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:
- provide for the enhanced regulation of debt agreement administrators;
- specify the duties of a debt agreement administrator;
- 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 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.
Overview
The Bankruptcy Act 1966, enacted by the Australian Parliament, initially introduced debt agreements in 1996 as an alternative to bankruptcy, aimed at consumer debtors with lower income and debt levels. However, over time, concerns arose regarding the integrity of the system as commercial administrators began to dominate the administration of these agreements. To address these issues and enhance the regulation of debt agreement administrators, the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 was enacted. This Act aimed to improve the operation of debt agreements by requiring administrators to be formally registered, specifying their duties, encouraging creditors to base decisions on the debtor's capacity to pay, providing more effective means of dealing with defaults, and clarifying various provisions. The explanatory statement for the Guidelines Relating to the Registration and Cancellation of a Registered Debt Agreement Administrator and Ineligibility of an Unregistered Debt Agreement Administrator under the Bankruptcy Act 1966, reissued in 2017, indicates that these guidelines provide transparency on the factors considered by the Inspector-General in exercising discretion over the registration, cancellation, and ineligibility of debt agreement administrators.
Scope and Application
The guidelines provided under the Bankruptcy Act 1966 address the registration and cancellation of registered debt agreement administrators, as well as the ineligibility of unregistered debt agreement administrators. These guidelines apply to entities and individuals acting as debt agreement administrators, focusing on those who administer debt agreements under Part IX of the Act. They are applicable nationally across Australia as they are formulated under the authority of the Commonwealth. The guidelines clarify the process and criteria for the registration and potential cancellation of debt agreement administrators, as well as the conditions under which an unregistered person may be declared ineligible to act as an administrator. The guidelines do not introduce new substantive changes but rather aim to provide clarity and transparency regarding the Inspector-General's discretion in these matters. They are instrumental in ensuring that only suitably qualified and compliant administrators are involved in managing debt agreements, thereby maintaining the integrity of the debt agreement system.
Key Provisions
The main operative sections of the Guidelines (sections 186C(6), 186K(7), 186L(7) and 186M(5) of the Bankruptcy Act 1966) establish the process for the registration and cancellation of debt agreement administrators and the ineligibility of unregistered administrators. Section 186C(6) deals with the registration of a company or individual to act as a debt agreement administrator, while section 186K(7) and section 186L(7) relate to the cancellation of an individual’s and a company’s registration, respectively. Section 186M(5) specifies the ineligibility of an unregistered debt agreement administrator. These sections form the foundation for the regulation and oversight of debt agreement administrators within the bankruptcy system.
The obligations and requirements imposed by the Act and the Guidelines include the necessity for debt agreement administrators to be formally registered. The Guidelines outline the factors the Inspector-General considers when approving applications for registration, which include the administrator's experience, qualifications, and adherence to professional standards. Additionally, the Guidelines detail the process for cancelling the registration of an administrator if they fail to meet the required standards or engage in misconduct. They also provide criteria for declaring an unregistered individual ineligible to act as a debt agreement administrator, ensuring that only qualified and compliant individuals can administer debt agreements.
Failure to comply with the provisions outlined in the Act and the Guidelines can result in significant consequences. Under the Act, the Inspector-General has the authority to cancel the registration of a debt agreement administrator if they find that the administrator has acted in a way that is detrimental to the interests of debtors or creditors. Additionally, the Act allows for the declaration of an unregistered administrator as ineligible to act, which prevents them from providing services as a debt agreement administrator. The Guidelines themselves do not establish criminal or civil penalties but provide a framework for enforcing the law through the regulatory actions of the Inspector-General.
In summary, the Guidelines provide essential direction for the registration and oversight of debt agreement administrators. They ensure that only qualified individuals and companies can administer debt agreements, thereby maintaining the integrity and effectiveness of the debt agreement system. Through these Guidelines, the Inspector-General can enforce compliance and take corrective action against administrators who do not meet the required standards, ensuring the system operates fairly and efficiently.