EXPLANATORY STATEMENT
Issued by the Authority of the Attorney-General
Bankruptcy (Estate Charges) (Amount of Charge Payable) Determination 2006
Background
The Bankruptcy (Estate Charges) (Amount of Charge Payable) Determination 2006 implements cost recovery arrangements for the provision of personal insolvency services by the Insolvency and Trustee Service Australia (ITSA) consistent with the Government’s cost recovery policy.
The Bankruptcy (Estate Charges) Act 1997 (the BECA) provides for a realisations charge to be imposed in respect of amounts received by a person acting as a trustee or controlling trustee under the Bankruptcy Act 1966.
Under ITSA’s cost recovery arrangements, the realisations charge is set at a level designed to recover the costs of the regulation of practitioners, investigation of bankruptcy fraud and administration of assetless estates. Therefore the realisations charge is set at a level designed to recover the costs of ITSA providing those services. The interest charge which is also imposed by the BECA offsets some of those costs. The level of the charge has been determined based on the average amount of realisations in bankruptcies and personal insolvency agreements administered under the Bankruptcy Act.
To assist in ensuring that debt agreements continue to be available as a viable alternative to bankruptcy for many debtors, the realisations charge will not be applied to money received in debt agreements.
The level of the charge will be reviewed on a biennial basis so that it reflects the costs of providing the services to the community. There will be no change to the existing policy that the realisations charge must not be higher than 15%.
Purpose
Former subsection 7(1) of the BECA provided for the amount of charge payable as a percentage of the amount on which the charge is payable. That charge was formerly 8% of the amount on which charge is payable for the period.
The Bankruptcy Legislation Amendment (Fees and Charges) Act 2006 inserted new section 7 of the BECA. Subsection 7(1) of that Act provides that the amount of charge payable for a charge period is the percentage, determined by the Minister by legislative instrument, of the amount on which charge is payable for the period. Subsection 7(2) of that Act provides for the Minister to make a legislative instrument determining the amount of charge payable for a charge period.
For the purposes of subsection 7(2) of the BECA, the Minister has determined that the percentage is 6%.
The Determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Operation
The Determination commences on 1 July 2006. The new percentage determined by this instrument applies to the amount of charge payable in relation to the financial year starting 1 July 2006.
Nature of Consultation
ITSA has completed a review of its activities to determine those which should be charged for, the type of fee to apply, who should pay those fees and those activities which would more appropriately be funded through general taxation. A Cost Recovery Impact Statement (CRIS) was prepared using the ‘Commonwealth Cost Recovery Guidelines for Information and Regulatory Agencies’ issued by the Department of Finance and Administration in March 2003.
Stakeholders have been promptly and extensively consulted as part of the cost recovery review. In late 2004, information sessions on other legislative reforms foreshadowed ITSA’s cost recovery policies and consultations specifically on cost recovery have since continued. Stakeholders will be consulted as part of any future reviews of fees and charges.
In addition, the Bankruptcy Reform Consultative Forum has been consulted on the cost recovery arrangements and the Cost Recovery Reference Group was formed specifically to provide ongoing advice and assistance in setting the amount of the fees and charges. The Forum comprises representatives from the Finance Industry, Financial Counselling Services, Banking sector, Government, the Law Council and the Insolvency Practitioners Association of Australia. The Cost Recovery Reference Group includes a debt agreement administrator.
Notes on clauses
Clause 1—Name of Determination
This clause provides that the determination is the Bankruptcy (Estate Charges) (Amount of Charge Payable) Determination 2006.
Clause 2—Commencement
This clause provides for the commencement of the Determination on 1 July 2006.
Clause 3—Definition
This clause provides that in this Determination, the reference to the ‘Act’ means the Bankruptcy (Estate Charges) Act 1997.
Clause 4—Amount of charge payable
This clause provides that for subsection 7(1) of the Act, the determined percentage is 6%.
Overview
The Bankruptcy (Estate Charges) (Amount of Charge Payable) Determination 2006, enacted by the Australian government, serves to implement cost recovery arrangements for personal insolvency services provided by the Insolvency and Trustee Service Australia (ITSA). This determination aligns with the government's policy of cost recovery, as outlined in the Bankruptcy (Estate Charges) Act 1997 (BECA). The primary objective is to ensure that the charges imposed by ITSA accurately reflect the costs associated with the regulation of practitioners, the investigation of bankruptcy fraud, and the administration of assetless estates. It is noteworthy that this charge is distinct from the interest charge, which partially offsets these costs. Additionally, to maintain the viability of debt agreements as an alternative to bankruptcy, the realisations charge is not applied to money received in such agreements. The charge is set at a level based on the average amount of realisations in bankruptcies and personal insolvency agreements, and is subject to a biennial review to reflect the costs of providing these services.
Scope and Application
The Bankruptcy (Estate Charges) (Amount of Charge Payable) Determination 2006 applies to persons acting as trustees or controlling trustees under the Bankruptcy Act 1966, as well as to the Insolvency and Trustee Service Australia (ITSA), which administers personal insolvency services. This legislation is specifically designed to facilitate the cost recovery arrangements for the provision of personal insolvency services, in line with the Government's cost recovery policy. The Determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003, and it applies to the Commonwealth jurisdiction. Notably, the charge will not be applied to money received in debt agreements, ensuring that debt agreements remain a viable alternative to bankruptcy for many debtors. The charge level is set at 6%, but this can be adjusted through subordinate instruments and will be reviewed biennially to ensure it reflects the current costs of providing these services.
Key Provisions
The main operative sections of the Bankruptcy (Estate Charges) (Amount of Charge Payable) Determination 2006 establish the percentage of charge payable by trustees or controlling trustees under the Bankruptcy Act 1966. Specifically, section 4 of the Determination (Clause 4) sets the amount of charge payable at 6% of the amount on which the charge is payable for each charge period (subsection 7(1) of the Bankruptcy (Estate Charges) Act 1997). This charge is intended to cover the costs incurred by the Insolvency and Trustee Service Australia (ITSA) in regulating insolvency practitioners, investigating bankruptcy fraud, and administering assetless estates.
The Determination also clarifies that this charge does not apply to money received in debt agreements, thereby supporting the availability of debt agreements as an alternative to bankruptcy for many debtors (subsection 7(2) of the Bankruptcy (Estate Charges) Act 1997). The charge percentage is subject to a biennial review to ensure it reflects the costs of providing services to the community. The Determination commences on 1 July 2006, applying to the financial year starting on that date.
The Bankruptcy (Estate Charges) (Amount of Charge Payable) Determination 2006 imposes several obligations on trustees or controlling trustees. Firstly, they must calculate and pay a charge of 6% on the amounts they receive, as determined by the Minister under the Bankruptcy (Estate Charges) Act 1997. This charge is payable for each charge period and is intended to cover the costs of ITSA’s activities in regulating insolvency practitioners, investigating bankruptcy fraud, and administering assetless estates. Trustees are also required to ensure that this charge does not apply to money received in debt agreements. Additionally, the Determination mandates that the charge percentage be reviewed every two years to reflect the actual costs of providing services.
The Determination imposes no specific offences or penalties for breaches of its provisions, as it primarily sets out the amount of the charge payable rather than prescribing specific compliance requirements. However, trustees who fail to comply with their obligations under the Bankruptcy Act 1966, including those related to the payment of charges, may face disciplinary actions or legal consequences under the relevant insolvency legislation. The Determination ensures that the charge is kept within the limit of 15%, but it does not specify penalties for exceeding this limit.
In summary, the Bankruptcy (Estate Charges) (Amount of Charge Payable) Determination 2006 sets a 6% charge on amounts received by trustees or controlling trustees under the Bankruptcy Act 1997, with exceptions for money received in debt agreements. Trustees must calculate and remit this charge, which is subject to biennial review. The Determination does not impose specific penalties for breaches but ensures that the charge remains within a set limit, thereby supporting ITSA’s cost recovery policy and the availability of debt agreements as an alternative to bankruptcy.