Some reflections on the personal insolvency system

Monday, March 4, 2019

My role is to help support and serve the personal insolvency and personal property securities systems I am responsible for. And it is my view that maintaining a positive, principles-based culture, focused on best practice, is ultimately good long term business.

The personal insolvency system is healthy when it operates in a way that is considered both fair and reasonable by creditors, debtors and the general community.

Since becoming Chief Executive, I haven’t seen anything that suggests the system is in bad health. Most practitioners clearly seek to do the right thing in what can be quite a challenging role.

But I’m also aware that sometimes you can think you’re running a very successful program until something bad happens that you didn’t see coming.

One of the ways we mitigate this risk is to have robust, trusting relationships with a wide cross section of stakeholders that can help identify emerging trends.

Personal insolvency is an important part of Australia’s credit infrastructure. AFSA’s role is to manage potential harms that are lurking at the fringes of the system. How are we doing that?

We focus on ensuring the system operates in a way that maximises returns to creditors, and deals expediently and appropriately with those who seek to avoid their obligations and duties to others; such as acting to conceal assets to the detriment of creditors 

At the same time we support debtors to make sensible informed decisions about the formal and informal insolvency options available and ensuring they have timely access to formal options.

To achieve these two outcomes, AFSA needs to be considered a:

  • firm but fair regulator
  • world class service provider.

Over recent years we have seen a regulatory reform agenda and an intense public interest in the absence of proper regulatory intervention.

It’s important to note that de-regulation has never been about less regulation, just smarter regulation. It’s about where you direct your time and energy, so that you use all the available tools at your disposal to help those who want to comply—which is the majority—so you can focus on areas of intentional non-compliance.

If done well there will be a de-regulatory impact because you will tend to bother the majority less while you spend more time bothering the people who are likely to cause the greatest potential harm.

This is the basis for our risk-based approach to regulation.

At AFSA, we want to make it easier for people to comply. One way we can do this is by reviewing our forms and processes to remove ambiguity and duplication and make them simple, clear and fast.

Modernising our services—moving to online forms and automated processes, brings benefits for users, practitioners and for AFSA. A recent example is the debt agreement process which is now fully online, reducing processing times from days to just minutes and providing better data which supports our compliance function.

The personal insolvency system fills a social justice role as well as economic one. Most bankruptcies don’t have assets or income which can be used to provide a return to creditors—but that doesn’t appear to impact on confidence in the system.

Recent research carried out by the University of Melbourne indicates that although there is a stigma associated with bankruptcy, the community generally does want people who have fallen on hard times through no fault of their own, to have access to relief.

We need to be mindful at all times, of the community’s expectation that the system is fair and one in which they can have confidence.

You will start to hear us talking more in the public arena about the things we believe pose the greatest harm to the system, such as the influence and actions of untrustworthy advisors—and what we are doing to try and disrupt their business models.

We will also be more vocal about how we are policing the system—being more open about that enables others to gauge the fairness of the system.

Many of you will be aware that the sector is ageing and lacks diversity—and in relation to the latter issue, I’m pleased that we have a working group with representatives from ASIC, ARITA and AFSA to focus on addressing this.

Lastly, I believe AFSA’s role in delivering the Official Trustee function best serves the system as a compliance tool. For that reason I am interested in what work the Official Trustee takes on and what might be better left to others to administer. At this stage I have no fixed view on where the line should be, other than wanting to ensure that AFSA is always able to operate in a way that ensures the Official Trustee can focus on matters that serve the broader public interest. It’s for that reason nature and type of work the Official Trustee does will be a topic of conversation for me over the coming year.