Practice Interview Questions for RDAA Registration Applicants – Answers

1.1 A debtor wants an RDAA to prepare a debt agreement proposal on their behalf. The debtor mentions they went through a similar process a very long time ago. They’re hazy on the details, only saying “about 10 years ago, but the government stopped it because I forgot to include a debt I owed a long time ago”.

The RDAA’s staff perform an NPII search and find the debtor lodged a debt agreement proposal 9 years ago, but that it was cancelled by the Official Receiver before the voting period ended due to a material change in circumstances. Is the debtor still eligible to lodge their current debt agreement proposal?

Answer:

Yes.

To be eligible to enter into a debt agreement, you must not have been bankrupt, a party of a debt agreement or signed a section 188 authority in the past 10 years.

However, because the NPII shows that the proposal was cancelled by the Official Receiver, then the debt agreement was not made. The debtor was therefore not a party to a debt agreement and is entitled to lodge a new proposal (so long as other eligibility requirements are satisfied).

See paragraph 4.9 to Official Receiver Practice Statement 11 Debt Agreements and section 185ED of the Bankruptcy Act 1966 (the Act).

1.2 A debtor approaches an RDAA because they’re considering entering a debt agreement. They are a co-owner for the house they currently live in, the other co-owner being their spouse. The debtor asks the RDAA what’s the longest term they could propose for a debt agreement. What should the RDAA tell the debtor?

Answer:

For the debtor’s circumstances, 5 years.

Where a debtor has an interest in real property in Australia that is a dwelling and is the debtor's principal place of residence, they can lodge a proposal for an agreement that will last up to five years from the date the debt agreement is made. See subsections 185C(2AA) and 185C(2AB) of the Act.

1.3 On 1 December 2020, a debtor approaches a debt agreement administrator about preparing a debt agreement. The debtor confirms that they have $60,000 of unsecured debt from various credit cards and personal loans. They also own solely a property which was purchased three years ago. It was recently valued at $500,000 and the mortgage is currently $300,000. What considerations should an RDAA have about the debtor’s eligibility for a debt agreement?

Answer:

Does it meet the current thresholds for debt agreement eligibility? See indexed amounts.

Considering the large amount of equity in the property, the administrator should be considering whether or not the debtor is insolvent (see subsection 185C(1) of the Act which has the effect that only a debtor who is insolvent can propose a debt agreement).  Consistent with the pre- debt agreement proposal disclosure requirements in the legislation[1] around giving a debtor information about alternatives to entering into a debt agreement, the administrator should also consider whether there are more appropriate options (e.g. refinancing) available to the debtor.

See also subsection 185E(3) which states “The Official Receiver must not accept a debt agreement proposal for processing if the Official Receiver thinks that the creditors' interests would be better served by not accepting the proposal for processing”.

Certification

2.1 A debtor approaches an RDAA for help with dealing with their debts. After receiving information about their financial options, the debtor makes the decision to proceed with a debt agreement. RDAA staff begin making enquiries in order for the RDAA to certify that they have reasonable grounds to believe that the proposal is affordable, and that the information in the statement of affairs and explanatory statement that is required to be set out is set out.

The debtor works as a casual staff member at a large grocery store. The debtor claims they work regularly at the store and has done so for three years. The debtor provides their latest December payslip (which covers a fortnight’s work), but nothing else.

Is this sufficient information for the RDAA to satisfy themselves of the debtor’s income? As the RDAA, would you request anything else?

Answer:

Being a casual worker, the one payslip provided would not be a reliable indicator of the debtor’s income.

The RDAA should request further payslips to cover a longer period to establish the debtor’s level of income, comparable to a debtor working full time. Given the uncertainty inherent in casual employment, it is expected that an RDAA would conduct a detailed review of the debtor’s employment history and their budget.

See Inspector-General Practice Direction 13 Debt agreement administrator’s guidelines to certification requirements.

Expenses

3.1 An RDAA is completing several debt agreement proposals on behalf of debtors. When completing the details about expenses, the RDAA decides to include a small dollar figure for each proposal, attributing it as a percentage of their office rental cost.

Can the RDAA do this?

Answer:

No. An RDAA cannot include general business expenses associated with running their business in a debt agreement proposal.

Expenses can only be recovered where they were genuine out of pocket expenses incurred directly for a particular debt agreement and were incurred by the RDAA. The expenses must be listed in the debt agreement proposal or variation proposal for creditors to approve.

See – Inspector-General Practice Direction 3 Expenses that an administrator can recover in a debt agreement, subsection 185C(3B) of the Act, subsection 185LA(2) of the Act duty and Bankruptcy (Registration and Cancellation of Registration of a Debt Agreement Administrator) Guidelines 2020

4.1 When is an RDAA entitled to take fees under a debt agreement?

Answer:

RDAA fees are to be expressly stated in the debt agreement proposal as a percentage (overall remuneration percentage) of the total payments to be made, together with the applicable dollar figure. Fees can only be taken from funds received from the debtor as instalment payments for the debt agreement as and when those payments are made, and at the overall remuneration percentage.

See – section 185Z of the Act.

Realisations Charge

5.1 What is realisations charge payable on? 

Answer:

Realisations charge is payable on receipts received under a debt agreement.

See – Inspector-General Practice Direction 2 Collection of realisations and interest charge.

Three-Month Arrears

6.1 A debtor lodges a debt agreement proposal on 1 July 2019, the terms of the debt agreement are that the debtor makes weekly payments of $200 commencing on 2 September 2019.

The debtor misses his first payment on 2 September 2019. The payments made by the debtor from the trigger date is listed below:

Date

Payment Made by Debtor

2 Sept 2019

$0

9 Sept 2019

$100

16 Sept 2019

$100

23 Sept 2019

$150

30 Sept 2019

$150

7 Oct 2019

$150

14 Oct 2019

$150

21 Oct 2019

$200

28 Oct 2019

$200

4 Nov 2019

$200

11 Nov 2019

$200

18 Nov 2019

$200

25 Nov 2019

$200

2 Dec 2019

$200

There is a total of 14 payments during the three-month period. The debtor does not pay his accrued arrears by 2 December 2019 – i.e. the date to pay all accrued arrears to prevent a three-month arrears default occurring.

Does the administrator need to send out a three-month arrears notification to creditors? Show your working.

Answer:

For debt agreement proposals lodged post 27 June 2019, see paragraph 185LB(3)(c) of the Act. RDAAs are only required to report to creditors when either:

(i) arrears exceed $300, or 20% of the total of all due payments, at the beginning of the 3 month period, whichever is higher; or

(ii) If the total payments at the beginning of the 3 month period is $300 or less, that no payment was made in that period to reduce any of the due payments”

At 2 December 2019, the total arrears for the three-month period is $600.

Date

Payment Due

Payment Made by Debtor

Arrears

2 Sept 2019

$200

$0

$200

9 Sept 2019

$200

$100

$300

16 Sept 2019

$200

$100

$400

23 Sept 2019

$200

$150

$450

30 Sept 2019

$200

$150

$500

7 Oct 2019

$200

$150

$550

14 Oct 2019

$200

$150

$600

21 Oct 2019

$200

$200

$600

28 Oct 2019

$200

$200

$600

4 Nov 2019

$200

$200

$600

11 Nov 2019

$200

$200

$600

18 Nov 2019

$200

$200

$600

25 Nov 2019

$200

$200

$600

2 Dec 2019

$200

$200

$600

Should a notification be sent to creditors?

Total due payments for the period: $200 x 14 payments = $2,800

20% of $2,800 is $560 – which is higher than $300 and therefore is the benchmark for the arrears to exceed before a three-month arrears notification is sent to creditors

Since the total arrears for the three months is $600, it higher than the benchmark of $560. Therefore, the debt agreement administrator is required to send a three-month arrears notification to the creditors of the administration. It must be done within 10 business days of the three-month arrears default. 

Termination

7.1 A debtor begins paying instalments under the debt agreement proposal on 1 January 2020. The debtor misses their 3 June 2020 payment. After this, the debtor ignores all attempted contact from their RDAA. Out of the blue, the debtor pays $1 towards the debt agreement on 15 July 2020. The payment is then reversed a couple days later. Otherwise, no further payments are made by the debtor. When does the six-months arrears default occurs?

Answer:

The debtor’s last payment that was due, but remained unpaid, was on 3 June 2020. The last day the debtor can make a payment to prevent a six-month arrears default would be 3 December 2020. The six-month arrears default will occur on 4 December 2020.

The $1 paid on 15 July 2020 will have no effect as it was reversed, and therefore no amount was paid towards the debt agreement. It does not break the period from 3 June 2020 to calculate the six-month arrears default.

See – section 185LC of the Act, Inspector-General Practice Direction 16 Guidelines relating to administrators’ duty to notify the Official Receiver of 6-month arrears default.

7.2 What methods or events will terminate a debt agreement?

Answer:

  1. Discharge of obligations – see section 185N of the Act
  2. Termination proposal accepted by creditors – see section 185P of the Act
  3. Termination by court order – see section 185Q of the Act
  4. 6 months default – see section 185QA of the Act
  5. Debtor goes bankrupt – see section 185R of the Act, though would need permission of Court for a debtor to present a debtor’s petition or debtor could become bankrupt as a result of presentation of a petition against a partnership

Offence Referrals

8.1 During the voting period for a debt agreement proposal, the Debt Agreement Team at AFSA advises the RDAA that a creditor’s stated debt on their voting slip is significantly different to that disclosed in the statement of affairs and on the explanatory statement. It was included in the proposal as a $5,000 debt but was actually $11,000. The Official Receiver decides to cancel the debt agreement proposal as this had a material effect on the proposal. What action should the RDAA take in relation to the debt?   

Answer:

The duty of the RDAA is to consider whether a debtor has committed an offence under section 267 of Act (False declaration by debtor or bankrupt) and, if satisfied there is evidence of this, refer the offence to the Inspector-General in Bankruptcy (see paragraphs 185LA(1)(d) and (e) of the Act).

The RDAA should investigate the circumstances of the debtor claiming the debt was only $5,000 and whether there was an intention to withhold knowledge of the real amount of the debt. Their investigations and findings should be documented and kept on the administration file.