EXPLANATORY STATEMENT
Issued by the Authority of the Attorney-General
Bankruptcy (Estate Charges) Determination 2007
Background
The fees and charges relating to the Insolvency and Trustee Service Australia’s (ITSA) administration of the personal insolvency system have been set at a level which reflects the actual costs of the services provided.
ITSA’s costs of regulating the administration of personal insolvencies are recovered through the imposition of a charge upon realisations in certain personal insolvency administrations and a charge upon the net interest earned on funds held in those administrations. The exception to this is the costs of licensing practitioners, which is recovered through imposition of separate application and registration fees.
Previously, the realisations charge was imposed upon realisations in bankruptcies and Part X administrations only.
The Bankruptcy (Estate Charges) Amendment Act 2007 extends the imposition of the realisation charge to realisations in debt agreement administrations.
Purpose
The determination replaces the Bankruptcy (Estate Charges) Determination 2006.
The expansion of the range of administrations to which the realisations charge applies requires a reduction of the charge rate in order to ensure that the total quantum of the charge collected will reflect the actual costs of regulation.
A cost recovery review has been undertaken to determine an appropriate charge rate. The new charge rate was determined with reference to the actual costs of regulation in the 2003-04 to 2005-06 financial years; the actual reported realisations in the 2003-04 to 2005-06 financial years in respect of bankruptcies, Part X administrations and debt agreements; and the actual interest charge recoveries in the 2003-04 to 2005-06 financial years. These figures were used to determine estimates of the future costs of regulation, estimates of future personal insolvency administration realisations and estimates of future interest charge recoveries. A new realisation charge rate was then calculated which would ensure adequate recovery of the costs of regulating personal insolvency administrations in the future.
The Determination will set the charge rate at 3.5%, reduced from the previous rate of 6%.
ITSA reviews the level of its fees and charge on a biennial basis to ensure that they reflect the costs of the services being provided. The new review will be in mid-2008, unless intervening events have a significant impact on revenue or costs which warrant an earlier review.
The Determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Operation
The Determination commences on the 1 July 2007.
Nature of Consultation
ITSA and the Attorney-General's Department conducted a comprehensive review of the operation of Debt Agreements in late 2005. A report on that review was released by the Attorney-General in March 2005. A key outcome of that review was recommendations that a realisation charge be applied in respect of debt agreement administrations.
An initial discussion paper outlining the implications for ITSA's fees and charges arising from the amendments to Part IX was released in October 2006. Following that initial consultation with stakeholders a further discussion paper outlining the proposed changes to ITSA's fees and charges was released in November 2006.
The proposed change to the realisation charge rate has also been considered by ITSA’s Cost Recovery Reference Group, which includes representatives of all key stakeholders in the personal insolvency industry.
ITSA has announced that it will conduct biennial reviews of all fees and charges, unless intervening events have a significant impact on costs, warranting earlier review.