The AFSA 2023–24 Annual Report has been released, reporting on the information required under particular public sector legislation.
Unlike ASIC, AFSA is not required to, and does not, report on particular insolvency matters of interest: see s 136(1)(ca) ASIC Act 2001. While the Inspector-General in Bankruptcy is simply required under section 12(1) of the Bankruptcy Act to provide an annual report on the operation of the Act, the report more attends to compliance with public sector performance criteria in terms of ss 17AA to 17AJ of the Public Governance, Performance and Accounting Rule 2014.
For example, while AFSA says it has a particular program to enhance gender and diversity among trustees, to be reviewed at least annually, the gender references in the annual report instead concern AFSA’s internal Gender Equity Network and women in leadership and other such events.
There is also other interesting information in the annual report such as the various AFSA committees – the Executive, Regulatory, External Advisory, External Audit and Risk, National Work Health and Safety, National Consultative, Strategy and Investment, and the People and Culture Committee.
AFSA’s annual report therefore differs much from ASIC’s reporting of insolvency and regulation issues: ASIC’s annual report 2023-2024 – Chapter 5 insolvency issues – Murrays Legal
ASIC and AFSA
As to ASIC, when the Insolvency Law Reform Act 2016 was introduced, the aim was to harmonise personal and corporate insolvency law, which to a large extent it did. But the 2010 recommendations for ASIC and AFSA to connect up, and even to produce joint statistics, were never pursued.
Hence while a financial comparison from their annual accounts showing the respective regulatory costs per practitioner – that is ASIC’s regulation of 650 liquidators and AFSA’s (largely the same) 210 trustees – would be most useful, this does not seem feasible.
Furthermore, ASIC is funded by an unpopular high industry levy imposed on all liquidators, while AFSA imposes a 7% levy on asset realisations by trustees.
Numbers
With those limitations, AFSA opens its report by saying that households and businesses are experiencing increasing financial vulnerability in 2023–24, with a 17% rise in personal insolvencies, to 11,600.
The numbers nevertheless continue to remain at a 30-year low. In fact, Australia has averaged over 28,000 personal insolvencies each year, with a high of 37,263 in 2009–10, on a much lower population base.
AFSA has no doubt had to manage the contraction in demand for insolvency services.
Regulation
AFSA says it has increased its engagement with other regulators, including ASIC, AUSTRAC and the ATO.
As to trustee regulation, while one would think that there would be close communication, in particular given that many practitioners are registered as both as trustee and as liquidator, that may not be the case. AFSA has elsewhere said that although there are some legislated powers for information sharing, “it is a cumbersome and bureaucratic process”, with disciplinary matters being one main example. For example, if a trustee is subject to an ongoing disciplinary process, that may be kept internally discrete “for logical and/or legal reasons”, with the danger being that ASIC may be unaware, for example.[2]
The one statutory requirement is that ASIC and AFSA each co-operate when regulating the one practitioner: IPS section 10-5.
AFSA reports that an external Regulatory Review conducted in early 2024 did not identify any specific barriers to collaboration between AFSA and other regulators, such as ASIC.
AFSA refers to deregistering a bankruptcy trustee after receiving information about his alleged misconduct. That was the matter of Leroy, presently before the Federal Court. While AFSA says that he was deregistered for failure to maintain insurance, there is in fact an alleged misappropriation of significant funds. AFSA says it received information from his employer about this alleged misappropriation, and over 2 weeks later, AFSA cancelled his registration.
That matter is next in court on 15 November 2024.
Private trustees
AFSA says that in 2021–22, it delivered changes to its Official Trustee functions
“in order to increase focus on matters of public interest. This meant transitioning from high volume bankruptcy administration to the investigation and administration of higher risk bankruptcies, while transferring more cases to the private sector (registered trustees)”.
AFSA prepared guidance to better support registered trustees in dealing with vulnerable bankrupts in those matters. The extent to which trustees’ remuneration was covered is not addressed.
Most interestingly, AFSA elsewhere reports that in 2021–22, only 9 (of 210) practitioners (including the Official Trustee) were responsible for administering 80% of all active personal insolvencies, presenting perhaps particular regulatory issues.
Gender
As mentioned, while gender was an issue before the PJC, and AFSA says it has a particular program to enhance diversity, there is no reference to its outcomes in the report. AFSA’s initial target was to distribute 20% of estates selected to female trustees. Outcomes would be reviewed regularly, at least annually.
Statistics
Throughout 2023–24, AFSA says that statistics were published on the AFSA website in multiple formats, ensuring that its content is accessible. AFSA says it collaborated extensively with researchers and institutions across Australia to enhance knowledge and understanding of the systems it administers, supporting economic analysis and research. [3]
AFSA statistics were used in a major longitudinal study of repeat bankrupts, this item of “repeat bankruptcy scholarship” being said to represent “an important step in the development of a high-quality longitudinal data system to facilitate the extension of data models”: Predicting repeat consumer bankruptcy: A survival analysis of business-related repeat filings in Australia 2007–2021, Robinson, Smith, Wicht, Rice, McCosker & McBride (2024) 33(2) International Insolvency Review 159. The outcome showed repeat bankruptcies to occur more among women not in business.
Other reporting
While there is a present focus on small business failure to pay tax, and on their insolvencies, there is no mention of what AFSA says is its support for that sector: Is your business experiencing financial difficulty? | Australian Financial Security Authority. Statistics and reports on trustee registration and regulation are not provided, for example as to directions or notices issued under Schedule 2. Annual administration statistics on dividend returns, objections to discharge, voidable transaction recoveries and trustee remuneration are not released until late in the year and hence receive no comment in the annual report.
However there is, as explained, other interesting information about the PPS Register, proceeds of crime and AFSA’s role in the credit economy.
Overall, more useful insolvency reporting is contained in the Personal Insolvency Regulator newsletter and various AFSA speeches and the State of the Personal Insolvency System Report | Australian Financial Security Authority.
But it would be better if AFSA had other or more statutory reporting criteria focused on more particular items of information comparable with those required of ASIC.
The useful AFSA annual report of 2024 is here: AFSA Annual Report 2023-24 | Australian Financial Security Authority
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[1] See ss 17AA to 17AJ of the Public Governance, Performance and Accounting Rule 2014.
[2] AFSA submission to PJC, 2023.
[3] However, in relation to SME insolvencies, AFSA’s statistics, and ASIC’s, while useful, are based on legal structures which do not accord with business reality. As the Small Business Ombudsman said in his submission to the PJC, “the current insolvency system assumes a neat distinction between a business and an individual, whose distressed financial circumstances do not intersect with one another. Small and family businesses are rarely so neatly arranged. And see PJC Report at [5.14]; also The 2023 Parliamentary Joint Committee Report and insolvency law reform? – Murrays Legal “
