Exploring the ‘fit and proper person’ test

The Bankruptcy Act makes it a legislative requirement for all practitioners to be a ‘fit and proper person’ in order to be registered and, once registered, to retain that status.

To assist the profession in better understanding this legislative standard, AFSA Regulation & Enforcement will soon be providing draft guidance about what it means to be a ‘fit and proper person’ on our online consultation portal, AFSAsandpit. The guidance will be applicable for registered trustees and debt agreement administrators, and will reflect the different duties of each class of practitioner.

Importantly, this guidance is not intended to limit the meaning of established case law, which indicates that the ‘fit and proper person’ test is given a very wide scope. However, AFSA is interested in exploring this topic with the profession and looks forward to receiving feedback.

By way of background, insolvency professionals are entrusted with significant financial responsibility and personal discretionary power. Community trust in insolvency professionals is essential if the personal insolvency system is to work effectively.

Given this, to be a ‘fit and proper person’ requires more than just a certified or demonstrated competence.  It also extends to a practitioner’s character. This is why, to determine whether an individual is ‘otherwise a fit and proper person’ to act as an administrator, the Inspector-General requests recent referee reports, looking for evidence that a person is of good character and is known to act with honesty and integrity.

The Inspector-General also extensively reviews an applicant’s police check beyond offences that relate to fraud or dishonesty, extending the test of professional conduct to both personal and business dealings. For example, repeated traffic offences or failure to pay fines may indicate a lack of honesty or integrity and therefore a failure to meet the ‘fit and proper’ test.

Once accepted into the profession, a practitioner’s registration may be cancelled if they fail to meet the ‘fit and proper’ test. Typically, this occurs if insolvency professionals are identified as engaging in conduct that does not meet the community’s expectations. When it comes to the Inspector-General making all such determinations, each case will depend on its own circumstances. However, in assessing conduct, the Inspector-General expects practitioners to comply not only with the Bankruptcy Act, Regulations and Rules, but also with:

Jody Leong
Assistant Director Technical