The Personal Insolvency Regulator (PIR) is a quarterly newsletter from AFSA’s independent Regulation and Enforcement division.
New look for AFSA and PPSR
You may have noticed that AFSA has a new look and feel. We have recently introduced our new visual identity, which aims to increase recognition of our services by creating a unified look for the PPSR, our insolvency function and the agency as a whole.
This new look also aligns with the recent launch of the redeveloped Personal Property Securities Register (PPSR) website – following extensive research, consultation and testing with users. The new website provides an improved experience, making it easier to find information and access our services.
In addition to improving the design and structure of the PPSR website, we have rewritten key content to improve accessibility and deliver simpler, clearer and faster government services.
The AFSA website has been redesigned also, in line with the new look for the agency, and will be further refined and improved as part of a large scale project in 2021. Stay tuned for more information.
New Personal Insolvency Integrity Principles
In June, ASFA launched Integrity Principles for Trustees and Debt Agreement Administrators, offering the personal insolvency profession a shared vision of good culture.
This is important, as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry clearly demonstrated the strong correlation between culture and outcomes. Failings of organisational culture can foster poor decision-making or poor behaviour, leading to misconduct.
At AFSA, we are interested in continuing our understanding what defines culture, especially where it can influence behaviours that can impact the integrity of the personal insolvency system. We want to support good culture – and we know the profession wants to support this too. We will hold ourselves accountable to supporting a good culture at AFSA as well, with the Official Trustee subscribing to the Principles too. In the current environment of uncertainty and economic disruption, culture has never been more important.
The Principles were developed in consultation with the Australian Restructuring Insolvency and Turnaround Association, the Personal Insolvency Professionals Association, the Association of Independent Insolvency Practitioners, Financial Counselling Australia and ASIC.
They are intended to set a benchmark for industry best practice, offering a broad reference tool for practitioners making challenging decisions.
The Principles are designed to assist Trustees and Debt Agreement Administrators who often have to strike a difficult balance between competing interests and pressures. People who are struggling financially may be going through emotional turmoil. They may also be suffering from mental health or domestic violence issues. At the same time, their creditors also deserve fair treatment and insolvency practitioners themselves should be remunerated appropriately for their work.
Positive culture can support fairness when dealing with these competing interests and pressures, especially where vulnerable people are involved. It can also help to improve public trust and confidence in the work of the profession.
We expect the Principles to evolve over time with the industry. They are intended to be a living document, regularly debated and updated by the profession that owns them.
AFSA thanks the industry participants who contributed to developing the first iteration of the Integrity Principles.
National Manager – Regulation and Enforcement
Thomson deregistration: breach of independence
The registration of Ms Louise Thomson to act as a bankruptcy trustee has been cancelled, following an investigation and disciplinary committee hearing.
In 2019, AFSA staff, acting on behalf of the Inspector-General in Bankruptcy, Hamish McCormick, investigated instances of misconduct that called into question Ms Thomson’s independence, judgement and general suitability to remain registered as a trustee.
The Inspector-General referred the matter to a disciplinary committee on 28 November 2019, and on 30 July 2020, the committee concluded that Ms Thomson’s registration should be cancelled.
The committee accepted the Inspector-General’s concerns regarding Ms Thomson’s independence as a trustee in bankruptcy, and her dealings where it was evident that there had been a conflict of interest.
The committee found that Ms Thomson had a conflict of interest in accepting referrals of work, while acting as the referrer’s bankruptcy trustee.
While acting as the bankruptcy trustee, Ms Thomson socialised with the bankrupt and allowed him to vote in favour of her proposed remuneration. The committee also found that decisions concerning the bankrupt being permitted to travel overseas were discussed while socialising with him over lunch, and those decisions were not sufficiently documented nor properly based on objective criteria.
Ms Thomson allowed the bankrupt to travel without appropriately scrutinising the source of funding for international holidays, and did not conduct appropriate investigations into his assets or income.
Further details, including the committee’s report and the reason for its decision can be accessed on the AFSA website.
Digital bankruptcy application - available on 1 October 2020
Since Bankruptcy Online was launched in January, the service has made it possible for debtors to submit their bankruptcy form online to AFSA, for the first time. Since then, AFSA has listened to feedback from clients, stakeholders and consumer advocate groups and are pleased to announce some upcoming enhancements to the application process.
From 1 October, people who apply for bankruptcy will have access to the new digital bankruptcy application process, available via the Insolvency Services portal. The new process has been designed to give the applicant a more intuitive experience, with much more information to assist them as they apply for bankruptcy. The questions have not changed and the option for a Registered Trustee to submit a paper or PDF bankruptcy form to AFSA has not changed.
While AFSA is unsure of the potential impact the current COVID-19 environment will have on the number of bankruptcies, it has prioritised digitising the bankruptcy application process to help alleviate pressures of a potential surge in applications.
The improvements to the process include:
- there is assistance on how to select a Registered Trustee and obtain their consent prior to proceeding with the application
- there is now a requirement that applicants complete the ‘consequences of bankruptcy’ questionnaire prior to submitting the form
- there are linkages to the National Debt Helpline and financial counsellor services throughout
- useful information and help text has been incorporated into the form (on assets and income in particular); and
- it is now smart phone or tablet supported.
Trustees are encouraged to refer their clients to the digital application process as it includes all the necessary checks to ensure the people who apply, and meet the eligibility criteria, are supported with a streamlined service. It also removes potential operational and data-input errors, and reduces the time required to check and re-work applications. Understandably, this may not always be the most convenient or suitable option.
ATO Update: The ATO’s approach to personal insolvency agreements
The ATO is committed to supporting taxpayers who want to do the right thing and preventing those who don’t pay from gaining an unfair financial advantage.
We recognise that personal insolvency arrangements (PIAs) can produce beneficial outcomes, however we also need to balance our legal and policy obligations to be fair and reasonable in the application of taxation laws. This includes ensuring taxpayers meet their obligations in full where able, and acting appropriately to ensure future compliance where payment in full is not currently possible.
ATO staff refer to PS LA 2011/16 Insolvency - collection, recovery and enforcement issues for entities under external administration when considering PIAs. Our decisions are based on a consideration of each taxpayer’s individual circumstances, the interests of the ATO, the interests of other creditors and the wider community.
Some of the factors we consider when voting on a proposal are:
- The type of debt
- The details of the proposal (such as dividend amount, source of funds, dividend timeframe)
- Outstanding amounts including outstanding obligations
- Any association between the debtor and other creditors
- Compliance history as this may be an indicator of the debtor’s ability to comply with future lodgement and payment obligations
- Financial information contained in the proposal
- The debtor’s personal circumstances.
One of the most common issues we encounter when assessing PIAs is where a taxpayer’s lodgement obligations are not up to date. This makes the ATO debt difficult to quantify and will likely cause us to vote against the proposal.
The ATO will always indicate the reasons for voting no to a PIA (on the voting form), unless we are unable to disclose information based on taxpayer’s particular circumstances due to privacy provisions.
Where you are concerned with the ATO’s voting position or would like to discuss a matter, you can email us. We value your feedback as it is important in assisting us to continually improve our processes to better serve you.
Please send your contact details to InsolvencyPractitionerServices@ato.gov.au.
For general information refer to the insolvency practitioners’ section on ato.gov.au/insolvency
Bronwyn Du Mont
Director, Debt — Significant Debt Management
Australian Taxation Office
Exploring the ‘fit and proper person’ test
The Bankruptcy Act makes it a legislative requirement for all practitioners to be a ‘fit and proper person’ in order to be registered and, once registered, to retain that status.
To assist the profession in better understanding this legislative standard, AFSA Regulation & Enforcement will soon be providing draft guidance about what it means to be a ‘fit and proper person’ on our online consultation portal, AFSAsandpit. The guidance will be applicable for registered trustees and debt agreement administrators, and will reflect the different duties of each class of practitioner.
Importantly, this guidance is not intended to limit the meaning of established case law, which indicates that the ‘fit and proper person’ test is given a very wide scope. However, AFSA is interested in exploring this topic with the profession and looks forward to receiving feedback.
By way of background, insolvency professionals are entrusted with significant financial responsibility and personal discretionary power. Community trust in insolvency professionals is essential if the personal insolvency system is to work effectively.
Given this, to be a ‘fit and proper person’ requires more than just a certified or demonstrated competence. It also extends to a practitioner’s character. This is why, to determine whether an individual is ‘otherwise a fit and proper person’ to act as an administrator, the Inspector-General requests recent referee reports, looking for evidence that a person is of good character and is known to act with honesty and integrity.
The Inspector-General also extensively reviews an applicant’s police check beyond offences that relate to fraud or dishonesty, extending the test of professional conduct to both personal and business dealings. For example, repeated traffic offences or failure to pay fines may indicate a lack of honesty or integrity and therefore a failure to meet the ‘fit and proper’ test.
Once accepted into the profession, a practitioner’s registration may be cancelled if they fail to meet the ‘fit and proper’ test. Typically, this occurs if insolvency professionals are identified as engaging in conduct that does not meet the community’s expectations. When it comes to the Inspector-General making all such determinations, each case will depend on its own circumstances. However, in assessing conduct, the Inspector-General expects practitioners to comply not only with the Bankruptcy Act, Regulations and Rules, but also with:
Professional standards – such as APES 330 Insolvency Services.
Codes of Professional Conduct – such as the ARITA Code of Professional Practice.
Inspector-General Practice Directions – such as IGPD 14 - Proper performance of duties of a bankruptcy trustee.
AFSA’s Integrity Principles for Trustees and Debt Agreement Administrators – which launched in July 2020.
Assistant Director Technical
Changes to Enforcement Referral Processes
You may recall, or have participated in, a review conducted by AFSA regarding Pre-Referral Enquiries (PREs) and Alleged Offence Referrals. Following the recommendations from the review, changes will soon be implemented to the referral process. The aim of these changes is to improve the experience for referrers, making forms more user-friendly and easy to follow, saving time in the preparation of referrals and making clear what is required to ensure the relevant information is submitted.
The changes include:
A referral to AFSA Enforcement will now occur via a single form, which can be completed and uploaded online via the AFSA website or downloaded and submitted to email@example.com. The online upload and submission via email has a 20MB file limit. You are encouraged to submit any referral over this limit by email, split into 2 or more emails as required by the size restriction.
The information available on the AFSA website will be updated, to feature more prominently on the website and include a Frequently Asked Questions guide to assist referrers.
Updates to guidance documents, such as the Inspector-General Practice Statement 14: Referring alleged offences to the Inspector-General.
The single form better identifies what information and documentation should be provided as part of the referral processes, to reduce the need for back and forth communication between AFSA Enforcement and a referrer.
As an insolvency practitioner, if you have any concerns about these changes and how this may impact the way in which you meet your obligations to consider and refer offending to the Inspector-General, we encourage you to contact AFSA Enforcement to discuss further.
AFSA payment options changing from 1 October
AFSA is making a change to its payment options for some transactions, as part of a wider project to streamline and modernise its processes.
As of 1 October 2020, payment by cheque will not be accepted for services provided by AFSA that are not processed through AFSA’s Online Services.
Transactions such as unclaimed dividends and undistributed balances will need to be paid via EFT payments, and a remittance advice will need to be provided – paper cheques that are sent directly to AFSA offices or are not required to have a payment advice will no longer be accepted.
EFT payment details are available on the AFSA website.
Online services that offer cheque payment via a payment advice will not be impacted by the upcoming changes. Please ensure you continue to download your payment advice and follow the instructions.
Questions about the new payment process can be directed to AccountsReceivable@afsa.gov.au.
Financial Rights Legal Centre Update
Financial Rights Legal Centre is a community legal centre, providing free legal advice and assistance to consumers in NSW. Here, they share some recent client stories.
*Please note: names have been changed to protect privacy.
Temporary threshold increase holds firm in Federal Court
The Financial Rights Legal Centre recently appeared for a client with a Creditors Petition issued after 25 March 2020. The bankruptcy threshold has been temporarily increased as part of the Government’s economic response to COVID-19. This case study is a good notice to any legal practitioners considering filing a creditor’s petition for an amount under the current raised threshold of $20,000.
Cameron* lives in a strata title property. He has been on the Disability Support Pension for a number of years. Last year, due to medical expenses in particular, Cameron fell behind on his strata levies. In early 2020, his Strata obtained a judgment against him for around $6,000 and, by the time Cameron contacted Financial Rights in late May, he was served paperwork to attend a Creditor’s Petition hearing. A Bankruptcy Notice had been issued and served on him in early March 2020.
In response to the COVID-19 pandemic, the Government made changes to the Bankruptcy Act and regulations which took effect from 25 March 2020, including raising the threshold of minimum amount to present a Creditor’s Petition against a debtor from $5,000 to $20,000.
Financial Rights disputed the filing of the creditor’s petition for an amount less than $20,000 after 25 March 2020. The solicitors for the Strata maintained they were entitled to bankrupt Cameron as the bankruptcy notice was issued before 25 March 2020, and sought their cost of the petition of almost a further $6,000. In our view the bankruptcy notice was valid, but the subsequent creditor’s petition was not.
Cameron was able to access his superannuation under the COVID-19 early release rules, and pay the outstanding levies and associated legal fees of around $10,000. Cameron’s Strata continued with the Creditors Petition hearing and continued to seek their costs of the Petition.
We instructed Counsel who appeared at the hearing and sought orders that the Court exercise its discretion not to award costs to the creditor. We were successful in arguing the petition should never have been presented and costs were not awarded.
Had the threshold not been temporarily raised, Cameron may have lost his home over a $6000 Strata debt.
Financial Rights Legal Centre continues to hold concerns about Strata corporations using bankruptcy as a means to pursue unpaid levies in the first instance. The fees can quickly escalate and result in the loss of peoples home. We support that the temporary threshold increase remain at $20,000.
Caution where a creditors claim to continue to enforce a judgment after bankruptcy
The Financial Rights Legal Centre recently supported a client in her dispute against a creditor after filing for bankruptcy. Nolita* filed for bankruptcy in June 2019 after her wages had been garnished a couple of times.
After she filed for bankruptcy, the garnishee order was initially stayed by the Official Trustee, but was then reinstated following incorrect instructions from the plaintiff that the debt was secured. The plaintiff took about $556 from Nolita’s wages after the garnishee order was reinstated.
Financial Rights wrote to the Official Trustee and advised that the debt was unsecured, and outlined that the statement of claim was a liquidated debt and provable in her bankruptcy. The Official Trustee once again stayed the garnishee order. We obtained permission to raise a dispute with the plaintiff to recover the incorrectly garnisheed amounts.
We raised a dispute with the plaintiff and requested that they refund the total wages that they garnished after the date of bankruptcy. We argued that the wages were incorrectly garnished because the debt was not secured (since the plaintiff enforced the debt by a liquidated claim in the NSW Local Court).
The plaintiff refused our request. We then confirmed with AFSA that the right to recover the incorrectly garnished wages did not vest in the trustee, given that the garnishee order should have been stayed from the date of bankruptcy, and that any amount Nolita recovered would be protected in her bankruptcy.
We then lodged a complaint in the Australian Financial Complaints Authority (AFCA), of which the plaintiff is required to be a member due to their credit licence, requesting a refund of the incorrectly garnished wages, plus $2,000 compensation for non-financial loss. Nolita was heavily pregnant when her wages were incorrectly garnished and she fell into rental arrears and was almost evicted from her home.
The plaintiff refunded the wages but refused our request for compensation. We asked that AFCA progress our complaint to determine whether she was entitled to any compensation. The plaintiff made Nolita an offer of $1,000 compensation, which she accepted. We again asked AFSA to confirm whether this compensation would be protected in her bankruptcy. AFSA would not confirm whether the compensation vests in the trustee, however agreed not to take any action against Nolita to recover the funds.
We thank AFSA for the sensitive approach taken for our vulnerable consumer, and we would urge all trustees to ensure that, where a creditor is seeking to continue enforcement action such as a garnishee, the debt they are relying on is closely examined.
Chief Executive Officer
Financial Rights Legal Centre
Second or Subsequent Bankruptcies
When someone who is undischarged from a bankruptcy becomes bankrupt again, a variety of questions may arise as to what happens with property, income contributions, and travel, to mention a few.
Section 59 of the Bankruptcy Act 1966 explains what property vests in the later trustee and should be read carefully to understand what happens to property in the respective bankrupt estates:
The property that was vested in the earlier trustee at the date of the earlier bankruptcy remains vested in the earlier trustee. This isn’t expressly stated in section 59, but the section explains what property vests in the later trustee and confines it to after-acquired property.
The later trustee is left to deal with after-acquired property in the earlier bankruptcy that has not been distributed to creditors and any property acquired by or devolved on the bankrupt on or after the date of the later bankruptcy (paragraphs 59(1)(a) and (b).
Transactions that are void against the earlier trustee remain void as against the earlier trustee (paragraph 59(1)(e)).
The earlier trustee has the right to prove in the later bankruptcy for the amounts described at sub-paragraph 59(1)(c)(i).
Although not stated in section 59, any amount due by the bankrupt to the earlier trustee for income contributions would also be a debt provable in the later bankruptcy (s.139ZG(3)).
The later trustee would assess the bankrupt for any income contributions from the date of the later bankruptcy and the earlier trustee would cease recovery of contributions apart from lodgement of a proof of debt in the later bankruptcy.
If a bankrupt wanted to travel overseas they would need the written approval of both trustees to travel. The earlier trustee may have good reason not to allow travel, particularly if the bankrupt’s imminent cooperation is required, for example, in the investigation of antecedent transactions or dealing with property.
Consenting to become trustee of a second or subsequent bankruptcy
It is expected that if a trustee is approached to consent to be the trustee of a second or subsequent bankruptcy, that before consenting, and with the agreement of the debtor, they consult the earlier trustee. There have been cases in which bankrupts have not cooperated with their earlier trustee, have failed to make income contributions and have sought to avoid their obligations by lodging a debtors petition to become bankrupt again.
Debt Agreement Reforms – Industry Wide Conditions
As part of the Bankruptcy Amendment (Debt Agreement Reform) Act 2018, the Attorney-General has signed a legislative instrument which will commence on 1 January 2021.
The Bankruptcy (Registered Debt Agreement Administrator Conditions) Determination 2020 introduces a number of industry wide conditions for all registered debt agreement administrators (DAA) as at 1 January 2021 relating to:
- Advertising and promotions of the services of a DAA
- Disclosure of information to debtors by the DAA
- Recording and retention of information disclosed to debtors by the DAA
- DAA membership of the Australian Financial Complaints Authority
In November 2020, AFSA will release a number of updated guidance documents on the expectations of registered debt agreement administrators on our online consultation website AFSAsandpit. This will provide you with an opportunity, prior to 1 January 2021, to provide feedback on our proposed guidance.
To enable you to keep up to date with these changes as they are released into the AFSAsandpit, administrators can subscribe to the AFSAsandpit research group so they are automatically advised when new items are added.
Assistant Director Technical
New PPSR resources for insolvency professionals
As businesses across Australia face economic challenges due to the ongoing COVID-19 pandemic, it is important that affected businesses understand the role of the Personal Property Securities Register (PPSR) in protecting registered interests.
For businesses, we have collated several free resources designed to provide information about how the PPSR works in everyday business transactions, as well as step-by-steps guides for businesses looking to proactively enforce their security interests if their customer can’t pay or goes out of business.
These resources, along with links to other relevant information such as the PPSR small business guide, are available at ppsr.gov.au/covid19.
For insolvency practitioners, our new factsheet PPSR: Practical tips for insolvency practitioners provides useful information for those in the insolvency profession. This guide aims to help practitioners understand and access PPSR data to assist in the efficient administration of an insolvency.
Accessing PPSR data differs slightly depending on whether the insolvent company is a secured party (the creditor or financier) or the grantor (the debtor or customer). The guide covers essential information for both circumstances – including how to complete searches and download essential reports and information.
For more information, visit the new-look PPSR website at ppsr.gov.au.
Personal Property Securities Register
Registration of Personal Insolvency Practitioners: FAQs
Over the course of the current financial year, AFSA Regulation will be providing information to help guide prospective applicants through the process of applying for registration.
Information about the registration process can be found at Inspector-General Practice Statement 13 for registered trustee applicants, and Inspector-General Practice Statement 4 for registered debt agreement administrator applicants.
Most of the information included in this and future articles is based on feedback we have received from past applicants. We’d like to thank those persons who took the time to share with us 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.
With the current COVID-19 situation, are registration interviews still going ahead?
Yes, registration interviews are still being held. We are mindful of the changing situation with lockdowns or recommendations to stay home, and will make accommodations for virtual interviews where required.
What is the best way to evidence the number of hours of relevant employment for the past 5 years in my application?
Preferably, the information should be a breakdown of:
Administrations you have worked on – either bankruptcy, corporate or both
The time spent on administrations
The level of complexity of work required for the administration to show it was work performed at a senior level
If you have any questions about evidencing your hours while completing your application, contact AFSA Regulation.
What kind of questions will be asked at my interview?
Questions will be mostly of a technical nature, with some ethical questions included as well.
In October, we will be publishing mock registration interview questions for registered trustee and registered debt agreement administrator interviews on the AFSA website, to help future applicants understand the level of complexity involved.
In the meantime, we have updated both Inspector-General Practice Statement 13 and Inspector-General Practice Statement 4 with annexures which broadly list the expected knowledge areas applicants should be familiar with prior to registration. They are not intended to be exhaustive, and will not limit what a committee member can ask on the day of the interview.
For trustee applicants, an independent committee will be convened by the Inspector-General that will determine whether or not you will be registered. Although you will have a set of questions asked on the day, individual committee members may ask further questions to satisfy themselves that you can demonstrate the requisite knowledge and skills to perform the duties of a trustee.
For debt agreement administrator applicants, delegates of the Inspector-General will determine whether or not you will be registered. Although you will have a set of questions asked on the day, you may be asked further questions to satisfy the Inspector-General that you can demonstrate the requisite knowledge and skills to perform the duties of a debt agreement administrator.
How long is the interview?
On the day of your interview, you will have a 30 minute reading time before an interview with the committee. Overall, be prepared to set aside anywhere from 2 to 3 hours for the whole process, although this can vary.
How does a committee reach their decision to register a trustee applicant?
The decision to register an applicant will be made based on findings of the majority of the committee.
As a debt agreement administrator applicant, what is the process following a successful interview?
Should you demonstrate sufficient knowledge and ability at the interview, and meet the fit and proper test, be prepared to set aside further time for an on-site inspection by AFSA Regulation on another day to ascertain whether your business systems, controls and practices are sufficient.
Are there any tips for preparing for an interview?
The following are tips provided by past applicants from their experiences with the registration process:
Prepare! Read short case studies and practice writing answers in brief bullet point form to help with your reading time. If you get stuck writing detailed answers you won’t get through the whole paper before your reading time is finished
During your preparation, summarise relevant time periods under the legislation as doing so will force you to learn the legislated time periods
Practice having someone question you, and having you answer out loud. The feeling of an interview is similar to a panel job interview, so knowing the answers in your head is one thing, but being able to articulate technical complex responses to a panel is another
Be across current issues and case law – Personal Insolvency Regulator newsletters from the past 12 months should help guide you. These are available on the AFSA website.
Study and understand broad sections and parts of the Act, Regulations, IPS, IPR, Bankruptcy (Estate Charges) Act, to avoid fumbling through indexes to look for answers at the interview
Study and understand Inspector-General Practice Statements and Directions
We’ll publish further tips from past applicants in the December 2020 PIR newsletter.
Assistant Director Technical