The Personal Insolvency Regulator (PIR) is a quarterly newsletter from AFSA’s independent Regulation and Enforcement division.
AFSA reports strong regulatory outcomes despite uncertain year
AFSA’s Personal Insolvency Compliance Report 2019-20, published in December, has highlighted the agency’s achievements in an unprecedented year.
The report provides compliance, regulation and enforcement statistics for 2019-20 and details activities for the key focus areas of debt agreement reform, trustee independence, untrustworthy advisors, remuneration and culture.
Despite the challenges of the COVID-19 pandemic, AFSA inspected more than 200 administrations, reviewed almost 300 personal insolvency proposals, and finalised over 350 complaints. More than 800 pre-referral enquiries and over 700 offence referrals were received with 552 accepted for investigation.
Of the inspections completed, 141 related to administrations conducted by Registered Trustees or Registered Debt Agreement Administrators. The remaining inspected administrations were conducted by the Official Trustee.
While more than 350 complaints were finalised, less than 5% were found to be justified. The most common of these related to conflicts of interest, delays in administration and poor communication.
The report also incorporates information and statistics from the Official Receiver for the first time, reflecting the critical role it plays in maintaining compliance within the personal insolvency system. In 2019-20, the Official Receiver issued more than 477 notices, which resulted in more than $50 million being paid into bankrupt estates.
The full report is available to download now at afsa.gov.au.
Spotlight: Compliance and filing of the Statement of Affairs
AFSA recently reviewed completion rates of the compulsory Statement of Affairs forms. The review was encouraging with most people who are bankrupt complying with their obligations, either voluntarily or after contact with the Official Receiver (OR) or AFSA.
Section 77CA of the Bankruptcy Act 1966 gives the OR power to issue a statutory notice to a person who is bankrupt, requiring them to file their statement of affairs. Failing to comply is an offence under section 267B, attracting a penalty of 12 months imprisonment. This power specifically relates to individuals that fail to comply with the provisions of section 54, when they were made bankrupt by a sequestration order and had 14 days to file their Statement of Affairs.
Since 2015, trustees have made an average of 464 annual applications for the OR to issue a 77CA notice. These applications have been declining each year, from 793 applications in 2015 down to only 325 applications in 2020.
There are approximately 15,000 to 20,000 new bankruptcies each year, including an average of 1,492 bankruptcies through sequestration orders. A review of the data indicates that 77CA applications relate to 24% of matters where an individual has failed to file their statement of affairs after being made bankrupt through a sequestration order.
Since 2015, AFSA has received more than 100 offence referrals each year that relate to a breach of section 267B. These referral figures have been declining since 2018. The offence referral data indicates a 48% compliance rate against all 267B referrals that were accepted for enforcement investigation with 33% referred for prosecution. Once matters are referred for prosecution, the conviction rate is 90%.
AFSA remains committed to ensuring the compliance process is simple to help people comply. We hope to see increased compliance as a result of the introduction of the online bankruptcy application process.
Trustees can apply for Official Receiver Notices via AFSA Online Services. Further information about the Official Receiver’s powers can be found in Official Receiver Practice Statement 7.
 This section relates to non-compliance with either sections 6A(3), 77C(1), 77CA or 139V of the Act.
Share your integrity stories
In June 2020, AFSA launched the Integrity Principles for Trustees and Debt Agreement Administrators, offering the personal insolvency profession a shared vision of good culture.
We want to share experiences of culture within the personal insolvency profession, especially during the COVID-19 pandemic.
Whether it is your personal experience in the industry or your experience working on an administration, we want to hear examples from individuals and firms that relate to the Integrity Principles. These can include positive developments or circumstances where you think the industry could improve. For example:
- trusted: how have you or someone you know led by example?
- impartial: during COVID-19, what actions have you or others taken to ensure the debtor’s best interest is considered when recommending insolvency solutions? What actions have you or others taken to create an independent and accessible complaints handling process?
- competent: how do you maintain ongoing professional skills in insolvency for you or your team?
- inclusive: how do you or your firm encourage and value diversity in the workplace? What practices have you created, or would like to see created, to support good mental health practices?
- fair and equitable: what actions have you taken to create fair outcomes for all stakeholders?
Your experiences can be submitted to email@example.com under the heading “Integrity Principles – my experiences”
- please write no more than 250 words
- your name or your firm’s name can remain anonymous
- names of stakeholders (including those who are bankrupt or creditors) involved in administrations will not be named for privacy reasons
- AFSA Regulation may approach you for verification, especially for examples relating to administrations
Selected stories will be published by AFSA.
Registration of Personal Insolvency Practitioners: FAQs
AFSA regularly provides information to guide prospective applicants through the registration application process. A few questions were answered in the September and December 2020 editions of the PIR, which you can find at the AFSA Newsroom.
The information included was based on feedback we have received from past applicants. Thank you to those who shared their thoughts and tips based on their own experiences.
Do you have any other questions you would like answered about the registration process for personal insolvency practitioners? If so, email firstname.lastname@example.org.
Are there any tips for preparing for the registration process?
The following are tips provided by past applicants:
- Make sure you have your own notes ready as there is very little preparation time and there are a variety of questions. Read every reading available on the AFSA website as they helped quite a lot.
- Don’t be surprised if you get asked a random question. Your knowledge should be across several topics, which you can get through practical experiences.
- Make sure you study theory. Go through the resources available on the AFSA website, Bankruptcy Act, IPR and PIR newsletters.
What kind of questions are asked in a registration interview?
AFSA has released practice interview questions and answers to help applicants prepare for the technical complexity of questions asked at the interview:
ATO Update: new online services for business
This new service replaces the Business Portal and will make it easier for insolvency practitioners to interact with the ATO online. It will also be easier to act on behalf of insolvent clients. Users can customise their homepage, access real-time information (including income tax history and copies of returns), and switch between clients in the same session.
To find out more go to ato.gov.au/OSB.
New Bankruptcy Regulations
The new Bankruptcy Regulations 2021 are due to commence on 1 April 2021, with the Bankruptcy Regulations 1996 to sunset. You can find the Bankruptcy Regulations 2021 here.
The amendments are minor and aimed at modernising references and ensuring alignment with the Bankruptcy Act 1966, although the numbering of the regulations will change. Some other key changes are:
- when paying money to the Consolidated Revenue Fund, the current regulation 12.01 statement will be replaced by an approved form (see section 72). The form is being finalised and will be published on the Forms page of the AFSA website by 1 April 2021
- the current Schedule 8 has been split into separate sections (see sections 75 to 78)
- the new section 24 deals with the treatment of foreign currency proofs of debts
- there are new tables listing the indexed amounts for past financial years in respect of the priority amounts for employee dividends (section 26), protected tools of trade (section 29) and protected vehicles used primarily for transport (section 30).
To help practitioners navigate the Bankruptcy Regulations 2021, a comparative table has now been published on our Practitioner Resources webpage.
AFSA’s Inspector-General, Official Receiver and Official Trustee practice statements and practice directions are being updated where required. These will be published on 1 April 2021.
For more information, please contact email@example.com. Enquiries about the Official Receiver and Official Trustee practice statements can be directed to firstname.lastname@example.org
Change to Consent to Act form now in place
As part of AFSA’s insolvency compliance program for 2020-21, we are targeting those that provide untrustworthy advice to people who are financially vulnerable. Untrustworthy advisors undermine the integrity of the personal insolvency system and can cause harm and distress to those experiencing financial hardship.
To help AFSA achieve our goal, we have added the following new field to the Consent to Act form:
“If this debtor was referred to you by a third party (excluding section 181A transfers), provide the name of the referring party.”
We recognise and acknowledge the vast majority of referrers are trustworthy. Nevertheless we all appreciate the growing presence of untrustworthy advisors and we need your help to improve and protect the credibility of the industry.
Any information collected will be kept in-confidence and will help inform our regulatory efforts in areas of potential harm.
For more information, please email email@example.com
Joint and Separate Estates: accounting for Remuneration
As a part of our regulatory role, we consider applications to determine the remuneration of trustees. Recent applications have shown that trustees have failed to appropriately account for remuneration in joint and separate estates.
Insolvency practitioners are reminded of the following key points:
- to ensure they apply sections 110 and 142 of the Bankruptcy Act 1966.
- expenses relating to the administration of estates must be fairly apportioned by the trustee between the joint and separate estates
- failing to identify and appropriately account for joint and separate estates can have a material impact for stakeholders.
Section 4 of the Inspector-General Practice Direction 18 - Trustee remuneration notifications explains that the trustee’s obligation to send remuneration notifications is estate based. At section 4.2, it states that it is acceptable for a trustee to send a joint report to creditors, with estate-based remuneration notices dealt with separately.
For more information, read this article.
The importance of integrity for insolvency professionals
Registered trustees and debt agreement administrators are reminded to carefully review their fraud protocols, after a former insolvency practitioner plead guilty to fraud and dishonesty charges.
Amanda Young, formerly of Jirsch Sutherland, was convicted in the Downing Centre Local Court of four dishonesty charges after allegedly transferring more than $200,000 from four liquidations.
This case serves as a timely reminder for all insolvency professionals to review their fraud controls and ensure they have appropriate systems in place to protect both their businesses and the monies they hold on trust.
Additionally, if you suspect any wrongdoing by a registered trustee or debt agreement administrator, these concerns can be reported anonymously to AFSA via our website. Alleged misconduct by liquidators, administrators and receivers can be reported to ASIC at asic.gov.au.
General advice and best practice recommendations for insolvency professionals are available in AFSA’s Inspector-General Practice Directions, in our article about practitioner fraud risk management and also in the Insolvency Compliance Program 2020-21.
Definitions for “dependent” and “reside”
AFSA has performed two income reviews where the trustee has incorrectly applied the Actual Income Threshold Amount (AITA), where a dependent resides with them only part of the time. Both cases were a genuine misapplication that has been rectified with guidance and staff training.
There are clear guidelines about the ways in which the definition of “dependent” and “resides” apply. For further clarity, please read these detailed articles.
Controlling trustee use of notice of demand
The power to issue a notice of demand under section 129(4B) of the Bankruptcy Act 1966 applies to a trustee of a personal insolvency agreement (PIA).
AFSA is aware that some controlling trustees have issued these notices before the PIA is executed. The enabling provision of subsection 231(3) is only effective after the PIA is executed.
Trustees should ensure they are using their powers appropriately. Section 211 outlines the provisions applicable for the period that the debtor’s property is subject to control, while Section 231 outlines provisions applicable for the PIA period only.
Resources for Practitioners
Objections to discharge
As part of AFSA’s ongoing efforts to provide relevant guidance to personal insolvency practitioners, we have published a new Inspector-General guidance document which outlines offences that should be considered when lodging an Objection to Discharge. The Offence Referrals: Objection grounds that give rise to possible referrals specifies the offence that should be considered against each ground and the evidentiary considerations.
For any questions please contact firstname.lastname@example.org.
Insolvency professionals and the PPSR
As protections for businesses end and the economic impact of the pandemic continues, insolvency professionals will continue to rely on PPSR data when managing administrations over the coming months and years.
The Personal Property Securities Register (PPSR) has recently published PPSR: Practical Tips for Insolvency Practitioners, which aims to help practitioners understand and access PPSR data.
The process of accessing data from the PPSR can differ depending on whether the insolvent company is a secured party (the creditor or financier) or the grantor (the debtor or customer). This guide covers both situations, as well as providing information on how to complete searches and download relevant reports.
For more information, visit ppsr.gov.au.
Behavioural insights into the impact that the public record of bankruptcy has on business activity
Nicola Howell from the Queensland University of Technology has explored whether public bankruptcy records impact business activity. A common objective for many bankruptcy systems in developed countries is to provide a fresh start for the debtor. This goal is seen as particularly important for entrepreneurs and those involved in small businesses as governments want to encourage re-entry into the market as quickly as possible after a bankruptcy. This is the case in Australia, where the proposal to reduce bankruptcy to 12 months was designed ‘to foster entrepreneurial behaviour and to reduce the stigma associated with bankruptcy’ – a proposal that is still under active consideration.
In Australia, there is a permanent public record of personal insolvency events, including bankruptcy, designed to protect creditors and the community. However, this public record may act as a counter to other initiatives in bankruptcy law reform that are designed to facilitate business activity. Potential business partners, providers of finance and investors may be reluctant to support a new business operated by a person who is or has been bankrupt. The availability of public records may also make it harder for entrepreneurs and business owners to re-start after bankruptcy.
The full article is available in the Insolvency Law Journal (#125). For more information about the study and its findings, contact Nicola Howell at the Queensland University of Technology via email at email@example.com.