Fit and proper requirements for personal insolvency practitioners

Fit and proper requirements for personal insolvency practitioners (IGPS19)

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  1. INTRODUCTION

    1. The purpose of this practice document is to provide the industry with guidance about what it means to be a “fit and proper” person in the context of gaining, and maintaining, registration as a personal insolvency practitioner in Australia.
    2. Being a fit and proper person is integral to maintaining public confidence in the personal insolvency profession.  Ideally, only persons who act with honesty, integrity, diligence, judgment and good character will operate within the industry,  so that vulnerable users can feel confident when engaging their services.
    3. This practice document is relevant to those who are registered trustees and registered debt agreement administrators, or those who intend to apply to become registered.  The references relating to the Inspector-General in Bankruptcy in this document also extend to AFSA officers acting as delegates of the Inspector-General and to independent committees for the purposes of making registration and disciplinary decisions under the Bankruptcy Act 1966.
    4. This practice document will not limit, in any way, the ability of AFSA to inquire and determine whether a person is a fit and proper person.
  2. TO WHOM THE FIT AND PROPER PERSON TEST APPLIES

    1. For registration as a trustee, an applicant must satisfy a registration committee that they are a fit and proper person, pursuant to section 20-20 of the Insolvency Practice Schedule (Bankruptcy) (“the Schedule”; Schedule 2 of the Bankruptcy Act).  Once registered, a trustee must remain a fit and proper person to maintain their registration, otherwise it may form a ground for AFSA to issue a show-cause notice under section 40-40 of the Schedule.
    2. For debt agreement administrators, the fit and proper requirement is applicable to those who are registered, or have had their registration renewed, on or after 27 June 2019.  To be registered as a debt agreement administrator as an individual or as an individual who has overall management responsibility of a company’s debt agreement activities, an applicant must satisfy AFSA that they are a fit and proper person under section 186C of the Bankruptcy Act.  For registered company administrator applicants, the company itself and each director of the company must be a fit and proper person.  Once registered, they must remain a fit and proper person to maintain registration.  Otherwise, it may form a ground for AFSA to request a written explanation from an administrator, under sections 186K and 186L of the Bankruptcy Act, as to why the administrator should continue to be registered.
  3. FIT AND PROPER – GENERAL OVERVIEW

    1. There is no set standard test to determine what constitutes “fit and proper” and it is not defined by the Bankruptcy Act.  This is in acknowledgment of the fact that the concept is constantly evolving to reflect the expectations of the community.
    2. Establishing whether a person is fit and proper requires AFSA to take into account a range of factors that shows a person has sufficient honesty, integrity, diligence, judgment and good character to carry out the duties and activities required of them as a personal insolvency practitioner.
    3. A very wide discretion is necessary to take into account the context which is relevant to the duties of a personal insolvency practitioner.  In the High Court case of Hughes and Vale Pty Ltd v State of NSW (No 2),[1] Dixon CJ, McTiernan and Webb JJ stated that the purpose of the fit and proper test was “to give the widest scope of judgment and indeed for rejection”.
    4. The mere fact that a person’s conduct falls into one of the listed considerations in this practice document does not automatically mean that a person is not fit and proper.  AFSA will assess the relevance and significance of the conduct in determining whether the person is fit and proper.  An assessment may also take into account whether there has been a significant single breach or multiple breaches of conduct of lesser severity when determining whether the person is fit and proper.
  4. CONSIDERATIONS FOR BEING ASSESSED AS A FIT AND PROPER PERSON

    1. AFSA may have regard to the following  relevant considerations when determining a person is not fit and proper.  This is not intended to be an exhaustive list and regard may be had to other factors that, in the view of the AFSA, are also related to whether or not a person is or remains fit and proper.
    2. Honesty

      • Providing false or misleading information to stakeholders, other practitioners, professional industry bodies, other regulatory bodies, AFSA, the Court and/or the public
      • Misappropriation of money with which a person was entrusted
      • For registered debt agreement administrators, taking part in false, misleading or deceptive conduct in advertisements and promotions

      Integrity

      • Displays of unprofessional behaviour to stakeholders, other practitioners, professional industry bodies, other regulatory bodies, AFSA, the Court and/or the public
      • Failing to maintain independence, or the perception of independence in the course of their insolvency work
      • Direct or indirect involvement in negligent, deceitful or discreditable business or professional practices
      • Breaching fiduciary obligations
      • Convictions that may affect the confidence the public has in a person’s role as an insolvency practitioner
      • For registered debt agreement administrators, failing to provide balanced views of options available to debtors in financial distress

      Diligence

      • Failing to provide information reasonably requested by stakeholders, other practitioners, professional industry bodies, other regulatory bodies, AFSA, the Court and/or the public
      • Failing to maintain confidentiality of stakeholders as required under privacy rules and legislation
      • Failing to conscientiously discharge their role as a personal insolvency practitioner
      • For registered debt agreement administrators, failing to conscientiously discharge their certification duties to ensure debtors provided full and true disclosures about their assets, liabilities and budget to their creditors

      Judgment

      • Requiring stakeholders to respond to correspondence in an unreasonable timeframe
      • Contacting stakeholders outside of reasonable hours (unless agreed upon)
      • Repeated and serious complaints received by AFSA about a practitioner or their staff

      Competence

      • Failing to possess or maintain the skills and knowledge required of a personal insolvency practitioner, or failure to ensure staff are reasonably trained to discharge their role
      • Failing to possess or maintain adequate resources or appropriate processes to meet the demands of current and future workloads
      • For registered debt agreement administrators, failing to maintain proper accounts, books and records that accurately reflect transactions that have taken place in accounts that hold debt agreement money

      Professional character and reputation

      • Repeated failure to comply with the Bankruptcy Act 1966 and/or other laws that are relevant to the duties of an insolvency practitioner
      • Demonstrating a lack of willingness to comply with regulatory requirements or industry professional standards and codes
      • A negative finding being handed down as part of a civil, criminal or enforcement proceedings that are related to honesty, integrity, diligence, judgment or competence
      • Disciplinary action, including adverse findings, reprimands and disqualifications, by other regulatory bodies, professional industry bodies and/or the Court
      • Failing to co-operate with AFSA
    3. In assessing the conduct of a personal insolvency practitioner, AFSA may consider compliance with:
      1. bankruptcy legislation, including the Bankruptcy Act, Bankruptcy Regulations 2021 and Insolvency Practice Rules (Bankruptcy) 2016
      2. Professional industry standards, such as APES 330 Insolvency Services
      3. Codes of Professional Conduct, such as the ARITA Code of Professional Practice
      4. AFSA practice documents
      5. Integrity Principles for Trustees and Debt Agreement Administrators.  While the Integrity Principles are broader than the fit and proper test, they offer a vision of good culture that may inform how a fit and proper person should conduct themselves.
  5. MITIGATING OR AGGRAVATING CIRCUMSTANCES

    1. Additional considerations will be taken into account which may mitigate or aggravate the significance of an incident identified by AFSA.  These factors are not intended to be an exhaustive list and regard may be had to other factors that, in the view of AFSA, are also related to whether or not a person is or remains fit and proper.
    2. Repeat conduct

      • Whether a person has reoffended or whether an identified incident is part of a sustained pattern of behaviour
      • Evidence of attempts to address known issues, such as steps taken to improve conduct or professional standing, e.g. remedial training or action taken

      Severity

      • Level of seriousness of past unacceptable behaviour
      • Whether an incident involved a breach of trust, which could affect the public’s confidence and trust in that person’s role in the profession

      Consequences of actions

      • Whether the consequences to those affected by an incident were significant in the assessment of AFSA.  Factors in assessing the significance can include, for example, whether a person was in a position of vulnerability

      Time elapsed

      • Time that has elapsed since the occurrence of an identified incident.  It is more likely that the time elapsed will be relevant where the incident is less serious, or does not relate to dishonesty or other significant conduct