By enactment of the Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 and accompanied by regulations effective 1 July 2007, most if not all of the objectives as they relate to debt agreement administrators were implemented and in respect of those amendments the following discussion is offered:
Basic eligibility test
The test is one of ineligibility rather than eligibility and in the old law was expressed in the regulations. The requirement not to be ineligible has been moved to the Act at S186A in the new law and the regulation repealed. The test is the same as the old law but now with the provisions of S186K giving the Inspector-General scope to cancel registration in the event that the basic eligibility test can no longer be passed by the grantee.
The affect of introducing the eligibility test in amendments effective 1 December 2004 was that a number of administrators were forced from the industry for failing to meet the test of solvency in the previous ten years now set down S186A(1)(a) and/or (b).
Application process.
Registration, other than by way of renewal, must be made in the approved form accompanied by supporting documentation (if any) and provision is made for both individual and corporate application. The regulations make no provision for specific supporting documentation.
The application process provides a mechanism for the regulator to see behind the applicant and serves to ensure that applicants are closely scrutinized before registration is granted and as a national police certificate is also to be submitted applicants with criminal records for dishonesty are disbarred.
Information as to the process is available on the ITSA website. At A. of this document the Agency states “ITSA has strict licensing regimes aimed at ensuring that only suitably qualified persons who will be able to immediately perform the duties if successful are registered to practice as bankruptcy trustee or debt agreement administrators.” In considering an application to become a registered debt agreement administrator the document outlines the eligibility test discussed and goes on the state that a Committee consisting of a delegate of the Inspector-General and another public official is formed to consider the application; and Applicants are examined as to their capability to perform the duties.
- experience, knowledge and abilities relevant to dealing with insolvency and bankruptcy matters;
- engagement in relevant employment on a full-time basis for a total of not less than two years in the preceding five years;
- demonstrate completion of three years study in accountancy and two years study in commercial law; and
- the ability to perform satisfactorily the duties of a registered trustee immediately after registration.
Duties of administrators.
For the first time since the inception of debt agreements in 1996, the duties of a debt agreement administrator have been enshrined in law. The duties are somewhat basic and no more than a reasonable person in business would adopt without legislative intervention. The introduction of Division 3A however sets a bench mark for those operating in the industry and gives clear notice that some behavior will no longer be tolerated. However:
S185LC(3)(b)(i) and (ii) are rational inclusions as debt agreements have in the past, been permitted to remain fresh in the absence of discharge by payment of the obligation. This manner of control will assist the Official Receiver maintain the National Personal Insolvency Index on a more up to date footing.
S185LD. On the requirement that an administrator maintain a separate bank account in respect of contributions of the debtor:
The necessity to maintain a separate bank account for debtor’s contributions may cause consternation to a few administrators who, under the old law, kept these monies in their operating accounts, some fraudulently using them for their own purposes. It is an inclusion that is well and truly overdue and one that will give comfort to both debtors and creditors.
Of concern is that the legislation makes no provision for these monies to be audited.
Certification
S185C(2D) is an onerous duty imposed on the administrator and more so if debt agreement proposals are to be administered from the introduction of a broker. It does serve however to ensure that the administrator questions the content and veracity of work received from an exterior source.
Most onerous is the requirement to certify S185C(2D)(b). Historically brokers have failed to impart information prescribed by Regulation 9.01 and this has been the root cause of much of the criticism leveled at administrators.
Qualifications of debt agreement administrators
Effective 1 July 2009 administrators must possess, as a minimum, qualifications prescribed in Regulation 9.02(a).
It prescribes that an administrator must hold as a minimum Certificate IV in Financial Services (Accounting) from an Australian college of advanced education.
This is likely to have some impact on the continuation of a number of administrators in practice not only as a result of unsustainable cash flows imposed by S185C(3A) but the future event necessity to gain minimal accounting qualifications. However the qualifications prescribed fall far short of those required from a person wishing to become a registered trustee insofar as a registered trustee is required to show:
During the financial year 2007/2008 one debt agreement administrator claims 3,152 new administrations in its portfolio and that it distributed $29.4 million to creditors in that period.
When volumes of public monies to this degree are involved and, in the hands of questionably qualified administrators one would reasonably expect that any new legislation would have applied a higher bench mark for continued registration.
Fees and charges – Remuneration of administrator
S185C(3A) prescribes the manner in which an administrator may take remuneration. Prior to enactment fees and charges of an administrator were generally taken either as an up front fee prior to processing or as a priority payment from contributions to the agreement by the debtor. This immediate source of income enabled administrators to engage in substantial advertising campaigns not only in the print media but also audio and visual and was the root source of new business. Whilst fees may be taken by an administrator up to the time of acceptance of a proposal for a debt agreement for the “front end” work involved these monies are usually applied to the work undertaken by brokers and the administrator may see little or nothing of these funds. Fees to administer the agreement once in place are relegated to the debt agreement, but not as a creditor with rights of future recovery, but merely as an obligation imposed by the agreement. No doubt this is to underpin the concept that fees can only be taken on the basis of work done and those fees are to be collected over the period of the agreement. Cash flows previously derived have dried up suddenly leaving administrators no choice but to reduce advertising expenditure.
It is interesting to observe that ITSA does nothing in regard to informing the public at large other than by way of its web site preferring to leave promulgation of debt relief to the commercial sector. Ironic then that the manner in which fees may be taken has been regulated so severely.
Additionally, the legislators have made no provision to regulate the fees and charges of brokers. This is disappointing as is the apparent unwillingness to impose some form of licensing on brokers.
Debt Management Advice
5/01/10