Credit Counsellors Australasia

Debt agreements pursuant to the Part IX regime of the Bankruptcy Act 1966 were introduced in 1996. Before its introduction there was no mechanism in place to offer relief from indebtedness to those insolvents who sought to remedy their situation without resorting to filing a debtor’s petition or being subjected to a creditor’s petition. Personal Insolvency Agreements (Part X) have been available for many years but have proven to be cumbersome to implement and less than cost effective for smaller debtors.

Bankruptcies in Australia have been ever increasing and in an endeavour to stem the numbers the Australian Federal Government legislated and introduced a further and innovative Part to the Bankruptcy Act 1966 titled Part IX-Debt Agreements in 1996.

The intent of Part IX was to introduce a low cost alternative to debtors to settle indebtedness by way of a legally binding agreement between debtors and creditors and touted as a flexible alternative to bankruptcy on the web site of the Insolvency Trustee Service Australia (ITSA). At the time of its inception and contrasting with Part X, Part IX did not specify that the administration of a debt agreement must be undertaken by a registered trustee or the Official Receiver and whilst not discounting these fiduciaries the legislation specifically authorised another person to undertake the administration; but without expressing any particular requirement or qualification. In fact S185C(2)(c) was interpreted to include an administrator who could be the debtor, a family member of a debtor, a creditor or any other person not excluding a commercial enterprise. Entrepreneurs seized upon what appeared to be an opportunity to service a new niche industry and within a short time businesses were established, both as sole trader, partnership and corporate ventures, offering assistance to those in financial distress gain relief from indebtedness utilising the new legislation.

Lacking any regulatory direction or control and in the absence of any set criteria in the statute as to who may engage in administering debt agreement services a new commercially based insolvency industry emerged. But, from the outset the system appeared doomed by the ongoing complaints of community based agencies, creditors at large and participating debtors concerned by the manner in which the new mechanism was managed, the fees and charges applied by operators, entry into the new industry by undesirables and allegations of manipulation of statutory information. In an attempt to remedy the situation that arose and in an attempt to give validity to the system, Part IX has been amended on a number of occasions with a view to tightening the regulatory grip on the commercial element. Ultimately, The Bankruptcy Legislation Amendment (Debt Agreements) Act 2007 was enacted requiring a debt agreement administrator to be registered and subject to a more rigid regime.

The purpose of this paper is to analyse and evaluate the registration of debt agreement administrators. In order to do so this essay considers the issue retrospectively leading to its existing form and offers discussion concerning observations of an industry that has grown rapidly and unexpectedly.