EXPLANATORY STATEMENT
Select Legislative Instrument 2007 No. 138
Issued by the Authority of the Attorney-General
Subject - Bankruptcy Act 1966
Bankruptcy Amendment Regulations 2007 (No. 2)
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.
The Act has recently been amended and will be subject to further amendments that take effect from 1 July 2007, by the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007, the Bankruptcy (Estate Charges) Amendment Act 2007 and the Superannuation Legislation Amendment (Simplification) Act 2007. The Regulations amend the Bankruptcy Regulations 1996 (the Principal Regulations) to facilitate the operation of these amendments.
The amendments contained in the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 include the introduction of a new regime for the regulation of persons administering debt agreements; changes to the manner in which debt agreements are established, varied or terminated; new rules for the regulation of the remuneration of debt agreement administrators; amendments as to how a vacancy in the office of debt agreement administrator is filled; and changes to how debt agreements must be administered.
A debt agreement is a formal binding arrangement or composition entered into between an insolvent debtor and his or her creditors, pursuant to Part IX of the Act. A debt agreement usually provides for a debtor to make a series of periodic payments over a three year period in total satisfaction of all creditors’ claims.
The Regulations remove or amend provisions in the Principal Regulations so that they align with the Act as it is to be amended by the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007.
The Regulations also prescribe the minimum qualifications that a person must hold after 1 July 2009 in order to be eligible for registration as a debt agreement administrator under the new debt agreement regulatory regime and prescribe the information that must be provided to a debtor who is contemplating entering into a debt agreement after 1 July 2007.
The Regulations also amend the information that is required to be included on the National Personal Insolvency Index (NPII), the database containing limited details of all formal personal insolvency administrations and all registered personal insolvency practitioners. Members of the public may search and obtain extracts from the NPII for a fee. The changes to the processes by which debt agreements are established, varied and terminated and the introduction of a new registration system for debt agreement administrators have necessitated changes to the information that must be recorded on the NPII.
The Bankruptcy (Estate Charges) Amendment Act 2007 will apply a charge upon amounts realised in debt agreement administrations. The Regulations amend the Principal Regulations to reflect this change.
Changes made to the Act by the Superannuation Legislation Amendment (Simplification) Act 2007 include the removal, as of 1 July 2007, of the provisions that limit (with reference to the bankrupt’s pension Reasonable Benefit Limit) the extent to which a bankrupt’s interest in a superannuation or a life assurance policy can be seized and sold by their bankruptcy trustee. The Regulations remove, as of 1 July 2007, those regulations that relate to the provisions being removed from the Act.
The amendments are consequential to the passage of the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007, Bankruptcy (Estate Charges) Amendment Act 2007 and the Superannuation Legislation Amendment (Simplification) Act 2007 and relate to reforms that have been subject to extensive external consultation as part of the processes of developing those amending Acts. The Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 and Bankruptcy (Estate Charges) Amendment Act 2007 amendments were developed following a comprehensive review of the operation of debt agreements conducted by ITSA and the Attorney-General’s Department in late 2005. That review involved extensive public consultation. It also included targeted consultation with the key stakeholder groups with an interest in debt agreements – debt agreement administrators, creditors and financial counsellors. The Attorney-General announced details of the proposed reforms in March 2006 for further public consultation. The changes effected by the Superannuation Legislation Amendment (Simplification) Act 2007 were the subject of a discussion paper, A Plan to Simplify and Streamline Superannuation, which was released for community consultation on 9 May 2006.
Details of the Regulations are set out in the Attachment.
Schedule 1 to the Regulations commenced on the day after the Regulations were registered on the Federal Register of Legislative Instruments. Schedule 1 relates to the registration of debt agreement administrators and to the information that must be recorded on the NPII in respect of debt agreements. Schedule 2 to the Regulations commenced on 1 July 2007. Schedule 2 relates to the processing of debt agreement proposals and the administration of debt agreements.
Attachment
Details of the Bankruptcy Amendment Regulations 2007 (No. 2)
Regulation 1—Name of Regulations
This regulation is a formal provision specifying the title of the Regulations as the Bankruptcy Amendment Regulations 2007 (No. 2).
Regulation 2—Commencement
This regulation specifies that Schedule 1 to the Regulations commenced on the day after the Regulations are registered. This regulation also specifies that Schedule 2 to the Regulations will commence on 1 July 2007.
Regulation 3—Amendment of Bankruptcy Regulations 1996
This regulation specifies that Schedules 1 and 2 to the Regulations amends the Bankruptcy Regulations 1996 (the Principal Regulations).
Regulation 4 – Transitional
This regulation preserves the operation of regulations 9.01 to 9.07 of the Principal Regulations for those debt agreements that were made as a result of a debt agreement proposal given to the Official Receiver before 1 July 2007. This is necessary as the changes to the Bankruptcy Act 1966 necessitating the repeal of regulations 9.01 to 9.07 will only apply to debt agreements that are made as a result of debt agreement proposals given to the Official Receiver on or after 1 July 2007.
Schedule 1—Amendments
Item [1]
Item 1 inserted the new regulation 9.08 which prescribes the minimum qualifications that a person must hold in order to be eligible for registration as a debt agreement administrator pursuant to section 186C of the Bankruptcy Act 1966.
Item [2]
Item 2 amended items 21 and 22 of the table in Schedule 8 to the Principal Regulations. The table in Schedule 8 specifies the information that must be included on the National Personal Insolvency Index (NPII), the documents from which that information may be obtained, the persons who must give those documents to the Official Receiver and the period within which those documents must be provided by that person to the Official Receiver.
This item amended item 21 to reflect amendments by the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 that renumber some of the sections referred to in the item; that introduce a requirement for an ‘explanatory statement’ that must accompany any debt agreement proposal submitted to the Official Receiver; and that provide the Official Receiver with a power to cancel the processing of a debt agreement proposal.
This item also amended item 22 to reflect amendments by the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 that enable debt agreements to be terminated other than by the processing of a termination proposal and that impose a duty upon a debt agreement administrator to advise the Official Receiver when the terms of a debt agreement have been complied with.
Item [3]
Item 3 inserted new items 23A to 23D into the table in Schedule 8 to the Principal Regulations.
These new items provided for the entry on the NPII of particulars of applications for registration as a debt agreement administrator; the registration of persons as debt agreement administrators; the imposition of conditions upon the registration of a person as a debt agreement administrator; and the cancellation or surrender of the registration of a person as a debt agreement administrator. Similar requirements exist in Schedule 8 in respect of the registration of trustees in bankruptcy.
Schedule 2—Amendments
Items [1] to [3]
Regulation 4.11 of the Principal Regulations prescribed the information that must be provided to a person contemplating entering into bankruptcy or a debt agreement.
Items 1 to 3 amend regulation 4.11 so that it applies only to persons contemplating entry into bankruptcy. Item 7, referred to below, inserted a new regulation that prescribes the information that must be provided to a person contemplating entering into a debt agreement.
Item [4]
Item 4 repeals the whole of Part 6, Division 3 of the Principal Regulations.
These regulations were made pursuant to subsections 116(6) to 116(9) of the Bankruptcy Act 1966 which provide that regulations may be made to set out methods of apportionment and valuation of the interest of the bankrupt in a superannuation fund or life assurance policy, for the purpose of subsection 116(5).
Items 1 to 3 of Schedule 3 to the Superannuation Legislation Amendment (Simplification) Act 2007, which commence on 1 July 2007, repeals subsections 116(5) to 116(9) of the Bankruptcy Act 1966, making Part 6, Division 2 of the Principal Regulations redundant.
Item [5]
Item 5 repeals regulations 9.01 to 9.07 of the Principal Regulations. The repeal of these regulations is consequential to the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 which inserts into the Bankruptcy Act 1966 provisions that either replace or make redundant these regulations.
Regulation 9.01 applies Schedule 5 to the Principal Regulations to meetings of creditors held in respect of debt agreement administrations. As of 1 July 2007, the provisions in the Bankruptcy Act 1966 enabling the holding of meetings of creditors in respect of debt agreements will be repealed.
Regulation 9.02 provides that certain particulars in respect of the entitlement of a debt agreement administrator to be remunerated must form part of the terms of a debt agreement. Regulation 9.03 limits the entitlement of debt agreement administrators to remuneration. From 1 July 2007, the Bankruptcy Act 1966 will provide for a new regime for the regulation of debt agreement administrators’ remuneration.
Regulations 9.04 and 9.06 specify when a person is automatically ineligible or can be declared by the Inspector-General in Bankruptcy to be ineligible to act as a debt agreement administrator. Regulation 9.06 also specifies some of the duties of a debt agreement administrator. Regulation 9.07 provides for rights of review in respect of a declaration of ineligibility by the Inspector-General in Bankruptcy pursuant to regulation 9.06. From 1 July 2007, the Bankruptcy Act 1966 will prescribe the duties of a debt agreement administrator and will also contain a regime for the registration of debt agreement administrators.
Regulation 9.05 provides for the replacement of a debt agreement administrator in the event that they become ineligible to act. From 1 July 2007, the Bankruptcy Act 1966 will provide a common mechanism for replacing a debt agreement administrator in the event of a vacancy in that office, irrespective of the cause of the vacancy.
Item [6]
Item 6 renumbers regulation 9.08, inserted by item 1 of Schedule 1 to the Regulations, as regulation 9.02. This is consequential to the repeal of regulations 9.01 to 9.07 by the preceding item.
Item [7]
Item 7 inserts a new regulation that prescribes the information that must be provided to a person contemplating entering into a debt agreement. The regulation is closely based upon the requirements contained in regulation 4.11.
Item [8]
Item 8 amends the definition of ‘trustee’ in Part 15A of the Principal Regulations to include a debt agreement administrator. The effect of this is to extend the application of Part 15A to debt agreement administrations and administrators.
This amendment is required to give effect to the Bankruptcy (Estate Charges) Amendment Act 2007 which extends the imposition of a government charge upon realisations to amounts realised in debt agreement administrations.
Item [9]
Item 9 repeals Schedule 5 to the Principal Regulations. Existing regulation 9.01 applies Schedule 5 to meetings of creditors held in respect of debt agreement administrations. Schedule 5 will become redundant with the repeal of regulation 9.01 by item 5 of Schedule 2 to the Regulations.
Item [10]
Item 10 amends item 23D of the table in Schedule 8 to the Principal Regulations to include a reference to a debt agreement administrator’s registration ceasing by virtue of a court order pursuant to section 185ZCA of the Bankruptcy Act 1966. Section 185ZCA will only apply to debt agreements made as a result of the acceptance of a debt agreement proposal given to the Official Receiver on or after 1 July 2007.