PIR newsletter – July 2024

AFSA encourages stakeholders to be part of an important discussion to shape personal insolvency reforms in Australia.

The Attorney General announced proposed reforms to Australia’s bankruptcy system. Changes include:

• Increasing the threshold for involuntary bankruptcies from $10,000 to $20,000, with the threshold to be indexed each year.
• Increasing the timeframe in which a debtor may respond to a bankruptcy notice from 21 days to 28 days.
• Reducing the period a bankruptcy is publicly recorded on the National Personal Insolvency Index to 7 years following discharge from bankruptcy.
• Removing the proposal, or acceptance, of a debt agreement as an act of bankruptcy for the purposes of subsection 40(1) of the Bankruptcy Act.

The Attorney-General’s Department has also started consultation on the introduction of a Minimal Asset Procedure in Australia.

A Minimal Asset Procedure would clear a person’s debts and allow access to a fresh start sooner than a bankruptcy, where that person has no other way to pay. Importantly, it should also leave creditors no worse off – meaning Australia’s personal insolvency system remains fair and balanced.

To access the discussion paper and to make submissions visit: https://consultations.ag.gov.au/legal-system/personal-insolvency-minimal-asset-procedure/ on the consultation hub. All submissions should be directed to the Attorney-General’s Department via this channel.

Submissions on a Minimal Asset Procedure in Australia close on 29 July 2024.

If you have questions about the consultation process, email the Attorney-General’s Department at bankruptcy@ag.gov.au

AFSA has released the Personal Insolvency and Personal Property Securities Register (PPSR) statistics for the March quarter 2024.

Personal insolvency

The latest national data shows that personal insolvencies across Australia rose in the March quarter 2024 compared to the March quarter 2023, in line with forecast projections. The exceptions were Tasmania, where the number declined, and South Australia where the number remained the same.

There were 2,981 new personal insolvencies in the 3-month period to March 2024 – up from 2,494 in March 2023.

Just over a quarter (758) of these were business-related. This is up from 573 in the March quarter 2023.

The full data is available at Quarterly personal insolvency statistics.

Personal Property Securities Register

Statistics for the Personal Property Securities Register (PPSR) March quarter 2024 showed an increase in both searches and registrations.

More than 3 million searches were made on the PPSR during the March quarter 2024. This is up 2.6% from the March quarter 2023.

Statistics show the most common search was for motor vehicles by serial number, which accounted for 55.1% of all searches.

During the same period, there were more than 521,600 new registrations created on the PPSR – an increase of 9.2% on the March quarter 2023. There were also more than 333,000 amendments to registrations, and more than 399,000 registrations were discharged or removed.

The PPSR provides protection for individuals and businesses enabling them to register their assets. It is also where the status of second-hand goods such as machinery or cars can be checked to make sure they do not have any outstanding loans or security interests before being purchased.

For more information on our quarterly PPSR statistics visit PPSR quarterly statistics.

With so many Australians facing ongoing difficult financial conditions, AFSA is focused on vulnerability and the impact of untrustworthy advisors on both vulnerable debtors and a strong and well-functioning personal insolvency system.

The Inspector-General in Bankruptcy expects registered trustees to consider all available avenues when conducting investigations into the estate of a regulated debtor. This includes contacting any pre-insolvency advisors that may include unlicensed entities as well as solicitors, accountants, companies, and trusts.

Financial or pre-insolvency advisors can hold a wealth of information concerning the regulated debtor’s financial affairs as they are often contacted for advice on a financial situation or to protect financial affairs in the lead up to a bankruptcy.

As pre-insolvency advisors often refer matters to relevant practitioners or registered trustees, it’s important the information provided by these advisors is reviewed as part of these investigations.

While fulfilling their duties and obligations to investigate, practitioners may uncover potentially harmful actions by untrustworthy advisors impacting vulnerable debtors.

We encourage anyone who suspects wrongdoing, criminal misconduct, dishonesty, or fraud in a personal insolvency matter, including by an untrustworthy advisor, to report it immediately. Tip-offs can be made anonymously via our dedicated tip-off form at Make a tip-off.

Whilst every report may not result in immediate concrete action, all information gathered matters. AFSA retains the information and may refer its contents to other agencies for relevant action. 

The Federal Court of Australia in the case of the Official Trustee in Bankruptcy v Kent [2023] FCA 1211, made findings regarding compensation paid to a former bankrupt.

The Official Trustee sought advice from the Federal Court to clarify the legal position relevant to the vesting of Australian Financial Complaints Authority (AFCA) compensation-related funds, in the knowledge it would benefit registered trustees, bankrupts and industry stakeholders.

His Honour, A/g Chief Justice Rares, found that a compensation claim via the AFCA Scheme brought by a former bankrupt (Mr Kent) is not property of the bankrupt vests in the trustee under the Bankruptcy Act 1966. The Official Trustee carefully reviewed his Honour’s reasons and determined not to appeal the decision to the Full Court of the Federal Court.

Based on the judgment, the Official Trustee is reviewing both current and former bankrupt estate administrations involving AFCA compensation payments to confirm whether they vest in the circumstances. The Official Trustee is distributing these funds as required and has updated internal guidance and processes to assist in the administration of bankrupt estates.

Trustees should consider their course of action and are strongly encouraged to obtain independent legal advice.

The Inspector-General in Bankruptcy (IG) welcomes the Federal Court judgment in the matter of Robson as trustee for the bankrupt estate of Lanning v Commissioner of Taxation [2024] FCA 720.

The judgment, handed down on 4 July 2024, confirms the IG’s approach and guidance regarding treatment of capital gains tax (CGT) in bankruptcy by trustees and also confirms the Official Trustee’s current practices.

In the circumstances of this case, the trustee in bankruptcy was found to be answerable as a taxpayer in respect of capital gains from the sale of properties because the gains were derived by the trustee in his representative capacity.

The Commonwealth was represented by the Commissioner of Taxation. The views of the IG were sought by the Australian Taxation Office before the Commonwealth position was put to the Court.

The case was brought by the trustee of the bankrupt estate of Mr Lanning and in the interests of law clarification was funded by the Commonwealth pursuant to section 305 of the Bankruptcy Act 1966 (Cth).

The judgment, and clarification of this matter, serve as important reminders to trustees of their legal obligations with regard to the treatment of CGT in bankruptcy.

The Federal Court judgment can be accessed from the Federal Court of Australia website. The IG’s guidance on CGT in bankruptcy can be accessed on AFSA’s website at Treatment of capital gains tax in bankruptcy.

The last date to appeal is 1 August 2024.

AFSA is seeking suggestions from industry professionals on any improvements to AFSA forms.

If you have any recommendations, please provide your feedback to forms_request@afsa.gov.au by 31 August 2024.

INSOL Asia Hub‘s Vlog Series ‘Women at the forefront of Restructuring and Insolvency in Asia’ was launched to promote outstanding women within the restructuring and insolvency field in Asia. It provides a source to hear and gain valuable insights from their stories, experiences, inspirations, and challenges. The series also provides advice for other women interested in focusing on insolvency and restructuring.

The Vlog series of ‘Women at the forefront of Restructuring and Insolvency in Asia’ contains 5 episodes. More information and the link to the 5 episodes is available at https://www.insol.org/Asia-Hub/Vlogs-Series-2.