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:
- provide for the enhanced regulation of debt agreement administrators;
- specify the duties of a debt agreement administrator; and encourage creditors to make decisions based on the debtor’s capacity to pay;
- provide more effective means of dealing with the debtor’s default; and
- 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.
Overview
The Bankruptcy Act 1966 was enacted to provide a framework for dealing with bankruptcy and related issues in Australia. The 2007 amendments, specifically the Bankruptcy Legislation Amendment (Debt Agreements) Act, were introduced to address concerns over the integrity and regulation of debt agreement administrators. The amendments aimed to enhance the regulation of these administrators, specify their duties, encourage creditors to base their decisions on debtors' capacity to pay, provide more effective means of dealing with defaults, and clarify various provisions to improve the overall operation of the debt agreement system. The guidelines, formulated under section 186Q of the Act, were designed to provide transparency in the Inspector-General's discretion regarding the registration and cancellation of debt agreement administrators and the ineligibility of unregistered administrators. These guidelines were developed following consultations with debt agreement administrators and public consultations on draft guidelines, and they commenced on the same day as the Bankruptcy (Fees and Remuneration) Determination 2007.
Scope and Application
The guidelines under the Bankruptcy Act 1966, formulated pursuant to section 186Q, pertain to the registration, cancellation, and ineligibility of debt agreement administrators, aiming to enhance the regulation of these administrators. The guidelines apply to individuals and companies seeking to act as debt agreement administrators, a role primarily focused on managing debt agreements which are alternatives to bankruptcy for consumer debtors with lower income and debt levels. The guidelines are instrumental in providing transparency and clarity in the decision-making process of the Inspector-General, who is responsible for approving applications for registration, cancelling existing registrations, and declaring ineligibility of unregistered administrators. The scope of the guidelines extends nationally as they are part of Commonwealth legislation, thus applying across all states and territories in Australia. There are no explicit exclusions or exemptions mentioned within the text, but the registration requirements inherently exclude unregistered administrators from acting in this capacity. The application of these guidelines may also be extended or restricted through subordinate instruments, ensuring that the administration of debt agreements continues to meet the evolving needs and concerns of creditors and debtors alike.
Key Provisions
The guidelines provided under Section 186Q of the Bankruptcy Act 1966 (the Act) offer a framework for the registration and cancellation of debt agreement administrators, as well as the ineligibility of unregistered administrators. These guidelines, formulated by the Inspector-General, outline the factors considered in approving applications for registration (Section 186C(6)), cancelling existing registrations (Sections 186K(7) and 186L(7)), and declaring individuals ineligible to act as debt agreement administrators (Section 186M(5)). By setting these criteria, the Act aims to enhance the transparency and integrity of the debt agreement system.
Under these guidelines, parties seeking to act as debt agreement administrators must meet specific requirements. They must apply for registration and provide detailed information about their business systems and controls to ensure they can effectively manage debt agreements. Registered administrators are obligated to adhere to the specified duties, which include offering impartial advice to debtors, ensuring that debt agreements are viable, and maintaining appropriate records and reporting mechanisms. Failure to comply with these duties may lead to cancellation of their registration.
The Act imposes significant obligations on debt agreement administrators. They must conduct themselves with integrity and competence, ensuring that they provide accurate and unbiased advice to debtors. They are also required to submit regular reports to the Inspector-General, detailing their activities and any issues that arise. Furthermore, administrators must maintain confidentiality regarding the debtor's information and comply with all relevant laws and regulations. Breach of these obligations can lead to severe consequences.
The Act imposes penalties and consequences for non-compliance with its provisions. Unregistered debt agreement administrators found to be acting in this capacity may be declared ineligible to act as an administrator, potentially facing legal action. Registered administrators who fail to meet the specified duties or comply with reporting requirements may have their registration cancelled. The Act does not specify maximum penalties but indicates that breaches can result in significant legal repercussions, including fines and potential criminal charges. These measures are intended to enforce compliance and protect debtors from unscrupulous practices.