What is AFSA’s response to these matters raised by stakeholders?

  1. Practitioners have the ability to give notices to bankrupts and creditors by making the notices available online. How can practitioners satisfy Privacy Act requirements when making notices available in this way?

    Answer: This is ultimately a matter for practitioners to take advice on and decide for themselves. Practitioners may wish to contact the Privacy Commissioner to determine their obligations. If implementing the necessary ICT and security requirements for online lodgement is not feasible, practitioners may decide to maintain their current practices to correspond with bankrupts and creditors.
     
  2. Practitioners will be required to deposit money into an administration bank account within 5 days of receipt. If they do not, it will be a strict liability offence from 1 September 2017. How will AFSA handle these issues in practice?

    Answer: AFSA will take a pragmatic approach to this provision with a view to ensuring the level of investigation/penalty sought is commensurate with the materiality of the offence committed. These matters will be considered on a case by case basis.
     
  3. Electronic handling (e.g. video conferencing) is currently available for the conduct of creditors’ meetings. Does this also extend to voting at meetings?

    Answer: Voting at meetings by electronic means is acceptable, provided the creditor is in attendance or has validly appointed a proxy or attorney, and has also demonstrated their entitlement to vote by providing a statement of claim. Ultimately, the practitioner will need to be satisfied that a creditor (or proxy/attorney) who wishes to vote electronically is bona fide.
     
  4. From 1 September 2017, a new provision (s60-20) takes effect. It places an obligation on practitioners to seek creditors’ consent/approval prior to deriving a profit or advantage from administration of the estate.  It replaces s165(1)(c) of the current Act and extends to profits or advantages obtained by related entities of the trustee. Does s60-20 apply to administrations pre-1 September 2017?

    Answer: If an arrangement under which a profit or advantage is derived is in place before 1 September 2017, s60-20 does not apply.  However, if the basis of an arrangement under a pre-1 September 2017 administration changes post 1 September 2017, s60-20 will apply.
     
  5. If a creditor pays the cost for the provision of information or holding of a meeting, does this need to be approved by creditors under s60-20 before it is drawn, or can the practitioner pay it directly to the firm?

    Answer: If a creditor agrees to pay a practitioner to provide information or call a meeting, this is a separate arrangement between the relevant creditor and the practitioner and would not require approval by creditors, a committee of inspection or the Court, so long as the costs are 'pure' disbursements and have no element of profit that accrues to the practitioner or his/her staff.  If the practitioner (or a related entity) will directly or indirectly derive 'profit' or 'advantage' for the work, or if they are recovering an element of staff or practitioner costs, s60-20 would apply and creditor approval would be required.
     
  6. What information must a practitioner give a regulated debtor and creditors on or after 1 September 2017 if an initial remuneration notice (IRN) or remuneration approval notice (RAN) was already sent to them before 1 September 2017 under former r8.12

    A practitioner of an ongoing administration (i.e. started before 1 September 2017 and ending after that date) must send a regulated debtor and creditors the following information about remuneration under Division 70 of the Insolvency Practice Rules (Bankruptcy) 2016 (the IPR): Initial Remuneration Notice (IRN) (s70-35); Remuneration Approval Report (RAR) (s70-45); and Remuneration Claim Notice (RCN) (s70-47).

    If one or more remuneration notices were sent in an ongoing administration before 1 September 2017 under former r8.12, a practitioner must give any further notice(s) required under Division 70 of the IPR on or after 1 September 2017. If an IRN was sent to the debtor/bankrupt and creditors under former r8.12A before 1 September 2017, a practitioner must give a RAR to the regulated debtor and creditors on or after 1 September 2017 along with a RCN (if the regulated debtor and creditors elect).

    If in addition to an IRN, a remuneration approval notice (RAN) was also sent to creditors under former r8.12B before 1 September 2017, a practitioner on or after 1 September 2017 should either:
     
    1. issue a new RAR (under s70-45) to the regulated debtor and creditors setting out their right to elect to receive a RCN (under s70-47);
      or otherwise
    2. issue a notice to supplement the RAN sent under former r8.12B to inform the regulated debtor and creditors of their right to elect to receive a RCN (under s70-47).

    As long a practitioner does either a) or b) they will have complied with their duties in Division 70 of the IPR.

  7. How many parties must be present at a meeting of creditors of a regulated debtor for a quorum?

    A quorum requires that there be at least 2 parties present at a meeting of creditors for a regulated debtor’s estate under subsection 75-105(1) of the Insolvency Practice Rules (Bankruptcy) 2016 (the IPR) which consists of: a) the trustee; and b) a person entitled to vote by proxy or attorney. Provided another person (other than the trustee) entitled to vote is present in person – by proxy or attorney – then proxies held by that person (or the trustee) can be counted to determine if the meeting is sufficiently constituted under subsection 75-105(2) of the IPR.

  8. When must a trustee seek approval relating to disbursements in the administration of a regulated debtor’s estate?

    Trustees often structure their business so that a service company provides office facilities (e.g. telephones, photocopiers etc.) to their practice. The company provides services used by the trustee in administering regulated debtors’ estates which are then charged to the estates as disbursements.

    The Insolvency Practice Schedule (Bankruptcy) prohibits trustees from deriving any profit/advantage from administering an estate (s60-20(1)) and includes a related entity of the trustee which derives such profit/advantage (s60-20(2)(c)). Key exceptions include where a trustee obtains creditors’ approval by resolution (s60-20(4)(c)(ii)) to that arrangement or where it is not reasonably practicable to obtain such approval and the costs are reasonable in all the circumstances (s60-20(4)(c)(iii)).  

    These provisions extends to an ongoing administration whether the trustee was appointed (or consented to act) before, on or after 1 September 2017. However, it does not apply to ‘arrangements’ made by the trustee before that date (Item 130 of Schedule 1 to the Insolvency Law Reform Act 2016).

    The Inspector-General considers that this would include agreements/transactions that trustees entered into with a related entity before 1 September 2017 to provide services (e.g. office facilities) which are charged as disbursements to estates administered by them.

    Example
    A trustee operates an insolvency practice in partnership which engages a service company (a related entity) to provide office facilities to the partnership business. The trustee was appointed to administer an estate which started on 1 December 2016 and the firm charged disbursements of $0.50/page for photocopying (including a $0.10/page profit component earned by the service company). Between 1 December 2016 and 31 August 2017 the trustee incurred a total of $3,000 in photocopying costs under the firm’s existing charging rates. Between 1 and 25 September 2017, the trustee incurred a total of $900 in photocopying costs.

    The trustee is entitled to recover $3,000 in photocopying costs incurred between 1 December 2016 and 31 August 2017 without seeking approval despite there being a profit component of $600 (i.e. 20% of $3,000) earned by the service company because this arrangement was made before 1 September 2017. However, the photocopying costs of $900 incurred between 1 and 19 September 2017 would need creditors’ approval because it includes a profit component of $180 (i.e. 20% x $900).

    It should be noted that if there was no profit component to the photocopying rates, the trustee would not need creditors’ approval (regardless of whether the arrangement was made before, on or after 1 September 2017).