House of Representatives

Bankruptcy Legislation Amendment (Debt Agreements) Bill 2007

Explanatory Memorandum

(Circulated by authority of the Attorney-General, the Honourable Philip Ruddock MP)

This Explanatory Memorandum has been corrected as per Supplementary Explanatory Memorandum.
Clarification :
CORRECTION T0 THE EXPLANATORY MEMORANDUM
Section 186N - Return of certificate of registration
At the end of paragraph 103 add:
"In line with the provisions currently applying to registered trustees, this will be an offence of strict liability. It is appropriate that debt agreement administrators be subject to the same standards as registered trustees. The registration system for administrators is largely based on that applying to trustees. It is important that a trustee or administrator who is no longer registered, perhaps because they have been deregistered for failing to properly perform their duties, cannot use the certificate to hold themselves out to be still registered".

SCHEDULE 1 - AMENDMENTS COMMENCING ON THE DAY AFTER ROYAL ASSENT

36. Item 1 will amend the definition of 'approved form' in section 5 of the Act. The purpose of this amendment is to clarify that these forms attract the operation of sections 46 and 46AA of the Acts Interpretation Act 1901 .

37. Items 2 to 6 will amend section 12 to support the Inspector-General in Bankruptcy's regulatory role in relation to debt agreement administrators.

38. Item 7 will amend section 20B by inserting new subsection 20B(7). Section 20B forms part of the separate regime that governs the handling and banking of monies by the Official Trustee. The new subsection will remove any doubt as to the authority of the Official Trustee to pay out debt agreement or personal insolvency agreement monies from the Common Investment Fund established pursuant to section 20B.

Registered trustees as debt agreement administrators

39. Items 8 to 11 will amend section 155A which relates to applications for registration as a trustee. It is possible for a registered trustee to administer debt agreements. There will be no requirement for a trustee to be separately registered as a debt agreement administrator to do this. However, the conduct of a registered trustee who administers debt agreements should be relevant to their registration as a trustee. Section 155A details the requirements which must be met for a person to be registered as a trustee.

40. Items 8 and 10 will amend paragraphs 155A(2)(e) and 155A(4)(d) to provide that a person cannot become a registered trustee if that person has had his or her registration as a trustee cancelled within the previous 10 years on the basis that he or she failed to properly carry out the duties of a debt agreement administrator.

41. Items 9 and 11 will amend paragraph 155A(2)(f) and subsection 155A(4) to provide that a person cannot become a registered trustee if that person has had his or her registration as a debt agreement administrator cancelled under section 186MA within the previous 10 years on the basis that he or she failed to properly carry out the duties of a debt agreement administrator.

42. Item 12 will insert paragraph 155H(1)(fa) to provide that an Inspector-General can require a registered trustee to show cause why he or she should continue to be registered where the Inspector-General believes that, if the trustee is or was the administrator of a debt agreement, the trustee has failed to properly carry out the duties of a debt agreement administrator.

43. Item 13 will insert a new definition of 'basic eligibility test' in subsection 185(1). This is relevant for the purposes of section 186A which will define who is eligible to apply for registration as a debt agreement administrator.

44. Item 14 will insert a new definition of 'debt agreement activities' in subsection 185(1). This is relevant for the purposes of section 186G which will make it a condition of a company's registration as a debt agreement administrator that each individual who has overall management responsibility for the company's debt agreement activities must be a registered debt agreement administrator (see paragraph 74).

45. Item 15 will insert a new definition of 'externally-administered body corporate' in subsection 185(1) (see paragraph 54). This is relevant for the purposes of subsection 186A(3) which sets out the basic eligibility test for a company to be registered as a debt agreement administrator. The definition will provide that the term has the same meaning as in the Corporations Act 2001 and is intended to cover all forms of external administration relating to a company's insolvency.

46. Item 16 will insert a new definition of 'insolvent under administration' in subsection 185(1). This is relevant to the basic eligibility test for an individual who wishes to be registered as a debt agreement administrator (see paragraph 52)

47. Item 17 will insert a new definition of 'registered debt agreement administrator' in subsection 185(1).

48. Item 18 will insert a new heading 'Division 7 - General provisions relating to debt agreements' to reflect the new structure of Part IX.

Registration of debt agreement administrators

49. Item 19 will insert a new heading 'Division 8 - Registration of debt agreement administrators etc' immediately before the provisions relating to registration of administrators. The new Division also includes all the provisions relating to registration of administrators.

50. The new Division 8 will set out the process for becoming registered as a debt agreement administrator. The key features of the registration system will be:

·
an administrator who is administering more than 5 active debt agreements at any time will be required to be a registered debt agreement administrator;
·
a registered administrator can be either an individual or a company;
·
a person (including a company) who passes the basic eligibility test can apply for registration;
·
registration will be on the basis of demonstrated ability to perform the duties of a debt agreement administrator;
·
decisions on registration will be made by the Inspector-General in Bankruptcy;
·
registration will last for three years and can be renewed;
·
there will be fees payable for applying to become registered and for maintaining registration every three years; and
·
the Inspector-General will be able to cancel a person's registration in certain circumstances.

Section 186A - basic eligibility test

51. Section 186A will set out the basic eligibility test which must be passed by a person wishing to apply for registration as a debt agreement administrator. These requirements are based on existing regulation 9.04 which provides for circumstances in which a person is ineligible to act as a debt agreement administrator. That regulation will be repealed once the eligibility and registration requirements are moved into the Act.

52. Subsection 186A(1) will set out the basic eligibility test for individuals. It will provide that a person passes the test at a particular time unless:

(a)
at any time during the previous 10 years the person was an insolvent under administration (defined in subsection 185(1)) or a party (as debtor) to a debt agreement; or
(b)
at any time during the previous 10 years, the individual was convicted of an offence involving fraud or dishonesty; or
(c)
at the time, the person is disqualified from managing corporations under Part 2D.6 of the Corporations Act 2001 ; or
(d)
at any time during the previous 10 years, the person's registration as a liquidator was cancelled under subsection 1292(2) or (3) of the Corporations Act 2001 - those provisions generally relate to failure to properly perform the duties of a liquidator; or
(e)
at any time during the previous 10 years, the person's registration as a trustee ceased under section 155I for a reason specified in paragraph 155H(1)(a), (aa), (b), (e), (f), (fa) or (g); or
(f)
at any time during the previous 10 years, the person's registration as a debt agreement administrator was cancelled under section 186K on the ground that they contravened a condition that applied in relation to that registration or they failed to properly carry out the duties of an administrator in relation to a debt agreement; or
(g)
at any time during the previous 10 years, the individual's registration as a debt agreement administrator was cancelled as a result of an order under section 185ZCA; or
(h)
at any time during the previous 10 years, a declaration was made under section 186M in relation to the person - that is a declaration that an administrator who was not registered (for example, where the person was administering not more than 5 agreements) is ineligible to be an administrator; or
(i)
at any time during the previous 10 years, a determination in relation to the person was made under subregulation 9.06(3) of the Bankruptcy Regulations 1996 as in force before the commencement of this section - that is a declaration under the regulatory regime which applies until these amendments take effect that an administrator is ineligible to be an administrator.

53. Subsection 186A(2) will provide that subparagraph (1)(a)(i) does not apply in relation to a bankruptcy that has been annulled under section 153B. This will mean that a person whose bankruptcy was annulled by the Court on the basis that the person ought not to have been made bankrupt will not be prevented from applying for registration as a debt agreement administrator.

54. Subsection 186A(3) will set out the basic eligibility test for companies. It will provide that a company passes the test at a particular time unless:

(a)
at any time during the previous 3 three years, the company was an externally administered body corporate - that term is defined in subsection 185(1); or
(b)
at any time during the previous 10 years, the company was convicted of an offence involving fraud or dishonesty; or
(c)
at any time during the previous 3 years, the company's registration as a debt agreement administrator was cancelled under section 186L because the company contravened a condition that applied in relation to that registration or the company failed to properly carry out the duties of an administrator in relation to a debt agreement; or
(d)
at any time during the previous 10 years, the company's registration as a debt agreement administrator was cancelled as a result of an order under section 185ZCA; or
(e)
at any time during the previous 10 years, a declaration was made under section 186M in relation to the company - that is a declaration that an administrator who was not registered (for example, where the person was administering not more than 5 agreements) is ineligible to be an administrator; or
(f)
at the time, a director of the company does not pass the basic eligibility test; or
(g)
at any time during the previous 10 years, a determination in relation to the company was made under subregulation 9.06(3) of the Bankruptcy Regulations 1996 as in force before the commencement of this section.

Section 186B - Application for registration as a debt agreement administrator

55. Section 186B will set out the process for applying for registration. Subsection (1) will provide that an application may be made by an individual or a company. Other entities (such as partnerships and trusts) will not be able to become registered. Subsection (2) will provide that an application must be in the approved form, be accompanied by such information and documents (if any) as are specified in the regulations and be accompanied by the appropriate application fee. If the application is to renew an existing registration, the application must be made before the expiry of the existing registration.

56. Paragraph 186B(2)(c) provides for the payment of an application fee. The amount of that fee will be determined by the Minister by legislative instrument. This is consistent with other fees and charges payable under bankruptcy legislation. Fees and charges are determined on a cost recovery basis and will be reviewed at least biennially. This regime was introduced for all fees and charges payable under bankruptcy legislation from 1 July 2006 - the amendments were made by the Bankruptcy Legislation Amendment (Fees and Charges) Act 2006 .

Section 186C - Inspector-General must approve or refuse to approve registration application

57. Section 186C will provide that the Inspector-General must approve or refuse to approve an application for registration within 60 days of receiving it.

58. Subsection 186C(2) will deal with new applications from individuals. It will provide that the Inspector-General must approve an application where the applicant passes the basic eligibility test, has the ability (including the knowledge) to satisfactorily perform the duties of a debt agreement administrator and has such qualifications and experience (if any) as are prescribed by the regulations. Otherwise, the Inspector-General must refuse to approve the application.

59. Subsection 186C(3) will deal with applications for renewal of an individual's registration. In those cases, there will be no new testing of the applicant's ability, knowledge or qualifications.

60. Subsection 186C(4) will deal with new applications from companies. It will provide that the Inspector-General must approve an application where the applicant passes the basic eligibility test and has the ability to satisfactorily perform the duties of a debt agreement administrator. Otherwise, the Inspector-General must refuse to approve the application.

61. Subsection 186C(5) will deal with applications for renewal of a company's registration. As with individuals, there will be no new testing of the applicant's ability.

62. Subsection 186C(6) will provide that in deciding whether to approve an application for registration, the Inspector-General must have regard to any relevant guidelines in force under section 186Q. These guidelines, if issued, will be a legislative instrument. They may, for example, set out further details relating to the application process and how the Inspector-General will make an assessment of the applicant's ability (including knowledge in relation to individuals). As these guidelines are explicitly made relevant to making decisions on applications for registration, they will also be relevant in reviewing those decisions.

63. Subsection 186C(7) will provide that if the Inspector-General refuses to approve an application for registration, the Inspector-General must give the applicant a written notice of the refusal and the reasons for it.

64. Subsection 186C(8) will provide that a decision by the Inspector-General to refuse to approve an application for registration is reviewable by the Administrative Appeals Tribunal.

65. Subsection 186C(9) will allow the Inspector-General to impose conditions on a person's registration. These may be relevant where, for example, there is some doubt as to the applicant's ability in a particular area but the Inspector-General does not believe this is sufficient grounds to refuse the application.

66. Subsection 186C(10) will require the Inspector-General to notify the applicant in writing if conditions are imposed. Subsection 186C(11) will provide that a decision under subsection (9) is reviewable by the Administrative Appeals Tribunal.

Section 186D - Registration as a debt agreement administrator

67. Section 186D will deal with the consequences of the Inspector-General approving an application for registration as a debt agreement administrator. These are based on the system already in place for registered trustees.

68. Subsection 186D(1) will require the payment of a registration fee. The Inspector-General will not register the applicant unless that fee has been paid.

69. Subsection 186D(2) will require the Inspector-General to register the applicant as a debt agreement administrator by entering their details in the National Personal Insolvency Index (NPII). The regulations will prescribe which details relating to the applicant are to be recorded in the NPII.

70. Subsection 186D(3) will require the Inspector-General to give the applicant a certificate of registration.

Section 186E - Duration of registration as a debt agreement administrator

71. Section 186E will provide that, where a person is first registered as a debt agreement administrator, that registration will last for 3 years beginning when the person's details are entered on the NPII. Where the registration is by way of renewal, the registration will remain in force for 3 years beginning immediately after the administrator's existing renewal expires.

Section 186F - Conditions of registration - general

72. Section 186F will allow the Inspector-General to impose specified conditions on a person's registration as a debt agreement administrator. The Inspector-General must do so by giving written notice to the administrator. This is consistent with the provisions applying to registered trustees.

73. The ability to impose conditions pursuant to section 186F or subsection 186C(9) gives the Inspector-General some flexibility where an administrator broadly meets the requirements to be registered or, having been registered, engages in conduct which is inconsistent with their duties but not to the extent required to cancel their registration. Examples of conditions would include further training in a particular area in which the administrator's conduct is deficient, a bar on administering new debt agreements whilst remedial action is being taken to address any deficiencies or providing regular information to the Inspector-General about the progress of debt agreements (for example, where the administrator has failed in his or her duties to report to creditors).

74. Section 186G will provide that it must be a condition of registration of a company as a debt agreement administrator that each individual who takes overall responsibility for the company's debt agreement activities shall be either a registered debt agreement administer or a registered trustee in respect of which there is no declaration of ineligibility in force.

75. The purpose of this provision is to ensure that a suitably qualified and experienced person is responsible for the debt agreement activities of a debt agreement administrator company.

Section 186H - Application to change or remove registration conditions

76. Section 186H will apply where the Inspector-General has imposed conditions on an administrator's registration under subsection 186F(2). Subsection 186H(1) will allow the administrator to apply to the Inspector-General for the conditions to be changed or removed. This may be appropriate, for example, where the conduct which gave rise to the imposition of conditions has been rectified and the Inspector-General is satisfied that it is unlikely to occur again. It may also be appropriate where the conditions related to the administrator's knowledge of a particular aspect of debt agreement administration and the administrator has taken steps to acquire or update that knowledge.

77. Subsection 186H(2) will require an application to change or remove conditions to be in the approved form and be accompanied by such information and documents (if any) as are specified in the regulations.

78. Subsection 186H(3) will require the Inspector-General, having considered an application under subsection (1), to decide that the conditions should not be changed or removed or decide that the conditions should be modified. The term 'modifications' in this section is defined in section 5 of the Act. By virtue of that definition a decision by the Inspector-General to modify a condition may include a decision to remove a condition completely.

79. Subsection 186H(4) will provide that, where the Inspector-General decides that the conditions should not be changed, the Inspector-General must give written notice of that decision to the administrator along with reasons for that decision.

80. Subsection 186H(5) will provide that, where the Inspector-General decides that the conditions should be modified, the Inspector-General must give written notice of that decision to the administrator along with reasons for that decision.

81. Subsection 186H(6) will provide that a decision of the Inspector-General under this section is reviewable by the Administrative Appeals Tribunal.

Section 186J - Surrender of registration as a debt agreement administrator

82. Section 186J will allow a registered debt agreement administrator to request that the Inspector-General accept the surrender of their registration. This may occur, for example, where the administrator wishes to retire or sell their business.

83. Subsection 186J(2) will require the request to be made to the Inspector-General in writing. Subsection 186J(3) will require the request to be made in the approved form.

84. Subsection 186J(4) will provide that the person ceases to be registered as a debt agreement administrator only when the Inspector-General accepts the request. The surrender of an administrator's registration can have serious consequences if not properly managed. The Official Trustee will become the administrator by default of all active debt agreements unless and until another administrator is appointed. However, it will be important to ensure the agreements are being properly managed and all records relating to those agreements have been properly kept to ensure a seamless administration for debtors and creditors. Prior to accepting an administrator's request under this section, the Inspector-General will need to be satisfied that appropriate arrangements are in place to ensure continuity of the administrations (which may include pre-arranged transfer of active agreements to another administrator rather than the Official Trustee). The Inspector-General may also seek to establish that the administrator is not making the request to avoid having their registration cancelled (for example, where the administrator has not properly carried out their duties in relation to debt agreements on hand). There is likely to be some onus placed on the administrator to satisfy the Inspector-General that their affairs are in proper order before a request under this section will be accepted.

85. Subsection 186J(5) will provide that, where the Inspector-General accepts an administrator's request under this section, the Inspector-General must remove the person's registration details from the NPII. Once the accept is requested, the person is also required to surrender to the Inspector-General their certificate of registration - subsection 186N(1) (see paragraph 103 for further explanation of this requirement).

Section 186K - Cancellation of an individual's registration as a debt agreement administrator

86. Section 186K will set out the circumstances in which an individual's registration as a debt agreement administrator will be cancelled and the process for such cancellation.

87. Subsection 186K(2) will provide that the Inspector-General must cancel an individual's registration if that person no longer passes the basic eligibility test (see subsection 186A(1)). Cancellation will be mandatory in these circumstances. This is because the person no longer meets the fundamental requirements to be registered (for example, the person has become bankrupt or is convicted of an offence involving fraud or dishonesty).

88. Subsection 186K(3) will set out other circumstances in which the Inspector-General may cancel an individual's registration as an administrator. It will also set out the process to be followed in these circumstances. The process is similar to that applying to registered trustees and is based on the existing process for declaring a debt agreement administrator ineligible under regulation 9.06. The circumstances which will trigger this process are:

(a)
the individual no longer has the ability (including the knowledge) to satisfactorily perform the duties of a debt agreement administrator; or
(b)
the individual has failed to properly carry out the duties of a debt agreement administrator; or
(c)
the individual no longer has the qualifications or experience prescribed by the regulations for the purposes of subparagraph 186C(2)(e); or
(d)
the individual has contravened a condition of their registration.

89. In those circumstances, the Inspector-General may ask the individual to give a written explanation as to why they should continue to be registered. Subsection 186K(4) will provide that, if the Inspector-General does not receive an explanation within 28 days or the explanation given is unsatisfactory, the Inspector-General may cancel the individual's registration as an administrator. The Inspector-General will also have the option of imposing conditions on the person's registration under section 186F as an alternative to cancelling their registration.

90. Subsection 186K(5) will require the Inspector-General to give the individual a written notice of a cancellation under subsection (2) or (4) along with reasons for that decision.

91. Subsection 186K(6) will provide that, where the Inspector-General cancels an individual's registration under this section, the Inspector-General must remove their registration details from the NPII.

92. Subsection 186K(7) will provide that, in deciding whether or not to cancel an individual's registration, the Inspector-General may have regard to any guidelines in force under section 186Q. These guidelines may provide further detail as to the process for making decisions and the matters to be taken into account in determining whether the circumstances described in subsection (3) exist along with the seriousness of those circumstances. The guidelines would also be relevant in reviewing any decision to cancel an individual's registration.

93. Subsection 186K(8) will provide that a decision to cancel an individual's registration as a debt agreement administrator will be reviewable by the Administrative Appeals Tribunal.

Section 186L - Cancellation of a company's registration as a debt agreement administrator

94. Section 186L will set out the circumstances in which a company's registration as a debt agreement administrator will be cancelled and the process for such cancellation.

95. Subsection 186L(2) will provide that the Inspector-General must cancel a company's registration if that person no longer passes the basic eligibility test (see subsection 186A(3)). Cancellation will be mandatory in these circumstances. This is because the company no longer meets the fundamental requirements to be registered (for example, the company becomes an externally-administered body corporate or is convicted of an offence involving fraud or dishonesty or a director of the company no longer passes the basic eligibility test).

96. Subsection 186L(3) will set out other circumstances in which the Inspector-General may cancel a company's registration as an administrator. It will also set out the process to be followed in these circumstances. The circumstances which will trigger this process are:

(a)
the company no longer has the ability to satisfactorily perform the duties of a debt agreement administrator; or
(b)
the company has failed to properly carry out the duties of a debt agreement administrator; or
(c)
the company has contravened a condition of the company's registration.

97. In those circumstances, the Inspector-General may ask the company to give a written explanation as to why it should continue to be registered. Subsection 186L(4) will provide that, if the Inspector-General does not receive an explanation within 28 days or the explanation given is unsatisfactory, the Inspector-General may cancel the company's registration as an administrator. The Inspector-General will also have the option of imposing conditions on the company's registration under section 186G as an alternative to cancelling their registration.

98. Subsection 186L(5) will require the Inspector-General to give the company a written notice of a cancellation under subsection (2) or (4) along with reasons for that decision.

99. Subsection 186L(6) will provide that, where the Inspector-General cancels a company's registration under this section, the Inspector-General must remove its registration details from the NPII.

100. Subsection 186L(7) will provide that, in deciding whether or not to cancel a company's registration, the Inspector-General may have regard to any guidelines in force under section 186Q. These guidelines may provide further detail as to the process for making decisions and the matters to be taken into account in determining whether the circumstances described in subsection (3) exist along with the seriousness of those circumstances. The guidelines would also be relevant in reviewing any decision to cancel a company's registration.

101. Subsection 186L(8) will provide that a decision to cancel a company's registration as a debt agreement administrator will be reviewable by the Administrative Appeals Tribunal.

Section 186M - Inspector-General may declare a person ineligible to act as an administrator

102. Section 186M will allow the Inspector-General to declare that a debt agreement administrator who is not registered and is not a registered trustee is ineligible to administer debt agreements. This may occur in relation to an administrator who is not required to be registered because he or she is administering not more than 5 debt agreements. The process to be followed in these cases mirrors that which applies in relation to cancellation of a registered administrator's registration.

Section 186N - Return of certificate of registration

103. Section 186N will require a person (being an individual or a company) who is a registered debt agreement administrator to return their certificate of registration to the Inspector-General where they have surrendered their registration or their registration is cancelled. The section will provide that failure to return the certificate in these circumstances is an offence. In line with the provisions currently applying to registered trustees, this will be an offence of strict liability. It is appropriate that debt agreement administrators be subject to the same standards as registered trustees. The registration system for administrators is largely based on that applying to trustees. It is important that a trustee or administrator who is no longer registered, perhaps because they have been deregistered for failing to properly perform their duties, cannot use the certificate to hold themselves out to be still registered.

Section 186P - Cessation of registration as a debt agreement administrator - no refund of fees

104. Section 186P will provide that a person (being an individual or company) whose registration as a debt agreement administrator ceases is not entitled to a refund of any part of the fees paid in relation to that registration.

Section 186Q - Guidelines relating to Inspector-General's powers

105. Section 186Q will allow the Inspector-General to issue guidelines for the purposes of a number of provisions relating to registration of debt agreement administrators. These guidelines will be in the form of a legislative instrument and will be relevant to making decisions under:

·
subsection 186C(6);
·
subsection 186K(7);
·
subsection 186L(7); and
·
subsection 186M(5) - declaring an unregistered administrator ineligible.

106. The guidelines will attract the provisions of the Legislative Instruments Act 2003 including the requirement to register them on the Federal Register of Legislative Instruments, the need for consultation as they are developed and the automatic 'sunsetting' after 10 years if they are not reissued.

Fees and charges - section 316

107. Section 316 empowers the Minister to make legislative instruments determining the fees payable for a range of purposes under the Act. These fees are determined on a cost recovery basis and will be reviewed at least biennially to ensure that the fees are based on the cost of providing the services to which they relate.

108. Item 20 will amend section 316 to include a power for the Minister to determine, by legislative instrument, fees payable in relation to registration of debt agreement administrators on the same basis as other fees payable under the Act.

Transitional provision - approval of form

109. Items 21 to 23 will provide that the modification of the definition of 'approved form' will not affect the continuity of any pre-existing approvals; that the amendments to section 20B will apply applies to payments made before, at or after the commencement of the amendment; and that certain provisions in respect of the registration system in Schedule 1 will have effect as if the provisions in Schedule 2 relating to the duties of a debt agreement administrator had commenced at the time that these transitional provisions took effect.


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