Credit Counsellors Australasia

Improvements to the operation of debt agreements under Part IX where mooted in the Bankruptcy Legislation Amendment (Debt Agreement) Bill 2007, Explanatory Memorandum, stating the objects of the Bill as to:

(a) provide for enhanced regulation of debt agreement administrators;
(b) specify the duties of a debt agreement administrator;
(c) encourage creditors to make decisions based on the debtor’s capacity to pay;
(d) provide more effective means of dealing with default by the debtor; and
(e) simplify, streamline and clarify a range of provisions to improve the operation of the legislation.

At paragraph 6. Regulation Impact Statement the Memorandum supports the view of this essay concerning the commerciality of the process by stating. “It was originally intended that debt agreements could be administered by anyone including the debtor personally or a friend or family member. However, in practice, most debt agreements are administered by a commercial administrator who charges a fee for the service.” It goes on to state “debt agreement administrators are largely unregulated”; and

at paragraph 9. “Creditors have expressed a significant lack of confidence in the system which derives largely from their lack of confidence in debt agreement administrators”; and

at 11. “The broad objective of the amendments to be made by this Bill is to restore creditor confidence in the system by ensuring that debt agreement administrators are used in appropriate cases and that they are capable administrators who can assist debtors and properly account for and handle money on behalf of creditors.” Then at

12. “More particularly, the aim of the reforms are:

• to ensure debtors are properly informed and make a realistic assessment of what they can offer creditors;
• to ensure creditors are fully informed about offers made by debtors and to encourage creditors to view debt agreements as an offer by the debtor to reach a collective agreement based on their ability to pay rather than an attempt to meet the competing demands of individual creditors; and
• to ensure administrators have the necessary capabilities to perform their duties.” Then at;

Section 2 – Policy objectives.

29. “The overall purpose of the amendments is to:

• provide a system of registration of debt agreement administrators based on their ability to perform duties as set out in the Act;
• remove financial incentives for debt agreement administrators by ensuring they focus on developing proposals which are affordable and in the interests of both debtors and creditors;
• encourage creditors to make decisions on debt agreement proposals based on the debtor’s capacity to pay rather than what rate of return they expect to receive;
• ensure creditors have sufficient reliable information to make informed decisions about debtor’s proposals;
• provide more effective mechanisms for dealing with default by the debtor; and
• simplify, streamline and clarify the provisions to make debt agreements work more effectively.