AFSA is already dealing with two issues that it has on its list for attention in its Regulatory Action Statement 2025-2026 – unfair Part X agreements and unauthorised access to trust funds.
Part X agreements
It seems that the Inspector-General in Bankruptcy has issued a ‘direction’ to the Controlling Trustees for the Part X estate of a debtor – Adgemis, probably under s 40-5 IPSB – “to bring to creditors’ attention concerns over the trustees’ report to creditors”.
This has resulted in the trustees adjourning the creditors’ meeting to 29 August 2025.
The Inspector-General is monitoring the trustees’ further response.
AFSA’s scrutiny of Personal Insolvency Agreements seeks to ensure they are not being misused by debtors or trustees in ways that harm creditors. It says it will act where it suspects system misuse and it refers as an example to the decision in Inspector-General in Bankruptcy v Hartnett [2025] FCA 111. There was also the Part X agreement set aside, on the application of a creditor, in Purple Sunset Holdings Pty Ltd v Jones, in the matter of Cattana (No 2)[2025] FCA 660.
In 2024-25, AFSA says it intervened in 29% of all proposed Personal Insolvency Agreements, paying particular attention to cases that offer creditors a “meagre or trivial return”; include related-party creditors with little or no supporting evidence; and show poor investigation or reporting by the trustee.
Meagre or trivial or “derisory” returns
As I have written earlier, more in the Part 5.3A context (DOCAs – should ‘not much of a return to creditors but better than the liquidation alternative’ be enough? – Murrays Legal) Part X’s can offer meagre or trivial or “derisory” returns but in the absence of other concerns, the courts generally say that it is a matter for the creditors. It may be for example that, as citizens, they do not wish to subject the debtor to Australia’s severe and unreformed bankruptcy laws.
In Re Agushi, the court agreed that the dividend return of 0.019c in the dollar was “comparatively modest” or even “derisory” but noted “it is but one consideration to be taken into account”, and that there will be circumstances “where informed creditors may consider it in their best interests to approve a personal insolvency agreement and accept comparatively little in return”.
In Re Emmett the Judge commented that while dicta suggest that small dividends and substantial debts might be sufficient, without more, to set aside a composition, “it is significant that no case has been found where that has happened”.
In Hudson v Sigalla [2014] FCCA 1652, while the dividend was negligible, so too was the dividend likely to result from bankruptcy, the latter being attended by more uncertainty and likely to be consumed by the trustee’s fees.
Proof or hint of abuse of process will change things, such as in one case where suggestions of tax evasion and sham transactions caused an otherwise generous 3 cents in the dollar to be assessed as “manifestly unreasonable and derisory”: Stedman v Deputy Commissioner of Taxation [2000] FCA 336. See also Ward v Zozi [2012] FMCA 898.
History
Part Xs have a long history and they were endorsed to continue in the 1966 Act by the 1963 Clyne Committee. But around 2003 the government decided to conduct a review following concerns about ‘friendly’ creditors, the quality of reports by controlling trustees, voting requirements and purchase of proxies. Also, the rate of return to creditors was very low and some trustees treated the debtor as their client and were not acting independently. There had also been a decline in the use of Part X arrangements, from 1285 in 1987/88 to 424 in 2000/01.
Reforms to improve the system and to enhance its overall integrity were introduced in 2004 and have not been amended much since. That stricter level of regulation resulted in a fall in the number of Part Xs, in particular by “solicitor” trustees: see s 188(1). These are now rare if there are still any at all.
There were only 233 personal insolvency agreement estates finalised in 2023–24 by registered trustees with unsecured creditors receiving an average dividend of 8.24 cents in the dollar.
Reform
As to any reform, while much insolvency attention has been given to small corporate businesses through Part 5.3B of the Corporations Act, which comprise 30-40% of all businesses, no attention has been given to Part X, which covers the 60-70% of unincorporated businesses in the market.
Trust funds
The second item within AFSA’s Regulatory Action Statement 2025-2036 lists a focus on “unauthorised access to trust funds for personal gain”, that is, “mismanagement of trust funds ranging from unauthorised payment of fees through to reckless, fraudulent or deliberate misappropriation of funds for personal gain”. This will have been prompted by Mr Leroy, who is alleged to have run off with millions.
Proceedings against him continue. On 6 August 2025 the Federal Court extended yet again the date for the trustees to bring an application for the joinder of an unnamed party to the proceeding, to 15 August 2025, with the matter back before the Court on that date. There has been no court appearance of Mr Leroy.
Other
The remaining two harms on AFSA’s regulatory attention list are, one, giving advice encouraging debtors to not comply with their obligations under the Bankruptcy Act and “enter[ing] debt agreements that cause harm”; and, two, as secured creditors, not removing their registrations on the Personal Property Securities Register (PPSR) after their security interest expires.
ASIC
Then there is ASIC’s regulatory focus.
