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BANKRUPTCY AMENDMENT REGULATIONS 2003 (NO. 1) 2003 NO. 76
EXPLANATORY STATEMENTStatutory Rules 2003 No. 76
Bankruptcy Amendment Regulations 2003 (No. 1)
Subsection 315(1) of the Bankruptcy Act 1966 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
There is no regulatory regime in place in the Act for either debt agreement administrators or controlling trustees who are solicitors. This lack of regulation needs to be addressed. For instance, the vast majority of debt agreements are administered by people who do so as a business. However, the Act does not recognise the potentially commercial aspects of the role of debt agreement administrator. Similarly, while there is evidence that some solicitors have been performing the role of controlling trustee in an unsatisfactory manner, the Act does not allow inquiry and investigation into such conduct. It is therefore appropriate that both debt agreement administrators and controlling trustees who are solicitors be subject to regulation by the Inspector-General in Bankruptcy.
The purpose of the Regulations is to provide a regulatory regime for both debt agreement administrators and controlling trustees who are solicitors.
The Regulations also include provisions to:
• insert a new category of "personal property" i.e. sporting, cultural, military or academic awards;
• prescribe an amount of income that can be earned by a dependent of the bankrupt;
• prescribe certain matters to be included in a trustee's remuneration notice;
• change requirements relating to an application for registration as a trustee; and
• correct references that are incorrect, outdated or have been repealed.
The Regulations give effect to amendments contained in the Bankruptcy Legislation Amendment Act 2002 (BLAA 2002), which is to commence on 5 May 2003. Item 154 of the BLAA 2002 provides that the Official Receiver must refuse to accept a debt agreement proposal for processing if the person nominated as administrator is ineligible, in accordance with the regulations, to act as an administrator. Item 169 inserts subsections 188(2A) and (2B) under which the regulations may prescribe the circumstances in which a person other than the Official Trustee or a registered trustee is ineligible to act as a controlling trustee under Part X of the Act.
The Regulations provide criteria under which certain persons are ineligible to be nominated as debt agreement administrators in debt agreement proposals. Similarly, the Regulations prescribe eligibility conditions for solicitors who are controlling trustees.
Regulation Impact Statement
PROPOSED AMENDMENTS TO THE BANKRUPTCY REGULATIONS IN RELATION TO THE REGULATION OF DEBT AGREEMENT ADMINISTRATORS
Background
Debt Agreements under Part IX of the Act
The debt agreements scheme, inserted in the Bankruptcy Act 1966 ('the Act') in 1996, was introduced as a form of insolvency administration outside bankruptcy and Part X which could be utilised by persons with low levels of debt, few assets and low incomes who were not able to afford to enter into arrangements under Part X of the Act and who did not wish to become bankrupt. Under this scheme, debtors with levels of liability not exceeding a threshold amount are able to put forward a proposal to creditors for dealing with their debts. The proposal is put to the Official Trustee, who is responsible for determining whether it is acceptable to the debtor's creditors. This can be done in two ways, either by calling a meeting of creditors, or by sending a notice of the proposal to the creditors and requesting them to indicate, by voting letter, whether they accept the proposal. Before a proposal can become a debt agreement, it must get the approval of creditors in accordance with the procedures set out in the Act.
The same mechanisms are able to be used to vary or terminate a debt agreement. An agreement may, however, be declared void by the Court. A debt agreement otherwise comes to an end when the debtor has fulfilled all of his or her obligations under it.
Debt agreement administrators
The scheme further provides that a debt agreement proposal must, among other things, authorise a specified person (being the Official Trustee, a registered trustee or another person) to deal with the debtor's property that is identified in the proposal, in the way that is specified in the proposal. Persons performing this role have become known as 'debt agreement administrators'.
The debt agreements scheme does not impose any form of registration or licensing requirements on persons administering these agreements. In line with this simple, low cost procedure a debt agreement administrator can be any person, such as a debtor's friend or family member, or the debtor themselves, and is not obliged to hold any formal qualifications.
Problem
The vast majority of debt agreements are administered by persons who do so as specialist debt agreement administrators. A 'business' of administering debt agreements has emerged. Consequently, less than 1% of debt agreements are administered by individuals acting in a non-commercial capacity.
The emergence of debt agreements as a commercial enterprise has resulted in the need for some degree of oversight of the industry. Administrators operating as a business are responsible for handling significant sums of money and may as part of their role have access to debtor's bank accounts and financial records. Currently, administrators are not accountable by regulation for the money received and payments made under a debt agreement. Further, a debt agreement proposal does not have to contain details of the fees and charges that are to be taken by an administrator under an agreement.
These problems arising from the current lack of regulatory oversight of administrators affect both parties to a debt agreement, i.e. both debtors and creditors. In terms of the debtor, there is potential for property subject to the agreement being dealt with by the administrator in a manner different to that set out in the debt agreement. The taking of fees is also an issue, for both creditors and debtors. If the amount of fees and charges that are to be taken for administering the agreement are not clearly set out in the debt agreement proposal, debtors may find that they are faced with unexpected and excessive fees and charges throughout the course of their agreement. Creditors are also affected in this regard. The amount of payments to creditors under an agreement will be affected by excessive fees and charges taken by an administrator.
Problems may also arise where persons with a prior history of fraud or dishonesty administer agreements. In such cases, the debtor may be particularly vulnerable to misappropriation of his or her money, and/ or property.
Objectives
The objectives of the proposals are to:
• improve the quality of the service provided by administrators by clearly setting out the duties of administrators;
• protect debtors by providing that individuals who are convicted of an offence involving fraud or dishonesty or, are prohibited from taking part in the management of a corporation or, are deregistered as a trustee in bankruptcy or a liquidator or, are currently bankrupt or are an insolvent under administration, are ineligible to administer debt agreements;
• protect debtors and creditors by ensuring that fees charged by administrators are not disproportionate by providing that administrators are paid in accordance with the work performed under an agreement;
• allow creditors to make an informed decision whether or not to accept a debt agreement proposal, by providing that a proposal must clearly set out the fees to be charged by administrators, and when these fees are to be taken.
Options
Option One
The first option is to preserve the status quo by not introducing any regulatory regime for administrators.
Option Two
A further option is to impose a scheme similar to that in place for registered trustees. A licensing or registration scheme could be imposed.
Option Three
The third option represents the middle ground between Options One and Two. This preferred option is to impose a regulatory scheme, but one that is less stringent than that imposed for registered trustees.
Impact Analysis
The groups affected by the problems resulting from a lack of regulation of debt agreement administrators include debtors, creditors and administrators themselves.
The implementation of Option One, to maintain the status quo, would have an unfavourable impact on debtors. As noted above, debtors may be subject to paying disproportionate fees and charges to administrators, and may be vulnerable to the mishandling of their property, if a regulatory regime for administrators is not imposed. Option Two, a regulatory scheme similar to that for registered trustees, may be of benefit to debtors. However, this Option would not be in line with the policy underlying debt agreements which is to provide an informal and flexible alternative to bankruptcy for low income debtors. It would also be particularly onerous for non-commercial administrators, including those who administer their own agreements.
Option One would not have a favourable impact on creditors. Payments to creditors under agreements are affected by disproportionate fees and charges taken by administrators. The mishandling of a debtor's property and assets under an agreement also impacts on payments to creditors. Option Two may prove beneficial to creditors however, as noted above, this Option would detract from the objectives of the debt agreements scheme.
Option One would not likely impact on debt agreement administrators. Option two, however, would have a significant impact on this group. A licensing or registration scheme would be particularly onerous for administrators.
The implementation of Option Three would be beneficial for both debtors and creditors. By imposing duties on administrators, such as a duty to deal with the property identified in the debt agreement proposal in the manner specified, both debtors and creditors are protected from the mishandling of the property subject to the debt agreement. Similarly, a requirement to fully disclose fees and charges in the debt agreement proposal will mean that creditors are able to make an informed decision on whether or not to vote in favour of a debt agreement proposal. Further, both debtors and creditors would benefit from a requirement that an administrator must be paid in accordance with the work performed under a debt agreement, as such a provision would safeguard against the imposition of disproportionate fees and charges.
There will be some financial impact on persons administering debt agreements as a result of the implementation of Option Three. Such cost would not be significant however as the proposed imposition of duties such as keeping adequate books and records are requirements that it is expected would already be undertaken by administrators.
Further, ITSA is currently liaising with administrators to standardise the forms and documents associated with debt agreements. Training focused on these proposals is also being provided to administrators. These initiatives will involve increased costs to ITSA in the short term, but should result in streamlined procedures, and subsequently reduced costs, to both administrators and ITSA in the future.
As a result of these initiatives, the impact of Option Three on debt agreement administrators operating as a business, including those operating as a small business should be minimal.
Consultation
ITSA undertook consultation on Options One, Two and Three during the development of the Bankruptcy Legislation Amendment Act 2002 (BLAA 2002). An amendment subsequently contained in the BLAA 2002 was that the Official Receiver must refuse to accept a debt agreement proposal for processing if the person nominated as administrator is ineligible, in accordance with the regulations, to act as an administrator. The BLAA 2002 was developed in consultation with the Bankruptcy Reform Consultative Forum.
ITSA has consulted extensively on Option Three. Throughout 2002 ITSA convened a series of debt agreement 'roundtable' discussions to both address concerns about the practices of some debt agreement administrators, and to consult about these proposals. These roundtables were held in Sydney, Brisbane, Adelaide and Melbourne and were attended by a number of creditors, debt agreement administrators and financial counsellors.
Further consultation on these proposals has been undertaken at meetings of the Bankruptcy Reform Consultative Forum. The Forum is comprised of representatives from ITSA, the Insolvency Practitioners Association of Australia, the Australian Finance Conference, the Law Council of Australia, the Australian Bankers Association, the Australian Taxation Office, Credit Union Services Corporation Australia Limited, and the Australian Financial Counselling & Credit Reform Association.
The relevant Bankruptcy Reform Consultative Forums were held throughout 2002 and in March of this year.
These proposals were largely supported by the relevant stakeholders. Financial counsellors in particular were keen for there to be a requirement for full disclosure of fees and charges in debt agreement proposals. It was perceived that such a requirement would safeguard against disproportionate fees and charges taken on behalf of administrators. Creditors were also supportive of proposals to make administrators accountable by the imposition of specified duties.
Debt agreement administrators recognised the need for oversight of the industry. The majority view was that a form of regulation would ensure and encourage the provision of a quality service by administrators, while also maintaining the informal nature of the debt agreements scheme.
Registered trustees were less supportive of the proposals, the view being that a licensing or registration scheme, similar to that imposed for trustees (Option Two), was the preferable approach for the regulation of administrators.
Conclusion and Recommended Option
It is considered appropriate to introduce a regulatory scheme - but less detailed than that provided in the Act in relation to registered trustees - for persons administering debt agreements. It is proposed that the regulations will provide criteria under which certain persons will be ineligible to be nominated as debt agreement administrators in debt agreement proposals. The proposed regulations will also impose certain duties on persons who administer debt agreements.
The preferred option is therefore Option Three, to implement the proposed form of regulatory regime for debt agreement administrators. This option is preferred as it recognises the commercial aspects of the administration of debt agreements, while at the same time ensuring that the informal, flexible approach of the scheme is maintained. The proposed regulatory scheme recognises that debt agreements should continue to be less formal than other types of insolvency administrations.
Option One is not preferred as it would fail to address the current problems arising from the lack of regulation of the debt agreement 'industry'.
Option Two is not preferred as it is inconsistent with the policy underlying the debt agreements scheme, i.e. to provide an uncomplicated alternative to bankruptcy for low-income debtors.
Implementation and Review
The proposals are to be implemented by amendments to the Bankruptcy Regulations.
The regulation of debt agreement administrators will be reviewed regularly to ensure that these initiatives are meeting their objectives.
Details of the Regulations are attached.
Regulation 1--Name of Regulations
1. This Regulation is a formal provision specifying the title of the Bankruptcy Amendment Regulations 2003 (No. 1) (the Amendment Regulations).
Regulation 2--Commencement
2. This Regulation specifies that the Amendment Regulations will commence on 5 May 2003.
Regulation 3--Amendment of Bankruptcy Regulations 1996
3. Schedule 1 of these Regulations amends the Bankruptcy Regulations 1996 (the Bankruptcy Regulations).
Schedule 1--Amendments
Item 1--After regulation 6.03
4. Item 1 inserts new regulation 6.03A which provides a category of personal property for subparagraph 116(2)(ba)(ii) of the Bankruptcy Act 1966 (the Act). That subparagraph was inserted by the Bankruptcy Legislation Amendment Act 2002 (BLAA 2002) and recognises personal property of the bankrupt that will not be divisible among creditors. That subparagraph provides that the personal property has sentimental value, is of a kind prescribed by the regulations and is identified by special resolution of creditors before the trustee realises the property.
5. New subregulation 6.03A(1) provides that for subparagraph 116(2)(ba)(ii) of the Act, sporting, cultural, military or academic awards made to the bankrupt in recognition of his or her performance are personal property to which subsection 116(1) of the Act does not extend. That subsection provides that all property that belonged to, or was vested in, a bankrupt at commencement of the bankruptcy, or has been acquired or is acquired, or had devolved or devolves on him or her, after commencement of the bankruptcy and before their discharge is property divisible among creditors of the bankrupt.
6. New subregulation 6.03A(2) provides that subregulation (1) does not apply to a monetary award.
Item 2--After regulation 6.12B
7. Item 2 inserts new regulation 6.12C which deals with Family Assistance and social security payments which are not payments or amounts that are income of a bankrupt for the purposes of subparagraph 139L(b)(v) of the Act.
8. Section 139L of the Act provides for the meaning of income. Paragraph 139L(b) specifies matters that are not income in relation to a bankrupt (even if they come within the ordinary meaning of 'income'). Subparagraph 139L(b)(v) provides that a payment or amount that the regulations provide is not income of a bankrupt.
9. At subparagraph 139L(b)(ii), an amount that is not income for the purposes of the Social Security Act 1991 because of subsection 8(8) of that Act, subject to certain exceptions set out in paragraphs (A) and (B), is not income for the purposes of the Act. The BLAA 2002 repealed subparagraph 139L(b)(ii).
10. Changes to the Social Security legislation have been made. In particular, 'family allowance payments' under that Act have been transferred to the 'Family Assistance Law'. Those changes are reflected in new regulation 6.12C which provides that for subparagraph (b)(v) of the definition of 'income' in section 139L of the Act, the following payments or amounts are not income of a bankrupt:
• A payment or amount of family tax benefit paid under the family assistance law;
• An amount that is not income for the purposes of the Social Security Act 1991 because of subsection 8(8) of that Act, except for a payment or amount mentioned in paragraph (a), (h), (ha), (k), (ka), (m), (z), (za) or (zb) of that subsection.
11. New subregulation 6.12C(2) provides that for this regulation, family assistance law has the same meaning as in the A New Tax System (Family Assistance) (Administration) Act 1999.
Item 3--After regulation 6.15
12. Item 3 inserts new regulation 6.15A(1) which provides that for paragraph (c) of the definition of 'dependant' in section 139K of the Act, the amount is $2,500.
13. The BLAA 2002 repeals the definition of 'dependant' in s 139K and substitutes a new definition to mean, in relation to a contribution assessment period, a person who satisfies all the following conditions:
(a) the person resides with the bankrupt;
(b) the person is wholly or partly dependent on the bankrupt for economic support;
(c) the income derived (or likely to be derived) by the person during the contributions assessment period is not more that the amount prescribed by the regulations for the purposes of this paragraph.
14. New subregulation 6.15A(2) provides that section 304A of the Act applies to this regulation as if the amount mentioned in subregulation (1) were an amount mentioned also in the definition of 'indexable amount' in subsection 304A(1). Section 304A provides for the indexation of amounts.
Item 4--Paragraph 8.01(1)(b)
Item 5--Subparagraph 8.01 (3) (d) (iii)
Item 6--Paragraph 8.02 (1) (c)
15. Items 4 to 6 effect changes relating to an application for registration as a trustee.
16. The changes are to overcome the decision in Gamble and Crowe v the Inspector General in Bankruptcy. In that decision, the Administrative Appeals Tribunal found that the two applicants, who had been denied initial registration by the Committee (convened to consider the application to become trustee) because they had not demonstrated adequate current knowledge of the role of a registered trustee under the Act, ought to be registered as they had the capacity to perform the functions of a trustee and acquire the relevant knowledge.
17. The BLAA 2002 inserts sections 155A(1A) and 155A(4A) into the Act. Section 155A(1A) provides that for the purpose of registration, the Committee may require the applicant to sit for an exam. Section 155A(4A) provides that the Committee must decide that the applicant should not be registered if the Committee is not satisfied that the applicant has the ability (including knowledge) to perform satisfactorily the duties of a registered trustee. The amendments made by items 4, 5 and 6 are consequential to the new provisions inserted by the BLAA 2002.
18. Regulation 8.01(1) provides for the documents that must accompany an application to become a registered trustee. Former subregulation 8.01(1)(b) requires 2 references, signed by their respective trustees, to contain certain particulars. New subregulation 8.01(1)(b) requires those referees to be familiar with relevant work undertaken by the applicant within the 12 months before the application.
19. As a consequence of new s 155A(4A) mentioned above, item 5 omits subparagraph 8.01(3)(d)(iii) of the Regulations which provide for the referee's opinion on whether the applicant had the capacity to acquire knowledge of the powers, duties and functions of a registered trustee or registered liquidator, if the applicant had insufficient or no such knowledge.
20. Section 155A(2)(a) of the Act provides that the Committee (convened to consider the application to become trustee) must decide that the applicant should be registered if the committee is satisfied that the applicant has the qualifications, experience, knowledge and abilities prescribed by the regulations. Regulation 8.02 prescribes those matters. A prescribed ability under current paragraph 8.02(1)(c) was the ability to perform satisfactorily the duties of a registered trustee. Item 6 amends paragraph 8.02(1)(c) so that new paragraph 8.02(1)(c) provides that the prescribed ability is to perform satisfactorily the duties of a registered trustee immediately after registration.
Item 7--After regulation 8.11A
21. The BLAA 2002 inserts section 162(6A) which requires that the trustee must, in relation to the trustee's remuneration, give such notices to the bankrupt and creditors as are required by the regulations.
22. The Insolvency Practitioners Association of Australia, a peak body representing most registered trustees, and ITSA developed a code of conduct for trustees. This 'code' is set out in a document called Personal Insolvency National Standards (PINS) which contains desirable practices that trustees should adopt in administrations, relevantly in relation to Remuneration and Costs. New regulation 8.38 adopts the relevant parts of the PINS and provides as follows:
For subsection 162 (6A) of the Act, a trustee must give the following notices to the bankrupt and creditors:
(a) a notice that includes the basis and the method on which the trustee seeks to be remunerated, and, if appropriate, an estimate of the expected level of the trustee's remuneration;
(b) if the trustee claims remuneration calculated by reference to an hourly rate -- a notice that includes:
(i) the type of work undertaken by the trustee and the trustee's staff; and
(ii) the number of hours charged by each person; and
(iii) the hourly rate charged for each person; and
(iv) the total remuneration claimed;
(c) a notice advising the bankrupt and creditors of their right, within 28 days of receiving notice of a trustee's claim for remuneration, to request the claim be taxed.
Item 8--After regulation 8.34
23. This item inserts new subdivision 5 which deals with controlling trustees other than the Official Trustee or registered trustees i.e. controlling trustees whose authority derives from their status as a solicitor.
24. Item 169 of the BLAA 2002 inserts new subsection 188(2)(2A) which provides that:
(2A) The regulations may prescribe the circumstances in which a person (other than the Official Trustee or a registered trustee) is ineligible to act as a controlling trustee under this Part.
(2B) An authority signed by a debtor under this section is not effective for the purposes of this Part if, at the time the authority is signed, the person authorised:
(a) is not the Official Trustee or a registered trustee; and
(b) is ineligible, under the regulations, to act as a controlling trustee under this Part.
25. By virtue of Item 6 of the BLAA 2002, the Inspector-General may make inquiries and investigations into the conduct of a controlling trustee.
26. These BLAA 2002 amendments are intended to address the problem of some controlling trustees who are solicitors performing that role in an unsatisfactory manner and who were not subject to any regulation by the Inspector-General. It is intended by this measure that solicitor controlling trustees will be subject to regulation by the Inspector-General, just as registered trustees and the Official Trustee already are. It is intended that a solicitor controlling trustee's failure to meet eligibility conditions prescribed in the Bankruptcy Regulations will make him or her ineligible to act as a controlling trustee.
27. New subregulation 8.35(1) gives effect to the BLAA 2002 amendments by providing that a person (other than the Official Trustee or a registered trustee) is not eligible to act as a controlling trustee if the person:
(a) is convicted of a criminal offence involving fraud or dishonesty, or was so convicted within the 10 years before the proposed authorisation; or
(b) is not insured against the liabilities the trustee may become subject to as a controlling trustee; or
(c) is a solicitor who no longer holds a practising certificate; or
(d) is an undischarged bankrupt or insolvent under administration, or became a party (as debtor) to a debt agreement or a Part X administration within the 10 years before the proposed authorisation; or
(e) was a person who the Inspector-General decides under subregulation (2) has failed to properly exercise powers or carry out duties or to cooperate with an inquiry or investigation, or in relation to whom such a decision was made within the 3 years before the proposed authorisation.
28. These criteria are similar to those set out in s155A(4) of the Act, in relation to the disqualification criteria for persons applying to become registered trustees.
29. New subregulation 8.35(2) addresses the situation where the solicitor controlling trustee is currently authorised to act as a controlling trustee, but subsequently becomes ineligible because it is found that he or she has failed to properly perform the role of controlling trustee. This new subregulation provides that, in addition to subregulation (1), a person who is, or has been, a controlling trustee is not eligible to act as a controlling trustee if the Inspector-General determines that the person:
(a) has failed to properly:
(i) exercise the powers of a controlling trustee; or
(ii) carry out the duties or obligations of a controlling trustee; or
(b) has refused, or failed to cooperate with the Inspector-General in an inquiry or investigation under paragraph 12 (1)(b) of the Act.
30. New subregulation 8.35(3) provides that, if the Inspector-General forms the opinion of the kind mentioned in paragraph (2) (a) or (b), the Inspector-General must:
(a) by written notice, tell the person; and
(b) invite the person to respond within 28 days or such longer time as is specified in the notice.
31. This new subregulation affords a solicitor controlling trustee the opportunity to respond to concerns related to their conduct as controlling trustee. The Inspector-General is to have regard to this response (if there is one) in determining whether the person has failed to properly exercise powers or to carry out duties, or to cooperate with an inquiry or investigation (new subregulation 8.35(4)).
32. If the Inspector-General makes a determination under subregulation (2), the Inspector-General must give the person a written notice of the determination, setting out the reasons (new subregulation 8.35(5)).
33. By virtue of new regulation 8.36, a solicitor controlling trustee is able to apply for review of a decision made under new subregulation 8.35(2). New regulation 8.36 provides that application may be made to the Administrative Appeals Tribunal for review of a determination of the Inspector-General under proposed new subregulation 8.35(2).
34. Where a solicitor controlling trustee becomes ineligible subsequent to him or her entering into an authority under s 188 of the Act, there is a need for a procedure allowing another person to perform the duties of controlling trustee for the purposes of that authority. New regulation 8.37 addresses this situation by providing that, if a person becomes ineligible to act as a controlling trustee then, unless and until the debtor appoints a controlling trustee who is eligible to so act, the Official Trustee must perform the duties of the controlling trustee.
Item 9--After regulation 9.01
35. This Item inserts new regulations 9.02-9.07 which concern debt agreement administrators.
36. Item 7 of the BLAA 2002 provides that the Inspector-General's functions in relation to conducting inquiries and investigations under section 12 of the Act extend to cover inquiries and investigations into debt agreement administrators.
37. Item 154 of the BLAA 2002 inserts new subsection 185E(2A) which provides:
The Official Receiver must refuse to accept a debt agreement proposal for processing if the person nominated as administrator is ineligible, in accordance with the regulations, to act as an administrator.
38. The debt agreements mechanism, inserted in the Act in 1996, was introduced as a form of insolvency administration outside bankruptcy and Part X available to debtors with low levels of debt, few assets and low incomes who were not able to afford to enter into arrangements under Part X of the Act and who did not wish to become bankrupt. Under the debt agreements scheme, debtors with levels of liability not exceeding a threshold amount are able to put forward a proposal to creditors for dealing with their debts.
39. The scheme further provides that a debt agreement proposal must, among other things, authorise a specified person (being the Official Trustee, a registered trustee or another person) to deal with the debtor's property that is identified in the proposal, in the way that is specified in the proposal. Persons performing this role have become known as 'debt agreement administrators'.
40. The purpose of the amendments in the BLAA 2002 was to enable the establishment of a form of regulatory regime for debt agreement administrators. This is because the vast majority of debt agreements are administered by persons who do so as a business. The BLAA 2002 amendment was intended to address the potentially commercial aspects of the debt agreements scheme.
41. Before electing to enter into a debt agreement, the relevant parties need to be fully informed of the fees that are to be taken by an administrator. There is currently no requirement that this information be included in a debt agreement proposal. New regulation 9.02 overcomes this deficiency by providing that a debt agreement proposal must mention:
(a) the costs and fees that are to be charged for the administration of the debt agreement; and
(b) include a schedule setting out when the costs and fees are to be taken.
42. The policy underlying new regulation 9.03 is that a debt agreement administrator should be paid in accordance with the work performed in administering an agreement, and should not be able to charge disproportionate or excessive fees. The new regulation provides that:
(1) Payment of costs and fees for the administration of a debt agreement may be taken in accordance with the schedule mentioned in regulation 9.02 as administration of the debt agreement is progressively performed.
(2) Costs and fees must not be taken in advance of work actually performed.
43. New regulation 9.04 sets out criteria under which certain persons are ineligible to act as debt agreement administrators. The new regulation provides:
(1) A person is ineligible to act as an administrator if the person:
(a) is an undischarged bankrupt or insolvent under administration, or became a party (as debtor) to a debt agreement or a Part X administration within the 3 years before the proposed appointment; or
(b) a person whose registration ceases, under section 155I of the Act, for a reason mentioned in paragraph 155H (1) (a), (b), (e) or (f) of the Act, or whose registration has ceased for any of those reasons within 10 years before the proposed appointment; or
(c) a person who is prohibited, under the Corporations Act, from taking part in the management of a corporation; or
(d) a person who is deregistered under the Corporations Act as a liquidator; or
(e) a person who is convicted of an offence involving fraud or dishonesty, or who was so convicted within the 10 years before the proposed appointment; or
(f) a person who the Inspector-General determines under subregulation 9.06(3) has failed to properly carry out duties or cooperate with an inquiry or investigation, or in relation to whom such a decision was made within 3 years before the proposed appointment.
(2) If a person is ineligible to act as an administrator, any company of which the person is a director is also ineligible to act as an administrator.
44. In keeping with the informal nature of the debt agreement regime, regulation 9.04 does not work to impose any formal requirements on persons administering debt agreements. Nor does it impose a system of registration or licensing for these individuals. Instead, it provides that certain people are ineligible to perform the role of a debt agreement administrator. This approach works to maintain the informal aspects of the debt agreements regime, while at the same time recognising that the potentially commercial nature of this scheme necessitates some regulatory oversight.
45. New subregulation 9.04(1)(f) addresses the situation where a person has previously been found to have failed to perform the role of debt agreement administrator to an adequate standard. In those circumstances, a determination by the Inspector-General that the person had failed to properly carry out duties or cooperate with an inquiry or investigation, would render the person ineligible to be appointed as a debt agreement administrator for a period of 3 years.
46. New subregulation 9.04(2) provides that, if a person is ineligible to act as an administrator, any company of which the person is a director is also ineligible to act as an administrator.
47. New subregulation 9.04(3) prescribes that paragraph (1) (a) does not apply to a person nominated as administrator of a debt agreement proposal in respect of which that person is the sole debtor. This amendment is designed to retain the flexibility of the scheme enabling debtors to administer their own agreement, providing the proposal is approved by creditors.
48. New regulation 9.05 sets out the procedure to be adopted where an administrator becomes ineligible to administer an agreement. In that situation, a need arises to enable someone else to administer the agreement. New regulation 9.05 provides, if an administrator of a debt agreement becomes ineligible to administer a debt agreement then, unless and until the debtor appoints an administrator who is eligible to so act, the Official Trustee must administer the agreement.
49. In line with the potentially commercial aspects of the role of administrator, new regulation 9.06 sets out the account-keeping and other duties of a debt agreement administrator. It is provided that an administrator must:
(a) keep accounts, books and records that are necessary to give a full and correct account of the administration of the debt agreement; and
(b) make those accounts, books and records available, on request, for inspection by the Inspector-General; and
(c) if ordered to do so by the Inspector-General, answer any inquiries about a debt agreement; and
(d) cooperate with any inquiry or investigation by the Inspector-General under section 12(1)(bb) of the Act; and
(e) deal with property in the manner specified in the debt agreement.
50. As noted above in para 36, by virtue of Item 7 of the BLAA 2002, the Inspector-General has a power to investigate and inquire into the conduct of an administrator that relates to a debt agreement. New subregulations 9.06(1)(c) and (d) give effect to this amendment by imposing a duty on administrators to cooperate with such investigations and inquiries.
51. By virtue of new subregulation 9.06(1)(e), an administrator is required to deal with the property subject to the debt agreement in the manner that is set out in the agreement. This amendment safeguards against an administrator dealing improperly with property specified in an agreement.
52. New subregulation 9.06(2) provides that, if the Inspector-General forms an opinion that an administrator may have failed to properly carry out duties or cooperate with an inquiry or investigation mentioned in proposed new subregulation 9.06(1), the Inspector-General must:
(a) by written notice, tell the administrator; and
(b) invite the administrator to respond within 28 days, or such longer time as is specified in the notice.
53. In a similar vein to the amendment arrangements for solicitor controlling trustees, this new subregulation affords an administrator the opportunity to respond to concerns related to their conduct as administrator. By virtue of new subregulation 9.06(3), the Inspector-General is to have regard to this response (if there is one) in determining whether the person has failed to properly carry out duties or cooperate with an inquiry or investigation.
54. New subregulation 9.06(4) provides that, if the Inspector-General determines that the administrator has failed to properly carry out duties or cooperate with an inquiry or investigation, the Inspector-General must give the administrator a written notice of the determination, setting out the reasons.
55. By virtue of new regulation 9.07, application may be made to the Administrative Appeals Tribunal for review of a determination of the Inspector-General under paragraph 9.06(3).
Item 10--After subregulation 13.03 (1)
56. Regulation 13.02(1) establishes the National Personal Insolvency Index (the Index) as an electronic index. The Inspector-General has responsibility for the operation of the Index and each Official Recevier maintains the Index on the Inspector-General's behalf. Regulation 13.03 provides for information to be entered on the Index. Paragraph 13.03(1)(a) provides that in respect of certain personal insolvency matters, information of the kind specified in Schedule 8, to the extent applicable, is to be entered on the Index.
57. Item 10 inserts new subregulations 13.03(1A) and (1B). New subregulation 13.03(1A) will assist the Official Recevier's responsibility for the operation of the Index. That subregulation provides that in relation to a matter mentioned in paragragh (1)(a), a document described in an item in Schedule 8 must be given to the Official Receiver by the person mentioned in column 4 of the item within the period mentioned in column 5 of the item.
58. The BLAA 2002 repeals Division 3 Part VIII which deals with the early discharge of bankrupts. Item 13 of Schedule 8 refers to those matters. The amendment to the Act applies to bankruptcies for which the date of the bankruptcy is after the commencing date. The fact that a bankrupt obtained early discharge under former Division 3 of Part VIII which applies to bankruptcies pre commencement of the BLAA, must still be recorded at item 13 of Schedule 8.
59. New subregulation 13.03(1B) is a consequential change to the BLAA 2002's repeal of the availability of early discharge to bankrupts after its commencement. That subregulation provides that item 13 of Schedule 8 applies in relation to a bankruptcy dated 4 May 2003 or earlier.
Item 11--Schedule 6, Part 3, after item 9
60. Item 11 effects changes to Part 3, Schedule 6 consequential to the BLAA 2002's insertion of s 181A which provides a streamlined method for replacing trustees of bankrupt estates. Part 3 of Schedule 6 provides for modifications of Part VIII of the Act in relation to a controlling trustee or the trustee of a deed of assignment, a deed of arrangement or composition. Section 181A is applied, with the following prescribed modifications.
61. Item 11 inserts new item 10 after item 9, at Schedule 6, Part 3. Item 10.1 of new item 10, Part 3, Schedule 6 modifies subsections 181A(1) and (4) by substituting references to the current controlling trustee or the trustee of a deed of assignment, deed of arrangement or composition as follows:
10 Section 181A (Streamlined method for replacing trustee)
10.1 Subsection 181A (1):
substitute
"(1) The current controlling trustee or the trustee of a deed of assignment, deed of arrangement or composition (the nominating trustee) may, with the written consent of another trustee (either a registered trustee or the Official Trustee), nominate the other trustee as the new trustee.".
10.2 Subsection 181A (4):
substitute
"(4) If no creditor lodges a written notice of objection with the nominating trustee at least 2 days before the specified date, then the new trustee replaces the current trustee as trustee, on the date specified in the notice.".
Item 12--Schedule 6, Part 5, item 4
Item 14--Schedule 7, item 39, heading
Item 15--Schedule 7, subitem 39.1
Item 16--Schedule 7, subitem 39.2
Item 17--Schedule 7, subitem 39.3
62. The powers conferred on trustees in sections 134 and 135 of the Act have been amalgamated and section 135 is repealed by the BLAA 2002. The powers exercisable at the discretion of the trustee are set out in section 134. Items 12, 14, 15 to 17 make consequential amendments to Schedules 6 and 7 because they modify those sections of the Act in their application to deeds of assignment and Part XI administrations.
63. Item 12 omits item 4 of Part 5, Schedule 6. That item applied section 135, now repealed.
64. Item 14 substitutes a new heading at item 39 of Schedule 7 to refer to section 134 (Powers exercisable at discretion of trustee). That item referred to section 135, now repealed.
65. Item 15 omits the reference, at subitem 39.1 of Schedule 7, to repealed section 135 and inserts the reference to section 134.
66. Item 16 omits the reference, at subitem 39.2 of Schedule 7, to repealed paragraph 135(1)(j) to the equivalent provision at paragraph 134(1)(ma).
69. Item 17 inserts new subitem 39.3 which modifies section 134 of the Act in its application to Part XI estates to include the following:
"(5) In this section:
legal personal representative, for a deceased person, means:
(a) the executor under the deceased person's will; or
(b) the administrator under letters of administration or court order;
of the deceased person's estate, or a part of that estate."
Item 13--Schedule 7, item 22
70. Provisions in sections 99 and 104 of the Act for the review of a trustee's decision regarding a proof of debt were rationalised by the BLAA 2002. Section 99 was repealed, leaving an amended section 104 as the provision for a creditor or bankrupt to seek court review of a trustee's decision.
71. Schedule 7 makes modifications of the Act for Part XI administrations. Item 22 of that Schedule provides for review of a trustee's decision where it is considered that a proof was wrongly admitted. Under the BLAA 2002, review is provided by an amended section 104 and item 12 modifies item 22 of Schedule 7 in the following manner:
22 Section 104 (Appeal against decision of trustee in respect of proof)
22.1 Subsection 104 (1):
omit
bankrupt
insert
legal personal representative of the bankrupt
22.2 After subsection 104 (1):
insert
"(1A) An application may be made under subsection (1) on the grounds that the proof was wrongly admitted."
22.2 After subsection 104 (3):
insert
"(4) In this section:
legal personal representative, for a deceased person, means:
(a) the executor under the deceased person's will; or
(b) the administrator under letters of administration or court order;
of the deceased person's estate, or a part of that estate."
72. The following items amend Schedule 8 which specifies information to be entered on the National Personal Insolvency Index in respect of each creditor's petition, bankruptcy, debt agreement under Part IX, arrangement under Part X, administration under Part XI or order under section 253E, of the Act.
Item 18--Schedule 8, items 3, 4, 5 and 6, at the end of column 6
Item 24--Schedule 8, items 25 and 26, at the end of column 6
Item 26--Schedule 8, items 29, 31 and 32, at the end of column 6
73. These items insert the date of filing the Statement of Affairs. The determination of a bankrupt's date of discharge hinges on the date of filing the Statement of Affairs and should be recorded on the Index.
Item 19--Schedule 8, item 9, columns 4 and 6
item 20--Schedule 8, item 10, columns 2 and 6
item 21--Schedule 8, item 10, columns 3 and 5
item 22--Schedule 8, item 10, column 4
74. These amendments are consequential to amendments made by the BLAA 2002.
75. The BLAA 2002 removed the Official Receiver's power to object to a bankrupt's discharge in s 149B. Consequently, items 19 and 20 remove references to the Official Receiver's power to object in items 9 and 10 of the Index. Item 21 omits the reference to subsection 149 (H)(2) which referred to the Official Receiver ceasing to object to the early discharge and inserts the reference to 149 (H)(1). Item 22 omits the reference to subsection 149H (2) which refers to the Official Receiver's ceasing to object at item 10, column 4 of Schedule 8.
Item 23--Schedule 8, item 24
76. Subsection 189 (1A) of the Act sets out the events which will end a trustee's control of property subject to an authority given by a debtor under s 188 of the Act. The BLAA 2002 inserts section 189(1B) which provides that the trustee is to notify the Official Receiver in writing within 7 days after the trustee becomes aware that control has ended because of an event specified in subsection (1A).
77. Paragraph 192(1)(d) provides that a registered trustee or solicitor who has consented to exercise the powers given by an authority under s 188, i.e., a controlling trustee and who wishes to be relieved of duties is to give the Official Trustee a written request to be relieved of duties. The Official Trustee then becomes the new controlling trustee.
78. The Official Receiver is to maintain the Index on behalf of the Inspector-General. Notice of the change must be provided to the Official Receiver. Item 24 of the Index provides for information to be recorded in relation to a change in the controlling trustee under section 188. Item 24A to the Index provides for information to be recorded in relation to a change in the controlling trustee under section 192.
79. Item 23 substitutes items 24 and 24A at Schedule 8 to specify the information to be recorded on the Index in relation to the matters provided in section 188, subsection 189(1B) and section 192, as follows:
substitute
| 24
|
Section
188 and subsection 189 (1B) authority to be controlling trustee (Part X arrangements); notice of event causing end of control by trustee
|
authority
(subsection 188 (1)) notice (subsection 189 (1B))
|
registered
trustee or solicitor (subsection 188 (5) or 189 (1B))
|
authority: 14 days of consent to act notice: 7 days after becoming aware that control has ended
|
•
date of authority name of controlling trustee particulars of debtor date of termination of control date of filing of Statement of Affairs
|
| 24A
|
Section
192 authority to be controlling trustee passing to Official Trustee
|
Evidence
of event mentioned in subsection 192 (1) (death, cessation, incapacity
written request)
|
Official
Trustee
|
14
days of control passing
|
•
particulars of debtor date of passing of control
|
Item 25--Schedule 8, after item 27
80. Item 27 of Schedule 8 specifies information to be entered on the Index in relation to a composition or deed of arrangement which has been terminated by a special resolution. The BLAA 2002 inserts provisions which allow a trustee to terminate a composition or deed of arrangement by a process of issuing a notice to that effect (see new sections 234B and 240B). Item 25 inserts new item 27A of the Index which will record information relating to the termination, by a trustee, of a composition or deed of arrangement.
insert
| 27A
|
Subsections
234B (2) and 240B (2) terminating deed of arrangement by trustee; terminating composition by trustee
|
trustee's
signed certificate relating to termination (subsections 234B(6) and 240B(6)
|
trustee
(subsection 234B (1); 240B (1))
|
7 days
|
•
date of termination
|
Item 27--Schedule 8, item 33, column 4
Item 31--Further amendments --references to Federal Court Rules
81. These items correct incorrect references to the provision in the Federal Court Rules which provide for the period within which the relevant document is to be provided to the Official Receiver. Item 26 inserts the correct reference to 'Order 77, rule 45, Federal Court Rules' at Schedule 8, item 33, column 4. Item 29 inserts that reference at the following provisions:
• Schedule 8, item 26, column 4
• Schedule 8, item 26, column 5
• Schedule 8, item 28, column 5
• Schedule 8, item 30, column 5
• Schedule 8, item 32, column 4
• Schedule 8, item 32, column 5
• Schedule 8, item 33, column 5
Item 28--Further amendments -- authorised employee
82. The BLAA 2002 inserts a new definition of 'authorised employee' in subsection 5(1) of the Act. That Act also omits references to 'an officer of the Department' in the Act and substitutes 'authorised employee'. The former terminology is inappropriate due to the Insolvency and Trustee Service Australia's becoming, from 1 July 2000, an executive agency and therefore no longer part of the Attorney-General's Department.
83. Item 27 amends the following provisions by omitting 'officer of the Department' and inserting 'authorised employee', at:
• regulation 8.05L
• regulation 8.28
• subregulation 8.30 (1)
Item 29--Further amendments -- trustee
84. Item 29 corrects the references in regulation 8.30 of the Regulations to the person subject to the process of an involuntary termination of registration as a trustee under section 155H of the Act. That section only applies to persons already registered as trustees under the Act. Item 29 omits the incorrect reference to 'applicant' and inserts 'trustee' at subregulations 8.30(2) and (5).
Item 30--Further amendments -- judgment or order
85. The BLAA 2002 inserted new subsection 41(1). Paragraph (b) of that subsection provides for the Official Receiver to issue a Bankruptcy Notice on the application of a creditor who has obtained 2 or more final judgments or final orders that are of the kind described in paragraph 40(1)(g) and taken together are for an amount of least $2000.
86. The present form refers to a judgment order in the singular. Item 30 amends the prescribed form of Bankruptcy Notice at Schedule 1 to reflect new paragraph 41(1)(b), as follows:
The following provisions are amended by omitting 'judgment or order' and inserting 'judgments or orders':
• Schedule 1, Form 1, paragraph 2 (2 occurrences)
• Schedule 1, Form 1, paragraph 6 (a)
• Schedule 1, Form 1, paragraph 7 (b)
• Schedule 1, Form 1, Schedule, table, items 1, 2, 3 and 5