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 significantly in recent years and they now are broadly on par with the number of bankruptcies.

It was initially intended that debt agreements would be administered by anyone including the debtor, a friend or a family member. However, it became apparent that almost all agreements were being administered by commercial administrators who charge a fee for the service.

As a result of  concerns about the integrity of the system amendments introduced by the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 (the Debt Agreements Act) improved the operation of debt agreements established by Part IX of the Bankruptcy Act 1966 (the Act).  The objects of the Debt Agreements Act were to:

1. provide for the enhanced regulation of debt agreement administrators;
2. specify the duties of a debt agreement administrator;
3. encourage creditors to make decisions based on the debtor’s capacity to pay;
4. provide more effective means of dealing with the debtor’s default; and
5. 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 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.

As a result of the automatic sunsetting of these Guidelines they are required to be re-issued. Other than correcting and updating some legislative references there are no substantive changes incorporated. The Guidelines will continue to 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 thereby 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

No consultation was undertaken in relation to the Guidelines. This was determined to be appropriate because the Attorney-General’s Department is currently pursuing reform of the debt agreement system which will require amendment of the Guidelines in the near future. However it was necessary for the Guidelines to be reissued in advance of finalising reform of the debt agreement system because (as noted above) the Guidelines replaced an instrument that sunsetted on 1 October 2017. Stakeholders will be consulted on amendments to the Guidelines as part of finalising reform of the debt agreement system.

Human rights implications

The Guidelines do not engage any human rights issues as they make minor technical corrections and technical improvements to the existing Guidelines. They make no changes to the substance of the law.

Commencement

The Guidelines commence on 2 October 2017.