Practitioners: COVID-19 and updated advice from the Inspector-General

This document seeks to provide some guidance to practitioners in relation to COVID-19 and its effect on our stakeholders.

While AFSA and practitioners must be conscious of certain stakeholders being affected by COVID-19, we must also be mindful of our obligations to both debtors and creditors and the need to continue performing our work as best we can.

Temporary legislative changes that have come into force for six months

The following legislative changes have come into effect from 25 March 2020

  • an increase in the bankruptcy notice minimum debt amount – it’s now $20,000 (previously $5000)
  • an increase in the time period a debtor has to comply with a bankruptcy notice – it’s now six months
  • an increase in the minimum debt amount on which a creditor can petition for a debtor to be made bankrupt by sequestration order – it’s now $20,000
  • an increase in the stay period afforded by a declaration of intention to present a debtor’s petition (Temporary debt protection) – it’s now six months.

The changes will remain in place for six months from 25 March 2020.

More information about the legislative changes can be found in the Australian Government factsheet, Economic response to the COVID-19: Temporary relief for financially distressed businesses.

For more information about our recent legislative changes see: Coronavirus and changes to bankruptcy laws

Official Receiver Services

  1. Given the increase in the creditor’s petition minimum debt amount, all creditors who request extension of a bankruptcy notice for a debt of more than $5000 and less than $20,000 will be contacted and advised that they will not be able to proceed with a creditor’s petition in the event of non-compliance by the debtor.
  2. Section 77AA searches will be avoided and AFSA staff with work with trustees on alternative options.
  3. We will generally avoid section 77C examinations. In exceptional circumstances, and if the current situation goes on for some time, we will explore alternatives to requiring examinees and others to attend in person.
  4. Given the potential impact of COVID-19 on bankrupts, there may be some delays in the short term in AFSA issuing section 77CA notices (demands for statements of affairs) as we prioritise resources. If there is a need to issue the notice urgently, trustees should contact AFSA to explain the circumstances.

Statutory returns

Practitioners are still required to lodge statutory returns required under the Bankruptcy Act 1966, including annual administration returns, annual trustee returns and registration renewal forms where applicable. Contact AFSA (regulation [at] afsa.gov.au) if difficulties are encountered complying as a consequence of the COVID-19 situation or for any other reason.

General guidelines for trustees

  1. Where an estate can still be administered, it is expected that it will be administered in a timely manner. However, there may be some estates that cannot be progressed for a number of reasons and these need to be documented on file in sufficient detail to satisfy any parties seeking access to the estate file, including creditors and the Inspector-General.
  2. As the Australian Government has announced a nation-wide six-month moratorium on evicting renters, trustees should avoid evicting parties from properties. It may be difficult for such parties to find alternative accommodation, particularly where their income may have been reduced or have stopped, and these parties may be unwell or have unexpected caring responsibilities at this time.
  3. Trustees are expected to be in communication with debtors who are required to contribute from their income but who are not maintaining payments of income contributions, to ascertain whether re-assessment of income, hardship relief under section 139T or leniency in the renegotiation of payment schedules is appropriate. What constitutes being affected by COVID-19 can include, but is not limited to, a bankrupt having their income reduced or ceased, having to stay home from work because the bankrupt or a dependant has COVID-19, where the bankrupt is presently overseas they may not be able to return to their employment in Australia etc. .
  4. Any renegotiation of payment schedules with contributors must also be balanced with the bankrupt’s need to repay their liability, noting that they may actually be in a less favourable position to repay the liability down the track.
  5. At the same time, when considering renegotiating payment schedules, the trustee must also be conscious of the fact that some creditors, particularly smaller creditors, may be relying on dividends from bankrupt estates to keep their businesses operating or to pay household bills.
  6. While bankrupts can be asked to provide evidence of changes to their circumstances when requesting leniency in relation to contributions payments, trustees must consider that evidence may not always be available – for example, bankrupts whose work hours have been reduced may only have been advised of this verbally or may not have actually been told directly.
  7. Trustees must be conscious of the fact that bankrupts may not be able to provide information as quickly as requested, for example where the bankrupt is in isolation and has documents and records stored at another location or where the bankrupt is looking after a person affected by COVID-19.
  8. The appropriateness of lodging objections to discharge, both in relation to income contribution liabilities and for other reasons, must be considered– it is expected that trustees would avoid lodging objections in estates in which the bankrupt is legitimately affected by COVID-19, in a way that may prevent them discharging their obligations, particularly where the bankrupt has a good compliance history.
  9. Trustees are expected to continue to take the necessary steps now to secure property/assets but only to the extent that they are able to do so without exposing staff to risk. While there may be delays in being able to deal with that property (for example, there is a prohibition on real estate agents conducting open houses), it is important that actions to secure property/assets are not delayed, if this can be safely done.If action to secure assets/property cannot be taken, appropriate file notes of such decisions, and the reasons why action was not taken, should be made and retained.

Meetings of Creditors

Noting that proposals can be put to creditors without a meeting being convened under s.75-40 of Schedule 2 to the Bankruptcy Act 1966 (the Act), trustees should only convene meetings if absolutely necessary. If meetings of creditors are to occur it is expected that they be held electronically and in accordance with the provisions of the Insolvency Practice Rules and particularly, Rules 75-30 and 75-35. The place of the meeting would be the technology used to facilitate the meeting (eg. By teleconference, or by video conferencing).

Independence

Under the current circumstances it is perhaps more likely that practitioners will be providing insolvency services to insolvent persons who subsequently request the practitioner to become the appointee to an administration under the Act. Practitioners must be careful to maintain their independence, observing the guidance available in Inspector-General Practice Direction 1, APES330 (Section 4), the ARITA Code of Professional Practice (COPP: Insolvency services section 3 and PSI1) and the PIPA Code of Professional Practice.

General guidelines for debt agreement administrators

  1. Debtors who are parties to debt agreements may be affected in similar ways as bankrupts with income contribution liabilities, so consideration will need to be given to their circumstances. Debtors must be notified of the six-month arrears default provision in the Bankruptcy Act if they are in default for four months. While the debtor may not be able to rectify the default, particularly if their income has reduced, this notification is still to occur.
  2. Separate guidance has been published about the certification duties of debt agreement administrators for variations to debt agreements where the debtor’s income has been affected by COVID-19.