EXPLANATORY STATEMENT
 

Issued by authority of the Attorney-General

Bankruptcy Act 1966

Bankruptcy (Registered Debt Agreement Administrator Conditions) Determination 2020

Purpose and operation of the Instrument

The Bankruptcy Act 1966 (Bankruptcy Act) provides for bankruptcy and personal insolvency laws in Australia.

This Determination is a legislative instrument for the purposes of the Legislation Act 2003.

The purpose of the Determination is to prescribe registration conditions for debt agreement administrators.

The Determination supports amendments to the Bankruptcy Act made by the Bankruptcy Amendment (Debt Agreement Reform) Act 2018 (Debt Agreement Reform Act) to improve the regulation of debt agreements and debt agreement administrators in response to the increasing use of debt agreements and evidence of consumer exploitation by the debt agreement industry. The Debt Agreement Reform Act received Royal Assent on 27 September 2018 and the majority of its measures commenced on 27 June 2019.

Amongst other things, the Debt Agreement Reform Act amended section 186F of the Bankruptcy Act to provide that the registration of debt agreement administrators is subject to conditions (subsection 186F(3) of the Bankruptcy Act) that the Minister may determine by legislative instrument (subsection 186F(4) of Bankruptcy Act).

The Determination is made under subsection 186F(4) of the Bankruptcy Act and prescribes compliance with advertising standards, compliance with information disclosure standards and membership of the Australian Financial Complaints Authority as conditions of registration as a debt agreement administrator. These conditions apply to persons, including companies that are registered debt agreement administrators.

Breach of the conditions prescribed in the Determination are grounds for:

• cancellation of a debt agreement administrator’s registration under section 186K or 186L of the Bankruptcy Act,
• a debt agreement being declared void under section 185U of the Bankruptcy Act.

The Determination will commence on 1 January 2021. This will allow time for debt agreement administrators, the Australian Financial Complaints Authority and the Australian Financial Security Authority, which regulates the Bankruptcy Act, to prepare for the requirements of the Determination.

Details of the Determination are set out in Attachment A.

Consultation

In accordance with the requirement for consultation under section 17 of the Legislation Act 2003, the Determination has been informed by consultation with:

• personal insolvency professional associations
• debt agreement administrators
• consumer groups
• the Australian Financial Complaints Authority
• the Australian Financial Security Authority, as the agency responsible for the administration and regulation of the personal insolvency system, and
• the Treasury.

Regulation Impact Statement

The Office of Best Practice Regulation assessed the Determination as having a minor regulatory impact on businesses, community organisations and individuals. As such, a Regulation Impact Statement was not required.

Statement of Compatibility with Human Rights

The Determination is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. A Statement of Compatibility with Human Rights is set out in Attachment B.

Attachment A

NOTES ON SECTIONS

Section 1 – Name

Section 1 provides that the title of the instrument is the Bankruptcy (Registered Debt Agreement Administrator Conditions) Determination 2020.

Section 2 – Commencement

Subsection 2(1) provides that the whole of the instrument commences on 1 January 2021.

Subsection 2(2) provides that any information in column 3 of the table in subsection 2(1) is not part of the instrument and that information may be inserted in this column, or information in it may be edited, in any published version of this instrument.

Section 3 – Authority

Subsection 3 provides that the instrument is made under the legislative instrument making power in subsection 186F(4) of the Bankruptcy Act 1966 (the Bankruptcy Act).

Section 4 – Registered debt agreement administrator conditions – general

Subsection 4(1) provides that, for the purposes of the legislative instrument making power in subsection 186F(4) of the Bankruptcy Act, section 4 sets out the conditions that debt agreement administrator registration is subject to under subsection 186F(3) of the Bankruptcy Act.

Subsection 4(1) contains a note stating that the conditions that debt agreement administrator registration is subject to under section 4 apply to all registered debt agreement administrators, including companies that are registered debt agreement administrators.

Subsection 4(2) – Advertising or promotion

Subsection 4(2) provides, as a condition of debt agreement administrator registration, what a registered debt agreement administrator must and must not do when engaging in advertising or promotion in any form.

Subsection 4(2) applies in the case of advertising or promotion, in any form or medium, of the services of a registered debt agreement administrator whether the advertisement or promotion is done by or on behalf of the registered debt agreement administrator. Examples of forms and mediums include, but are not limited to:

• magazines and newspapers
• radio and television
• outdoor advertising (e.g. signs and billboards)
• internet (e.g. webpages, banner advertising, video streaming (e.g. YouTube), social networking and blogging sites (e.g. Twitter))
• social media and internet forums
• mobile phone messages (e.g. SMS, MMS)
• brochures and factsheets
• direct mail (e.g. by post, facsimile or email)
• telemarketing activity and audio messaging, and
• seminars, presentations and advertorials.

Paragraph 4(2)(a) provides it is a condition of debt agreement administrator registration that there must be included in the advertisement or promotion the full name of the registered debt agreement administrator and the registered debt agreement administrator’s registration number. This applies to advertising or promotion, in any form or medium, of the services of a registered debt agreement administrator, whether the advertisement or promotion is done by or on behalf of the registered debt agreement administrator. A registered debt agreement administrator’s registration number is generated by the Australian Financial Security Authority (AFSA).

Paragraph 4(2)(b) provides it is a condition of debt agreement administrator registration that the advertisement or promotion must not be false, misleading or deceptive. This applies to advertising or promotion, in any form or medium, of the services of a registered debt agreement administrator, whether the advertisement or promotion is done by or on behalf of the registered debt agreement administrator.

Paragraph 4(2)(b) aligns with, but is not be limited to, the objectives of the advertising guidelines provided by the Inspector-General and published by AFSA as the Inspector General Practice Guideline 1 - Guidelines relating to advertising and marketing of debt agreements (IGPG1). These guidelines include that advertising be balanced in that it represents both the positive and negative consequences of entering into a debt agreement, and should not:

• misdescribe the essence of a debt agreement
• convey that a debt agreement is less serious (and has less significant consequences) than is in fact the case
• imply that the debt agreement administrator is able to readily facilitate a debt agreement being made that will not be overly onerous on the debtor to satisfy
• represent that the entire debt agreement process is regulated by AFSA (or some other authority/instrument of the Commonwealth government)
• adversely compare a debt agreement with bankruptcy (to convey that it does not have certain negative consequences or to understate them)
• include reference to the term ‘debt consolidation’ in promoting debt agreements.

Subsections 4(3)-(5) – Disclosure of information to debtors

Subsections 4(3)‑(5) provide it is a condition of debt agreement administrator registration that registered debt agreement administrators give information to debtors. Subsections 4(3)-(5) prescribe what information must be given to a debtor prior to the signing of a debt agreement proposal, the form it must be given in, and the timeframes in which it must be given.

Subsections 4(3)‑4(4) provide for a two-stage disclosure process, with subsection 4(3) disclosures prescribed to occur before subsection 4(4) disclosures.

Subsections 4(3)‑4(4) prescribe a timeframe for the disclosure of these stages of information. Information prescribed in subsection 4(3) is required to be given to a debtor at least 5 business days before a debtor signs a debt agreement proposal and information prescribed in subsection 4(4) is required to be given after information is given under paragraph 4(3) and at least one business day before the debtor signs the debt agreement proposal. This prescribed disclosure of information is to ensure that the debtor is provided with adequate information to make an informed decision about entering into an agreement and has an appropriate amount of time to consider this information.

Subsection 4(3) provides it is a condition of debt agreement administrator registration that the registered debt agreement administrator must, when they are the specified person authorised in a debt agreement proposal for the purposes of paragraph 185C(2)(c) of the Bankruptcy Act, give the debtor prescribed information at least 5 business days before a debtor signs a debt agreement proposal.

Subsection 4(3) provides it is a condition of debt agreement administrator registration that the registered debt agreement administrator may make the disclosures prescribed in paragraph 4(3) either orally or in writing. This reflects that initial enquiries by debtors to registered debt agreement administrators about debt agreements are often made over the telephone and that this is an appropriate time for the giving of information prescribed in subsection 4(3). If the information prescribed in subsection 4(3) is given to a debtor in writing, subsection 4(3) provides that the information must be given using a form approved by the Inspector-General and published on the website of the Australian Financial Security Authority.

The information prescribed in subsection 4(3) will provide the debtor with information about the implications of debt agreements including the consequences of entering into a debt agreement, the alternatives to a debt agreement and an estimation of the cost associated with preparing and entering into a debt agreement.

Paragraph 4(3)(a) prescribes the disclosure of information about how a debt agreement operates and the consequences of entering into a debt agreement.

Paragraph 4(3)(b) prescribes the disclosure of information about alternatives to entering into a debt agreement.

Paragraph 4(3)(c) prescribes the disclosure of information about free financial counselling services.

Paragraph 4(3)(d) prescribes the disclosure of a statement that it is an act of bankruptcy for a debtor to give the Official Receiver a debt agreement proposal.

Paragraph 4(3)(e) prescribes the disclosure of information about the consequences of the debtor failing to make payments required to be made under a debt agreement.

Subparagraph 4(3)(f)(i) prescribes the disclosure of an estimate of the amount of remuneration payable to the registered debt agreement administrator for preparing the debt agreement proposal.

Subparagraph 4(3)(f)(ii) prescribes the disclosure of an estimate of the amount of remuneration payable to the administrator for administering any debt agreement resulting from the acceptance of the proposal.

Paragraph 4(3)(g) prescribes the disclosure of an estimate of the amount of charge imposed by Part 3 of the Bankruptcy (Estate Charges) Act 1997 that would be payable by the registered debt agreement administrator in administering any debt agreement resulting from the acceptance of the proposal (the realisation charge).

Paragraph 4(3)(h) prescribes the disclosure of the amount of the fee that may be payable under an instrument made under section 316 of the Bankruptcy Act  for giving the Official Receiver the debt agreement proposal (the debt agreement proposal lodgement fee).

Paragraph 4(3)(i) prescribes the disclosure of information about the role of the Inspector‑General in relation to registered debt agreement administrators.

Subsection 4(4) provides it is a condition of debt agreement administrator registration that the registered debt administrator must, after complying with subsection 4(3) in relation to a debtor, give the debtor prescribed information in writing at least one business day before the debtor signs the debt agreement proposal.

Subsection 4(4) provides it is a condition of registration as a debt agreement administrator that the registered debt agreement administrator give the debtor specific information about the implications of debt agreements including the consequences of entering into a debt agreement, the alternatives to a debt agreement and the cost associated with preparing and entering into a debt agreement. The information prescribed in paragraphs 4(4)(a)-(d) aligns with the information prescribed to be supplied to debtors in sub-regulation 9.01(1) of the Bankruptcy Regulations 1996.

Subsection 4(4) provides that the information must be given using a form approved by the Inspector‑General and published on the website of the Australian Financial Security Authority.

Paragraph 4(4)(a) prescribes the disclosure of information about alternatives to entering into a debt agreement.

Paragraph 4(4)(b) prescribes the disclosure of information about the consequences of giving the Official Receiver the debt agreement proposal.

Paragraph 4(4)(c) prescribes the disclosure of information about sources of financial advice and guidance to persons facing or contemplating entering into a debt agreement.

Paragraph 4(4)(d) prescribes the disclosure of a statement that it is an act of bankruptcy for a debtor to give the Official Receiver a debt agreement proposal.

Subparagraph 4(4)(e)(i) prescribes the disclosure of the amount of remuneration payable to the registered debt agreement administrator for preparing the proposal.

Subparagraph 4(4)(e)(ii) prescribes the disclosure of the amount of remuneration payable to the registered debt agreement administrator for administering any debt agreement resulting from the acceptance of the proposal (assuming the debtor makes all the payments required to be made under the agreement).

Paragraph 4(4)(f) prescribes the disclosure of the amount of charge imposed by Part 3 of the Bankruptcy (Estate Charges) Act 1997  that would be payable by the registered debt agreement administrator in administering any debt agreement resulting from the acceptance of the proposal (assuming the debtor makes all the payments required to be made under the agreement) (the realisation charge).

Paragraph 4(4)(g) prescribes the disclosure of the amount of the fee that may be payable under an instrument made under section 316 of the Bankruptcy Act for giving the Official Receiver the proposal (the debt agreement proposal lodgement fee).

Paragraph 4(4)(h) prescribes the disclosure of information about the role of the Inspector‑General in relation to registered debt agreement administrators.

Paragraph 4(4)(i) prescribes the disclosure of details of any internal or external dispute resolution processes available to the debtor in relation to the conduct of the registered debt agreement administrator.

Paragraph 4(4)(j) prescribes the disclosure of details for making complaints to the Inspector‑General in relation to the conduct of the registered debt agreement administrator.

Subsection 4(5) provides that the registered debt agreement administrator must ensure that information given to a debtor, whether orally or in writing, under subsection 4(3) or 4(4) is factual and objective. This condition requires a debt agreement administrator to give information to a debtor in a clear, concise and impartial manner to enable a debtor to make an informed choice about whether to enter into a debt agreement. The information must be presented accurately and should not be influenced by personal feeling or opinion of the debt agreement administrator.

Subsection 4(6) – Making of records

Subsection 4(6) provides it is a condition of debt agreement administrator registration that the registered debt agreement administrator must make a record of information given to debtors under subsections 4(3) and 4(4) and that such a records must be made before the end of the second business day after the day that information was given to the debtor.

Subsection 4(7) – Retention of records

Subsection 4(7) provides it is a condition of debt agreement administrator registration that if the registered debt agreement administrator makes a record under subsection 4(6), and the registered debt agreement administrator administers a debt agreement resulting from the acceptance of the debt agreement proposal concerned, they must retain the record until the end of 6 years beginning on the day the debt agreement was made.

Subsection 4(8)-(9) – Membership of Australian Financial Complaints Authority

Subsection 4(8) provides it is a condition of debt agreement administrator registration that a registered debt agreement administrator must be a member of the Australian Financial Complaints Authority.

Subsection 4(9) provides that the requirement to be a member of the Australian Financial Complaints Authority under subsection 4(8) does not apply to a registered debt agreement administrator who takes overall responsibility for managing the company’s debt agreement activities and the company is a registered debt agreement administrator.

Subsection 4(9) will ensure there is no unnecessary regulatory burden placed on a registered debt agreement administrator when they are taking overall responsibility for managing the debt agreement activities of a company that is a registered debt agreement administrator under paragraph 186G(2)(a) of the Bankruptcy Act: As the company that is a registered debt agreement administrator is required under subsection 4(8) to be a member of AFCA, there is no need to also impose this requirement on a registered debt agreement administrator when they are taking overall responsibility for managing the debt agreement activities of that company.

ATTACHMENT B

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Bankruptcy (Registered Debt Agreement Administrator Conditions) Determination 2020

This Determination is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Determination

The Bankruptcy (Registered Debt Agreement Administrator Conditions) Determination 2020 (the Determination) establishes conditions for debt agreement administrators to be registered under the Bankruptcy Act 1966.

The Determination specifically outlines that in order to be and remain registered, debt agreement administrators must adhere to:

• advertising standards,
• disclosure standards, and
• membership of a body that has external dispute resolution processes available to debtors.

Human rights implications

The Determination does not engage any of the applicable rights or freedoms.

Conclusion

The Determination is compatible with human rights as it does not raise any human rights issues.