR).

“This is the fourth specialised report about the performance of private personal insolvency practitioners and the results of AFSA’s regulatory and enforcement activities,” Ms Ingram said.

“The PIPCR shows that we are working effectively with Australia’s 291 private personal insolvency practitioners, who have collectively administered in excess of $569 million, involving more than 59,360 personal insolvency administrations in 2015-16.”

Personal insolvency practitioners are made up of registered bankruptcy trustees and registered debt agreement administrators from within chartered accounting firms or boutique insolvency firms across Australia.

Mr Paul Shaw, National Manger Regulation & Enforcement, said that AFSA works to address regulatory issues as early as possible.

“We apply a risk assessment on practitioners’ systems and work history. Complaints against practitioners do happen, however a pleasing trend has been a 41 percent reduction in justified complaints against personal insolvency practitioners in the 2015-16 period,” Mr Shaw said.

Mr Shaw said that AFSA has also introduced new ways to reduce the regulatory burden on practitioners, such as the use of Pre-Referral Enquiries. Practitioners can use these when they consider that an offence against the Act may have occurred but it is unclear (or undecided) whether there is sufficient evidence to support a full offence referral, or where the investigation or prosecution may not be in the public interest.

“The 2015-16 year was the first full year that pre-referral enquiries have been in use. AFSA received 538 pre-referral enquiries from practitioners in the year, of which 390 did not require a detailed offence referral,” Mr Shaw said.

“These statistics support a material reduction in the regulatory burden placed on practitioners in preparing a full offence referral when there is little likelihood of it being accepted for investigation or prosecution. We welcome feedback from practitioners about how they are finding the pre-referral enquiry system, and such feedback can be provided to rpo [at] afsa.gov.au.”

“We will continue to build on our strong relationships with private personal insolvency practitioners, debtors and creditors to improve practice and procedure and ensure rigorous compliance with the legislative requirements of the Bankruptcy Act 1966. Maintaining these relationships is particularly important in order to support a smooth transition to the impending introduction of the Insolvency Law Reform Act 2016.”

AFSA draws on the expertise of external associations, including the Australian Restructuring and Insolvency Turnaround Association (ARITA), the Personal Insolvency Professionals Association (PIPA), creditors, financial counsellors and the Australian Securities and Investments Commission (ASIC).

Ms Ingram said, "Delivering accessible, accurate and consistent information services to empower clients and stakeholders in making informed decisions, is a key goal outlined in AFSA’s Corporate Plan. The Personal Insolvency Practitioners Compliance Report complements the data contained within AFSA’s Annual Report," Ms Ingram said.

AFSA’s new Regulatory Framework has a focus on six areas: reducing regulatory burden, clear and effective communication, risk-based and proportionate approaches, efficient and coordinated monitoring, transparency, and continuous improvement.   

(To provide useful context and relativity to the data for 2015-16, a five year mean is provided in Annexure B to the PIPCR.)

Other key highlights of the PIPCR for practitioners

In 2015-16, AFSA inspected 77 personal insolvency practitioners and the systems and controls that govern their personal insolvency practices.

AFSA inspected 62 registered trustees and 228 of their administrations. There were 138 errors identified of which 23 (17 percent) required remedial action.

The top three types of registered trustee inspection errors found were:

  1. Inadequate communication by trustee - both in relation to the creditors and the debtor
  2. Property, income or asset errors – these include income contribution errors. AFSA has recently provided information about income contributions in our two part guidance videos available on our website.
  3. Failure to meet trustee/controlling trustee standards – this includes failure to record decisions regarding significant assets in writing.

AFSA inspected 11 registered debt agreement administrators and four unregistered debt agreement administrators along with 55 of their administrations. There were 22 errors identified of which 4 (18 percent) required remedial action.

The top three types of debt agreement administrator inspection errors found were:

  1. Failure to maintain proper records
  2. Commonwealth Revenue Implications - all were made by unregistered debt agreement administrators and relevant investigations are being undertaken.
  3. Failure to comply with certification duties – the duties include provision of prescribed information, affordability, accuracy and completeness of the debt agreement proposal.

In relation to complaints against personal insolvency practitioners, there has been a notable decrease in justified complaints over the last five years. Of the 212 complaints, only 6 percent of those were justified.

The highest areas of justified complaints against practitioners were in relation to:

  • Lack of information or communication (consistent with the inspection errors noted earlier)
  • Fees and costs
  • Creditor claims and dividends
  • Inappropriate conduct or conflict of interest

In 2015–16, AFSA reviewed 426 personal insolvency agreement (Part X) and composition (section 73) proposals of the 481 received (89 percent) and attended 59 creditors’ meetings. Of the total proposals reviewed by AFSA, 25 (6 percent) involved intervention due to registered trustees failing to properly report or conduct enquiries or incorrect treatment of creditors’ claims.

AFSA received 246 requests for Inspector-General reviews in 2015-16. Of those reviews, 19 (8 percent) required the Inspector-General to ultimately vary the original decisions made. This represents a 9 percent reduction in decisions varied by the Inspector-General compared to 2014-15 and a pleasing trend for personal insolvency practitioners.