PIR Newsletter - December 2020

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The Personal Insolvency Regulator (PIR) is a quarterly newsletter from AFSA’s independent Regulation and Enforcement division.

AFSA shining a spotlight on untrustworthy advisors

AFSA has recently launched a campaign to raise awareness of dodgy insolvency advisors who exploit people when they seek help to manage debt. There is a concern that those experiencing financial stress because of the economic impact of COVID-19 may be easy targets.

We have developed resources, including a short video, to increase awareness of the risks of dealing with dodgy advisors. We are also encouraging individuals in financial difficulty to contact a registered insolvency practitioner.

This campaign has been part of a whole-of-government approach, encouraging Australians to seek responsible and reliable advice from professionals across a range of issues.

We rely on the industry and members of the community to report any activity that has the potential to take unfair advantage of people who use the personal insolvency system. Practitioners are encouraged to report any concerns about potential dodgy behaviour or suspicious activities to AFSA via the online tip off service.

Industry wide conditions for all registered debt agreement administrators

A reminder that new industry-wide conditions for all registered debt agreement administrators (DAAs) will begin on 1 January 2021, relating to:

  • advertising and promoting DAA services
  • disclosing information to debtors by the DAA
  • recording and retaining information disclosed to debtors by the DAA
  • DAA membership of the Australian Financial Complaints Authority

Find out more about the industry-wide conditions: Bankruptcy (Registered Debt Agreement Administrator Conditions) Determination 2020

AFCA Membership

AFSA would like to remind DAAs that from 1 January 2021 a condition will be in place for DAAs to become members of the Australian Financial Complaints Authority (AFCA). As we approach 1 January, AFSA will contact non-member RDAAs for updates about their intention to become AFCA members.

Those with overall management responsibility for a company administrator will not be required to become members if the company is a already member of AFCA. You can find more information about the new industry-wide conditions at our FAQ page on our website.

Updated Inspector-General Guidance Documents

In November, AFSA released a number of updated guidance documents about expectations of DAAs in light of the new debt agreement reforms. We thank everyone for their feedback. The documents are still available to view on our online consultation website, AFSAsandpit and will be uploaded to the AFSA website when finalised.

For more information, please contact Jody Leong, Assistant Director Technical at jody.leong@afsa.gov.au

Registration of Personal Insolvency Practitioners: FAQs December 2020

Over 2020–2021, AFSA will provide information to help guide prospective applicants through the process of applying for registration. FAQs are answered on our website and the page is regularly updated. Find out more.

Do you have any other questions about the registration process for personal insolvency practitioners? If so, email regulation@afsa.gov.au.

Are there any tips for preparing for the registration process?

The following are tips provided by past applicants from their experiences with the registration process:

About preparing your application

  • Be prepared to invest time when collating your application..
  • Have your work hours available in a format that can easily be manipulated. There will likely be questions on your hours to confirm your experience.
  • The turnaround time from submission of the application to the interview is relatively short, mine was just under 2 months. Do not submit the application thinking you will have endless time to prepare before the interview. Work and life tend to get in the way.
  • Assess your reasons for becoming a practitioner and take an honest appraisal of your level of knowledge. If you do decide to pursue accreditation, allow 6 to 12 months to prepare with a good structured study program to address any areas of weakness.
  • If you need assistance or guidance, contact rpo@afsa.gov.au

About preparing for the interview

  • The Personal Insolvency Regulator Newsletter is particularly useful in reviewing topical areas that can be questioned. A number of my interview questions were based on recent topics discussed in the prior 3 or 4 editions.
  • I spent a week preparing for the interview by reading the Act and other reference material and was able to quote pretty much every section reference in the interview, which I think served me well with the committee.  
  • Learn the key cases (e.g. Foots) and key sections of the Act, Regulations, Schedule and Rules (for example, income provisions, trustee powers, objections and offences) so that these are front of mind.
  • Speak with other trustees that have recently undertaken the process. They will have valuable insight.

About the reading time

  • Use the reading time wisely and write down your initial thoughts on the answer to each question as quickly as possible
  • Try to avoid excessive notes on early questions, as the 30 minutes goes very quickly. Make sure you have read every question before going in.
  • Keep notes on questions short and simple. Use key section or case references to jog your memory as you will not have time to prepare detailed notes on each question.

About the interview

  • Take your time in responding.
  • Keep your answers concise and simple. The panel will ask follow up questions if they require further information or want to expand on certain points.
  • Be prepared to answer questions from the committee that follow on from the written questions.
  • Drink water. You talk a lot, and regularly drinking water will help calm the nerves and keep you steady.

What topic areas should I study for prior to a registration interview?

AFSA has released additions to our current registration Inspector-General Practice Statements. These list topic areas applicants are expected to know before a registration interview.

You can find areas of expected technical knowledge on our website:

These lists may not cover all questions asked in an interview. Committee members or delegates of the Inspector-General may ask other questions relating to satisfy themselves that you have the requisite knowledge and ability to be registered.

Remember that applicants are expected to prepare before a registration interview with private study and also through practical experience working as a senior level staff member in insolvency. 

AFSA practitioner survey findings

Thank you to everyone who participated in our recent survey of personal insolvency practitioners.

The survey asked further questions about the health of the industry during the challenges presented by COVID-19.

The results indicated that 97% of respondents are confident they will remain solvent in the next 12 months while 10% are very concerned about their viability, up from 5% from the similar survey conducted in June. 

There is a high level of uncertainty about the timing of any upswing in work with 35% of practitioners unable to say if and when it will occur, with RDAAs expecting it to occur earlier than RTs. More than 47% of RDAAs are expecting an upturn in the first half of 2021 compared with 27% of RTs. 

From a staffing perspective, the following is worth noting:

  • The percentage of practitioners whose firms had made staff redundant has increased since the June survey from 27% to 42%.
  • The percentage of practitioners whose firms have asked staff to take leave has increased from 27% to 46%
  • The percentage of practitioners with staff on JobKeeper increased from 63% in June to 68%

About 89% of practitioners believe their firm will have the capacity to significantly increase their numbers of new matters if insolvencies increased at the end of 2020 or in 2021. This compares to 85% in the June survey.

If you are facing difficulties due to COVID-19, please contact AFSA for support. You can call 1300 364 785 (and select the menu options five and then three), or email us at regulation@afsa.gov.au.

Practitioner fraud risk management

Whilst the unprecedented global crisis continues due to the COVID-19 pandemic, it remains important for all personal insolvency practitioners to continue to remain vigilant and ensure that their fraud risk management capabilities remain effective.

AFSA’s article in the June 2020 Personal Insolvency Regulator newsletter noted the main factors that increased the risk of fraud, which have been heightened as a result of the disruptions and uncertainty caused by the pandemic. The article also encouraged practitioners to review their systems and controls to both minimise the risk of fraud, as well as have processes in place to address any instances of identified fraud. As the economy emerges from the pandemic, it is also vital that practitioners continue to assess and refine their controls to ensure they remain effective in a changing and complex business environment. This includes maintaining appropriate controls to mitigate the risk of cyber-attacks.

PwC’s Global Economic Crime and Fraud Survey provides interesting insights from their Global Economic Crime and Fraud Survey and the need for Australian organisations to understand the key fraud risks, implement measures to minimise those risk and provides some optimal steps to respond to those risks. Their earlier publication on Fraud – A guide to its prevention, detection and investigation provides a broad overview of effective fraud prevention, detection and investigation techniques.

Please also ensure that any concerns about suspicious activity are reported to AFSA via the tip off form at afsa.gov.au

COVID-19 challenges and seeking advice for small business owners

Many businesses are experiencing financial stress due to the conditions created by the COVID-19 pandemic. Small business owners need to take action and properly manage financial and operational difficulties.

It’s important for small business owners to:

  • keep records and reporting up-to-date, and ensure they are across the day-to-day management of the business
  • closely monitor the business’ cash reserves and ensure that cash flows are sufficient to avoid trading insolvent

It’s also important that small business owners seek advice from advisers they trust. Some things to consider when seeking advice include:

  • Is the adviser a member of a professional body and are they subject to a code of conduct?
  • Are they regulated by ASIC, AFSA, the Australian Taxation Office or other government agencies?
  • Is the adviser listed on ASIC’s banned and disqualified persons register or have they entered into an enforceable undertaking?
  • If I receive bad advice or suspect misconduct, can I lodge a report with a professional body or a regulator?
  • Do I need help to better understand my legal obligations and understand how I might be personally liable for my decisions?
  • Is the adviser the most suitable to assist with the problem I have?

If something doesn’t seem right, consider getting a second opinion.

ASIC has a number of resources and videos to assist small business owners to protect their business.

Visit asic.gov.au/small-business for more information.

New Resources for Practitioners

As part of AFSA’s ongoing efforts to provide relevant guidance to personal insolvency practitioners, we have published a new Inspector-General guidance document Inspector-General Practice Statement 19: fit and proper requirements for personal insolvency practitioners.

For Registered Trustees, a number of new guidance resources have been uploaded onto our new Practitioner Resources webpage. This includes:

  • casting vote flow chart guidance

  • remuneration historical provisions

In 2021 we will publish checklists relating to income contributions, objections to discharge, hardship applications, supervised accounts regime and meetings of creditors.

For any questions about our new guidance resources, contact regulation@afsa.gov.au

Section 77C examinations now available by video conference

Insolvency practitioners have faced a number of challenges since the COVID-19 pandemic took hold earlier this year, in particular the ability to obtain evidence from people being made bankrupt and their associated entities to effectively administer bankrupt estates.

As a result of government health advice and physical distancing requirements, the Official Receiver Notices Team was unable to facilitate in-person s77C examinations. The team reviewed its processes and embraced the digital age by facilitating its first s77C examination entirely by video conference. As a result of this success, the Official Receiver Notices Team has since held a number of s77C examinations virtually.

With restrictions now easing across many states and territories, the team has decided to offer s77C examinations via videoconference where possible, including where trustees and examinees are in different states or remote locations. This enables the Official Receiver to support trustees and recipients get better outcomes, particularly if location is a barrier to simple compliance.

For further information, please contact James Franze, Assistant Director, Insolvency and Trustee Services on (02) 8233 7838.

ATO Update: Interacting with the ATO

When interacting with the ATO, the ATO Business Portal is the preferred method. The portal is an electronic service available to insolvency practitioners and can be used to manage the tax affairs of incapacitated entities. This is the quickest way for the ATO to receive a notice and replies are sent via the portal.

Exciting changes are planned for the portal for 2021 which will improve user experience and enable the ATO to identify priority requests quicker.

If you are interacting with the ATO via paper or fax channels please ensure you are using the insolvency cover sheet: NAT 14588-11.2015. Please ensure you:

  • print the document on blank paper only
  • do not send correspondence for multiple unrelated taxpayers using one cover sheet
  • where a group of related taxpayers exist, complete one cover sheet providing details of only the principal or holding taxpayer
  • keep a copy of the cover sheet for your own records
  • fax your correspondence to us as it will ensure your correspondence is addressed more quickly.

To find out more about the ATO Business Portal please email InsolvencyPractitionerServices@ato.gov.au. For general information please visit ato.gov.au/insolvency.

Official Receiver Notices – Compliance Value

The Bankruptcy Act 1966 gives the Official Receiver particular powers in certain situations to help trustees administer bankrupt estates. These powers include the ability for the Official Receiver to issue notices to direct the production of books or information, access to premises and to recovery property and contribution liabilities. Recently, trustees are seeing the benefit and value of the Official Receiver’s powers in assisting with their duties under the Act and the benefits those powers bring to the insolvency system.

The issuing of these notices brings significant value to both the insolvency system and the broader economy. In 2019-20, the Official Receiver Notices Team issued and served notices with a compliance value of over $51 million. These notices mainly consisted of s139ZL notices (recovery of unpaid contribution liabilities) and s139ZQ notices (recovery of antecedent transactions). The value of these notices does not account for further recoveries available to the trustee through the Official Receiver’s information gathering powers (in particular s77C) which have been particularly useful for trustees in their administration of bankrupt estates.

Trustees can apply for Official Receiver Notices via AFSA Online Services. Further information about the Official Receiver’s powers can be found in the Official Receiver Practice Statement 7.