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1.1 The purpose of this Inspector-General Practice Direction (IGPD) is to outline the expectations of the Inspector-General in Bankruptcy in relation to the steps to be taken by registered trustees, the Official Trustee and debt agreement administrators (personal insolvency practitioners) before deciding to pay funds to the Commonwealth pursuant to section 254 of the Bankruptcy Act 1966 (the Act).
1.2 Personal insolvency practitioners may holds funds which cannot be distributed, including dividends where the payee is unlocatable. Section 254 of the Act sets out the authority and process by which such funds can be paid to the Commonwealth and how funds can be returned to the payee after payment to the Commonwealth.
2.1 Section 254 of the Act states:
Payment of unclaimed moneys to the Commonwealth
(1) In this section, trustee means:
(a) a trustee of the estate of a bankrupt; or (aa) the administrator of a debt agreement; or
(b) a trustee of a personal insolvency agreement; or
(c) a trustee of a composition or a scheme of arrangement; or
(d) a trustee of the estate of a deceased person in respect of which an order has been made under Part XI of this Act; and includes the Official Trustee.
(2) Where a trustee has under his or her control:
(a) any dividends or other moneys that have remained unclaimed for a period exceeding 6 months in circumstances where the trustee has identified the person entitled to the dividends or other moneys but has been unable to locate the person after making all reasonable efforts to do so; or
(b) any moneys that it is proposed not to distribute or pay to any person; he or she shall forthwith pay those moneys to the Commonwealth.
(a) the Court has, after the presentation of a creditor’s petition against a debtor, directed the Official Trustee, an Official Receiver or a registered trustee to take control of the property of the debtor;
(b) the petition has been withdrawn or dismissed;
(c) the Official Trustee, Official Receiver or registered trustee, as the case may be, has moneys under its control in pursuance of the direction; and
(d) it is not reasonably practicable to pay those moneys to the person entitled to them;
(e) the Official Trustee, Official Receiver or registered trustee, as the case may be, shall pay those moneys to the Commonwealth.
Application for entitlement determination
(3) A person who claims to be entitled to any moneys that have been paid to the Commonwealth under subsection (2) or (2A) may make an application, in the approved form, to the Official Receiver for a determination that the person is so entitled.
Official Receiver satisfied person entitled to moneys
(4) If a person makes an application in accordance with subsection (3) and the Official Receiver is satisfied that the person is entitled to those moneys or a part of those moneys, the Official Receiver must:
(a) make a written determination to that effect; and
(b) specify in the determination the amount to which the person is so entitled; and
(c) give the person notice of the determination.
(5) The Commonwealth must pay to the person an amount equal to the amount referred to in paragraph (4)(b). That amount is a repayment for the purposes of section 77 of the Public Governance, Performance and Accountability Act 2013
Official Receiver not satisfied person entitled to moneys
(6) If a person makes an application in accordance with subsection (3) and the Official Receiver is not satisfied as mentioned in subsection (4), the Official Receiver must:
(a) make a written determination to that effect; and
(b) give the person notice of the determination.
Review by the Court
(7) The person may apply to the Court for review of a determination under subsection (4) or (6).
(8) After reviewing the determination, the Court must:
(a) affirm the determination; or
(b) vary the determination; or
(c) set aside the determination and substitute another determination.
Official Receiver’s determination not a legislative instrument
(9) A determination under subsection (4) or (6) is not a legislative instrument.
2.2 Paragraph 2.1 is applicable to applications made on or after 27 June 2019, regardless of when the monies were paid to the Commonwealth. For applications made prior to 27 June 2019, former section 254(3) will continue to apply i.e. these applications can only be made to the Court for an order declaring that a person is entitled to the monies held by the Commonwealth.
3.1 Subsection 254(2) of the Act sets out two circumstances where funds held by a personal insolvency practitioner are required to be paid to the Commonwealth.
(i) Paragraph 254(2)(a) - Practitioner holds unclaimed dividends or other monies for more than 6 months
3.2 This provision applies in situations where the person entitled to the dividends or other money has been identified but cannot be located or contacted after all reasonable efforts to do so.
Creditor or payee can't be located or payment is returned
3.3 In cases where a creditor is entitled to be paid a dividend or there is another payee entitled to payment and, either no address is known or payment has been returned unclaimed, the Act requires that all reasonable steps will be taken by the personal insolvency practitioner to identify the intended payee’s whereabouts and effect the payment. This may require issuing a new cheque or authorising an electronic transfer to a different account.
3.4 The specific steps required to be taken depend on the particular circumstances. Some suggestions to enable the personal insolvency practitioner to locate a creditor or payee include:
- searching on the internet
- search of the white or yellow pages
- enquiry of the debtor or bankrupt
- phone call or e-mail to the last known contact.
3.5 It is not expected that an exhaustive investigation will be undertaken but that all reasonable enquiries will be made in the circumstances.
Payment remains unpresented, uncollected or is lost and not returned
3.6 In cases where payment is made and the creditor/payee does not present the cheque, but it is not returned, then steps should be taken to follow up the creditor/payee and ascertain why by using the last known contact details. If needed, enquiries as set out above can also be undertaken to assist in locating the creditor/payee.
3.7 Where appropriate the cheque should be cancelled after a reasonable period within the six (6) months and reissued when the creditor/payee is located.
3.8 Where funds are held for more than six (6) months and all reasonable steps have been taken but the payee cannot be located then the funds should be paid to the Commonwealth as required by subsection 254(2) of the Act.
(ii) Subsection 254(2)(b) - Where funds are held and a decision is made not to pay them to anyone
3.9 The second circumstance where monies held by a personal insolvency practitioner are required to be paid to the Commonwealth is where a decision is made not to pay the funds to anyone. It is the Inspector-General’s position that paragraph 254(2)(b) of the Act is confined to cases where, for example, it is not proposed to distribute or pay the money to any person because there is no person entitled to the money (e.g. the person entitled has died leaving no will and no dependants or relatives) or it is not cost effective to make the distribution or payment.
3.10 In circumstances where a relatively small amount is held by the personal insolvency practitioner and the cost of distributing these funds to creditors would outweigh the benefit, the practitioner may make a decision to not pay them to anyone.
3.11 Ultimately this is a matter for the personal insolvency practitioner to consider and determine on a case-by-case basis.
4.1 In circumstances where payment is made by cheque, it may be necessary to reissue the cheque within the six (6) month period where the cheque becomes lost or the creditor can’t be located. However, the reissuing of a cheque does not have the effect of recommencing the unclaimed money period for the purposes of the requirement to pay the funds to the Commonwealth.
4.2 Two examples are shown below to represent the principle in 4.1 above.
Example Where a cheque was issued on 1 July 2017 and it was determined to be lost, another cheque may be reissued - for the purpose of this example the reissuing occurred on 1 September 2017. If the replacement cheque is not presented by 1 January 2018, then the monies would at this point be payable to consolidated revenue in accordance with section 254 of the Act.
In this example it would be expected that the personal insolvency practitioner would contact the payee to determine the reason for the failure to present the reissued cheque prior to taking any action and cancelling the cheque. If after 1 January 2018 reasonable steps were taken and the creditor could not be contacted the cheque should be cancelled and the funds paid to the Commonwealth.
Example A cheque was issued on 1 July 2017, and by 1 January 2018 the cheque had not been presented and had been cancelled, but shortly after this date the creditor re- establishes contact with the practitioner and provides the correct contact details. If the funds had not been remitted to the Commonwealth prior to re- establishing contact then it would be appropriate for the practitioner to pay the funds to the creditors notwithstanding that the statutory time limit, imposed by section 254, had expired. In these circumstances, a pragmatic approach needs to be taken to ensure that a creditor or other class of payee is not unfairly disadvantaged.
4.3 Personal insolvency practitioners should ensure that they have systems and controls in place to identify when monies become unclaimed and take appropriate steps to mitigate the risk of the six (6) month period passing without notice and without taking appropriate action.
5.1 In cases where the practitioner has been unable to identify the provider of funds received into their estate or trust administration bank account, section 254 of the Act has no application.
5.2 In situations where it is clear that some person is entitled to the money, but that person cannot be identified because the source of the money cannot be ascertained, section 254 does not apply. However, this leaves two questions for administrators:
- How long does a practitioner need to keep trying to identify the source of, and/or person entitled to, the money?
- What should be done with the money after making appropriate but unsuccessful efforts to identify the source/person entitled?
In answer to those questions—the practitioner should make every reasonable effort to identify the source of the funds. The time period required will depend to a degree on the particular circumstances, but it is conceivable that a period up to 12 months may be required. Moneys that remain unidentified despite reasonable efforts should be placed in a suspense account operated by the practitioner until the issue is resolved.
5.3. In particular, the non-identification of funds received by administrators has significant consequences for those debtors in a debt agreement. Those provisions that relate to the 3 month arrears default and also 6 month arrears default (including non-completion 6 months after the finalisation date) can lead to the agreement being terminated in some cases where all the funds have been paid, but some portion of those funds remains unidentified by the administrator and thus not allocated against the correct agreement.
Arranging payment of funds to the Commonwealth
5.4 Once a decision has been made to make a payment to the Commonwealth pursuant to subsection 254(2), correspondence should be sent to AFSA Registry bankingteam [at] afsa.gov.au to arrange such payment.
5.5 The AFSA receipt is to be maintained on the administration file with the information relating to the payment to AFSA.
Applying for repayment of funds from the Commonwealth
5.6 Once a payment has been made to the Commonwealth the only way that a person claiming to be entitled to the funds can obtain the funds is by making application to the Official Receiver under subsection 254(3) of the Act. Any outstanding applications for refunds made to the Court prior to 27 June 2019 will remain with the Court for determination.
5.7 The application for refund must be made on the approved form.
6.1 Section 12 of the Act provides AFSA Enforcement and Practitioner Supervision (as delegates of the Inspector-General) with the power to conduct investigations and where there are issues of concern identified either during the annual compliance program or through a complaint being made, AFSA Enforcement and Practitioner Supervision will examine the issue in relation to unclaimed monies by reference to the principles set out in this practice direction.
6.2 Where breaches of the law or a lack of record keeping are identified a personal insolvency practitioner will be asked to take remedial action. This may also lead to counselling or in serious cases to either litigation or disciplinary action being initiated.
7.1 This practice direction sets out the expectations of the Inspector-General in Bankruptcy where monies are required to be paid to the Commonwealth pursuant to section 254 of the Act. It will be against these expectations that a personal insolvency practitioner’s conduct of an administration will be assessed by AFSA Enforcement and Practitioner Supervision.
 Prior to this date, applications could only to be made to the Court