EXPLANATORY STATEMENT

BANKRUPTCY ACT 1966

GUIDELINES RELATING TO THE REGISTRATION AND CANCELLATION OF A REGISTERED DEBT AGREEMENT ADMINISTRATOR AND INELIGIBILITY OF AN UNREGISTERED DEBT AGREEMENT ADMINISTRATOR

Introduction

Debt agreements were introduced in 1996 as a low cost, informal and flexible alternative to bankruptcy. They were primarily intended for use by consumer debtors with lower levels of income and debt. Their numbers have grown in recent years.

It was initially intended that debt agreements would be administered by anyone including the debtor, a friend or a family member. In recent years, most agreements are administered by a commercial administrator who charges a fee for the service. This led to calls for greater regulation of administrators.

Creditors expressed significant concerns about the integrity of the system. Those concerns derive from their lack of confidence in debt agreement administrators who are involved in advising debtors about their options as well as administering the agreement. In particular, there is a concern that the debt agreements are promoted without proper consideration of other options, uncertainty about whether the debtor is making the best offer and whether the offer is viable in the long term.

Amendments introduced by the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 (the Debt Agreements Act) were designed to improve the operation of debt agreements established by Part IX of the Bankruptcy Act 1966 (the Act).  The objects of the Debt Agreements Act are to:

1. provide for the enhanced regulation of debt agreement administrators;
2. specify the duties of a debt agreement administrator; and encourage creditors to make decisions based on the debtor’s capacity to pay;
3. provide more effective means of dealing with the debtor’s default; and
4. clarify a range of provisions to improve the operation of the system.

To enhance the regulation of debt agreement administrators the Debt Agreements Act introduced a requirement for administrators to be formally registered and specified duties related to improving the operation of debt agreements. The new provisions also clarified the Inspector-General’s powers to cancel the registration of an administrator or to declare an unregistered administrator ineligible to act as administrator.

Background

Section 186Q of the Act provides that the Inspector-General may, by legislative instrument, formulate guidelines for the purposes of:

(a) subsection 186C(6) which deals with the registration of a company or an individual to act as a debt agreement administrator;

(b) subsection 186K(7) which deals with the cancellation of an individual’s registration to act as a debt agreement administrator;

(c) subsection 186L(7) which deals with the cancellation of a company’s registration to act as a debt agreement administrator; and

(d) subsection 186M(5) which deals with the ineligibility of an unregistered debt agreement administrator.

These guidelines provide information on the factors that will be considered by the Inspector-General in deciding whether to approve an application for registration as a debt agreement administrator, whether to cancel an existing registration and whether to declare a person ineligible to act as a debt agreement administrator. 

The guidelines will provide greater transparency in relation to the Inspector-General’s exercise of his discretion under the above provisions.

Authority

These guidelines have been made for the purposes of section 186Q of the Act.

Consultation

Discussion forums with debt agreement administrators on the proposed legislative changes were held in October 2006 in major capital cities. In addition, public comment was invited on draft guidelines relating to the registration of debt agreement administrators which were posted on 19 December 2006 on the website of the Insolvency and Trustee Service Australia. 

Information sessions for debt agreement administrators which included discussion on these guidelines, were held in all major capital cities in February 2007. The sessions provided an outline of the processes involved in registering administrators including an inspection of the applicant’s business systems and controls that will be used to satisfy the registration requirements.

Commencement

The guidelines commence on the day that the Bankruptcy (Fees and Remuneration) Determination 2007 commence.