1.1 The regulatory responsibilities of the Inspector-General in Bankruptcy, as set out in the Australian Bankruptcy Act 1966 (the Act), are essentially aimed at ensuring high national standards of Bankruptcy Act practice and procedure.
1.2 AFSA’s independent Regulation section acts as delegate for the Inspector-General. The section oversights both registered and unregistered debt agreement administrators (DAAs), registered trustees in private practice, solicitor controlling trustees and AFSA’s trustee function.
1.3 The Inspector-General’s regulatory functions can be described in three main areas:
- proactive (registration and supervision program)
- reactive (complaints, enforcement and disciplining)
- administrative review of some trustee decisions.
2.1 The bankruptcy legislation contains strict licensing regimes aimed at ensuring that only suitably qualified persons who will be able to immediately perform the duties if successful are registered to practice as bankruptcy trustees or debt agreement administrators.
2.2 A person who has appropriate academic qualifications and ability may apply to the Inspector-General in Bankruptcy to become registered. Applications to become a trustee can only be made by a natural person. Corporations, partnerships and associations cannot be registered as trustees. Applications to become a debt agreement administrator can be made by either a natural person or an Australian registered company.
2.3 The application is filed with AFSA Regulation and Enforcement. Along with contact and personal details the application must state any relevant qualifications and experience and nominate referees who can attest to their background. The applicant must also pay a prescribed fee.
2.4 In considering a trustee application:
- A Committee consisting of the Inspector-General or her delegate, a person appointed by the minister and a trustee nominated by the peak trustee representative body, –the Australian Restructuring Insolvency and Turnaround Association (ARITA), is formed to consider the application.
- The applicant must satisfy a Committee that they are not insolvent, and have the current qualifications, experience, knowledge and abilities (and are otherwise a fit and proper person) to act as a trustee. Applicants need to provide police checks evidencing that they have not been convicted in the last 10 years of fraud or dishonesty, provide references and evidence of their experience. Applicants are interviewed by the Committee and asked a range of both technical and ethical questions and can also be required to sit an examination. If the application is approved the Inspector-General must give effect to the Committee’s decision. The applicant must then pay an initial registration fee.
2.5 In considering an application to become a registered debt agreement administrator:
- The applicant must first pass a basic eligibility test, which prohibits them if in the last 10 years they have been insolvent, convicted of fraud or dishonesty, involuntarily deregistered as a trustee or liquidator, prohibited from being a company director or declared ineligible to practice as an administrator.
- A Committee consisting of the Inspector-General’s delegate and another public official is formed to consider the application.
- Applicants are examined as to their capability to perform the duties including their knowledge and business systems. Applicants need to provide police checks, provide the name of referees that can attest to their character and evidence of their qualifications. Applicants are firstly interviewed by the Committee and asked a range of questions and can also be required to sit an examination. If they pass this preliminary phase their business systems and practices are then examined as to adequacy. If the application is approved the applicant must then ensure they have the requisite trust account created and to pay the initial registration fee.
2.6 Registrations for both are renewable every three years requiring a further payment and further evidence that they have maintained their ability, including knowledge, and in the case of a trustee, that they are currently practicing.
This registration process ensures only those of an acceptable standard are registered.
3.1 Solicitors may consent to be controlling trustees under Part X of the Act. These solicitors are required to control any property, investigate and report to creditors and run the meeting of creditors called to consider a personal insolvency agreement proposed by the debtor under Part X of the Bankruptcy Act 1966.
3.2 AFSA will refuse to accept Part X administrations from solicitors who do not hold the prescribed insolvency qualifications or who fail to meet certain eligibility requirements. In general terms they cannot be controlling trustees if they:
- are insolvent under administration
- have been involuntarily deregistered as a trustee or liquidator
- are prohibited from being a company director
- have been convicted of a criminal offence involving fraud or dishonesty
- have been declared ineligible by the Inspector-General for failing to properly perform the duties required.
4.1 The Inspector-General is responsible for ensuring that all bankruptcy trustees, including the Official Trustee (OT), solicitor controlling trustees and administrators conduct themselves properly in administering matters under the Act. The main supervision occurs through a targeted annual inspection program which involves a sample of files, examination of practitioners’ systems and practices and attendance at creditors’ meetings.
4.2 The purpose of the inspection program is to monitor compliance and evaluate the financial and qualitative standard of trusteeship and administration. The sample of administrations targeted for inspection is based on a risk assessment of each practitioner, including an evaluation of systems and controls as well as the level and seriousness of prior errors found in their administrations, and designated risk criteria associated with particular types of administrations.
4.3 The Insolvency Practice Rules (Bankruptcy) 2016 (“Practice Rules”) set out performance standards that all trustees under the Act must adhere to when undertaking their responsibilities. The Standards, developed in consultation with the ARITA and the Law Council, are incorporated in Division 42 of the Practice Rules and cover different factors that apply as between bankruptcies and Part X personal insolvency agreements. They cover the following topics:
- Trustees to act honestly and impartially;
- Conflicts of Interest;
- Compliance with standards by trustee’s employees;
- Preliminary inquiries and actions;
- Investigations and inquiries of matters affecting administrations;
- Realising assets;
- Ownership or interests in assets;
- Obtaining advice about interest or value of divisible property;
- Disposal of property;
- Costs incurred to be necessary and reasonable;
- Rate for tasks undertaken by trustee’s staff;
- Keeping of proper records in relation to work done;
- Needs for meeting;
- Matters to be considered when holding a meeting;
- Attendance at meetings;
- Verifying payments and transfers;
- Separate accounts and records;
- Attendance at creditors’ meetings
- Provable debts in a joint administration
- Creditors views to be considered as to how estate funds are utilised
- Timely distribution of funds in an estate
- Identifying & protecting assets
- Income & contribution assessment
4.4 These standards are used as a benchmark when undertaking annual inspections and in investigation of complaints. Breaches of the standards can lead to disciplinary action.
5.1 AFSA Regulation and Enforcement handles complaints made by debtors and creditors about the conduct of solicitors who act as controlling trustees, bankruptcy trustees (including the OT) and debt agreement administrators. All complaints received are examined in detail. In many instances complaints are quickly finalised without the need for in-depth investigations. In these instances, applicants may be:
- informed that the trustee, solicitor or administrator’s conduct is within their powers under the Act (including the standards of conduct)
- directed to their trustee or administrator for additional information
- requested to raise their complaint with the trustee or administrator in the first instance
- provided with information about the alternative and proper remedies available to them.
5.2 The remaining complaints are investigated further and if deficiencies are identified, the action taken may involve counselling, disciplinary proceedings which could lead to the suspension or cancellation of registration, or direct intervention in the trustee’s or administrator’s conduct of a particular administration through either, mediation or litigation.
6.1 The Inspector-General has the power to investigate the conduct of trustees, administrators and debtors and may, subject to the disciplinary provisions in the Act being followed, suspend or cancel a person’s registration, either of the Inspector-General’s own initiative in certain circumstances, or following a decision of a committee formed to consider the practitioner’s ongoing registration.
Areas of investigation of trustees include whether the trustee:
- no longer has a qualification or ability that is prescribed by the Practice Rules;
- has committed an act of bankruptcy within the meaning of the Act or a corresponding law of an external Territory or a foreign country;
- is disqualified from managing corporations pursuant to the Corporations Act 2001, or under a law of an external Territory or a law of a foreign country;
- has ceased to have adequate and appropriate professional indemnity insurance or fidelity insurance;
- has breached a current condition imposed on their registration;
- has contravened a provision of the Act;
- registration as liquidator under the Corporations Act 2001 has been cancelled or suspended, other than in compliance with a written request by the trustee to cancel or suspend the registration;
- owes more than the prescribed amount of notified estate charges;
- if the Court has made an order under the Act that the trustee repay remuneration, and the trustee has failed to repay the remuneration;
- has been convicted of an offence involving fraud or dishonesty;
- is permanently or temporarily unable to perform the functions and duties of a trustee because of physical or mental incapacity;
- has failed to carry out adequate and proper (whether in Australia or in an external Territory or in a foreign county) the duties of a trustee, or any other duties or functions that a registered trustee is required to carry out under a law of the Commonwealth or of a State or Territory, or under the general law;
- is a or was the administrator of a debt agreement, and the trustee has failed to carry out adequate and proper (whether in Australia or in an external Territory or in a foreign country) the duties of an administrator in relation to a debt agreement;
- is not a fit and proper person;
- is not a resident in Australia or in another prescribed country; or
- has failed to comply with a standard prescribed by the Practice Rules.
6.2 The Inspector-General may give a registered trustee notice in writing asking the trustee to give the Inspector-General a written explanation why the trustee should continue to be registered if it is believed that any of the above apply.
6.3 Disciplinary areas of investigation for a debt agreement administrator include:
- any loss of ability (including the knowledge) to satisfactorily perform the duties of an administrator in relation to a debt agreement
- failure to properly carry out the duties of an administrator in relation to a debt agreement
- possible loss of qualifications or experience prescribed by regulations
- contravention of a condition of registration.
6.4 Cancellation action may follow the establishment of any one of these grounds, usually initially identified either during AFSA Regulation and Enforcement’s annual inspection or through the investigation of a complaint.
6.5 When considering whether a registration should be cancelled (or in the case of a SCT or unregistered DAA in determining whether a person should be declared ineligible) the matters that the delegate(s) of the Inspector-General might consider will include:
(i) the importance of the duty that has not been complied with or the breach of the Act
(ii) the seriousness of the effect of a failure to comply, including the impact the failure to comply has, and
(iii) a practitioner’s performance history including whether previous failures to comply with the Act or undertake the duties have been raised.
6.6 Usually a practitioner will be given an opportunity to rectify simple problem areas. However, if the issue is serious or has not been rectified the delegate of the Inspector-General will issue a formal notice of that determination to the practitioner. The practitioner then has 28 days to explain or show cause why their registration should not be cancelled.
6.7 The Inspector-General must cancel the individual’s registration as a debt agreement administrator if the Inspector-General is satisfied that the individual no longer passes the basic eligibility test previously mentioned.
In the case of a trustee:
- If the Inspector-General is not satisfied with the response received to a notice referred to in paragraph 6.2, he or she may form a Committee to consider what (if any) disciplinary action should occur.
- As with the registration process the Committee consists of the Inspector-General or his/her delegate, a person appointed by the Minister and a representative from the profession, nominated by ARITA. The Committee will consider information obtained in the course of investigations into matters handled by the trustee and will interview the trustee and other parties. It must decide one or more of the following:
(a) that the trustee should continue to be registered;
(b) that the trustee's registration should be suspended for a period, or until the occurrence of an event, specified in the decision;
(c) that the trustee's registration should be cancelled;
(d) that the Inspector-General should direct the trustee not to accept any further appointments as trustee, or not to accept any further appointments as trustee during the period specified in the decision;
(e) that the trustee should be publicly admonished or reprimanded;
(f) that a condition specified in the decision should be imposed on the trustee;
(g) that a condition should be imposed on all other registered trustees that they must not allow the trustee to carry out any of the functions or duties, or exercise any of the powers, of a trustee on their behalf (whether as employee, agent, consultant or otherwise) for a period specified in the decision of no more than 10 years;
(h) that the Inspector-General should publish specified information in relation to the committee's decision and the reasons for that decisio.
The Inspector-General must give effect to the Committee’s decision.
- Any such decision by the Inspector-General or delegate is reviewable in the Administrative Appeals Tribunal.
The Inspector-General may, without reference to a disciplinary committee, suspend or cancel the registration of a person as a trustee if:
(a) the person is disqualified from managing corporations under Part 2D.6 of the Corporations Act 2001, or under a law of an external Territory or a law of a foreign country; or
(b) the person ceases to have:
(i) adequate and appropriate professional indemnity insurance; or
(ii) adequate and appropriate fidelity insurance;
against the liabilities that the person may incur working as a registered trustee; or
(c) the person's registration as a liquidator under the Corporations Act 2001 has been cancelled or suspended, other than in compliance with a written request by the person to cancel or suspend the registration; or
(d) the person owes more than the prescribed amount of notified estate charges; or
(e) if the Court has made an order under section 90-15 that the person repay remuneration--the person has failed to repay the remuneration; or
(f) the person has been convicted of an offence involving fraud or dishonesty; or
(g) the person lodges a request with the Inspector-General in the approved form to have the registration suspended or cancelled.
Any such decision by the Inspector-General or delegate is reviewable in the Administrative Appeals Tribunal.
In the case of a debt agreement administrator:
- The final decision as to whether the registration should be cancelled will be made by the Inspector-General’s delegate upon review of the response from the administrator.
6.8 If registration is cancelled the trustee or administrator is provided with reasons for the decision. The decision is reviewable in the Administrative Appeals Tribunal (AAT). The OT assumes control of their administrations until a new administrator or trustee is appointed.
7.1 The Inspector-General may also ask an unregistered debt agreement administrator to give a written explanation why they should continue to be eligible to act as an administrator of debt agreements, if the Inspector-General has reasonable grounds to believe that the person or company has failed to properly carry out the duties of an administrator in relation to the debt agreement.
7.2 A solicitor acting as a controlling trustee under Part X may also be assessed by the Inspector-General or delegate as having failed to properly carry out duties or failed to cooperate with an inquiry or investigation, and can be declared ineligible to act. In all cases the OT assumes control of their administrations until a new administrator or controlling trustee is appointed.
7.3 If the administrator or solicitor is declared ineligible they will be provided with reasons for the decision and details of the right of review to the AAT.
8.1 The Bankruptcy Act gives the Inspector-General in Bankruptcy power to conduct reviews of some decisions of trustees. Bankrupts who feel aggrieved by a decision of their trustee (whether it be a private sector registered trustee or the OT) may seek a review of the decision by the Inspector-General.
8.2 The decisions that are reviewable are:
- assessment of liability for income contributions
- hardship applications to review contribution liability
- use of supervised bank accounts to collect contributions.
- claiming of remuneration
- objections to discharge
8.3 This administrative review process avoids debtors and trustees having to go to the time and expense of litigating the matter in the court. The abovementioned decisions of the Inspector-General in Bankruptcy are reviewable by the Administrative Appeals Tribunal or to the courts.
8.4 More information on how to complain, how to seek a review, how to become registered as a bankruptcy trustee and how to become registered as a debt agreement administrator can be found on AFSA’s website.