AFCA’s interaction with insolvency law

The authority of the new Australian Financial Complaints Authority (AFCA) and its impact on finance debts owing should be understood, including by those in the insolvency field. That authority has now been extended to what are termed ‘legacy complaints’, about claimed misconduct dating back to 1 January 2008.

AFCA’s view of its interaction with corporate and personal insolvency and their liquidator and trustee practitioners is explained in its fact sheet – Insolvent Consumers – on its website.[1]

From an insolvency perspective, my comments assess and elaborate upon what AFCA is saying.

Complaints to AFCA by consumers and small business

AFCA can consider complaints about a wide range of its financial service provider members including investment, insurance, credit and superannuation. Its members include banks, credit unions, financial planners, general and life insurers, brokers, and superannuation fund trustees (‘financial firms’).

A complaint can be submitted to AFCA by an individual and by a “small business”, defined in AFCA’s Rules[2] as a primary producer or other business with less than 100 employees.

Claims of up to $1 million can be considered and awards of compensation made up to $500,000.

In certain types of cases, higher compensation and claim limits apply, for example in relation to primary producer and small business credit facilities. In the case of a guarantee given over a guarantor’s primary place of residence, AFCA’s authority is unlimited as to compensation and value of the claim.

AFCA’s decisions are binding on its member financial firms if the complainant accepts the outcome.

Where the complainant is bankrupt

A person who is bankrupt may want to complain about their bank’s response to what may have been a hardship claim, or about whether the bank complied with its obligations to lend responsibly when it granted them their loan. In such cases, AFCA can take that complaint only if the bankruptcy trustee consents.

This is because any debt owed by the bankrupt is discharged and responsibility for payment falls to the trustee, who must assess it through the proof of debt process if any dividend is to be paid. But if the trustee considers that there may be doubt about the legal enforceability or even the existence of the debt, it may be in the trustee’s interest to giving consent to the bankrupt pursuing their complaint to AFCA. AFCA’s generic ‘agent authority form’ allows the insolvency practitioner to indicate their consent to the complaint being lodged.

The consent of the trustee is an aspect of the assessment process for proofs of debt. The complaint is not a legal proceeding that is subject to an election by a trustee under s 60 of the Bankruptcy Act, for example, by the trustee continuing with a challenge to a tax debt that the bankrupt had been pursuing. The position is clearer in corporate insolvency in that the liquidator, on behalf of the company, can continue to pursue the complaint to AFCA.

If AFCA decides the debt is not owing, or that compensation is in fact payable, the IP will have a financial interest in the outcome in that the monetary compensation would be paid to the IP as trustee or liquidator.

That could be a significant amount. Conceivably it could lead to an annulment of the bankruptcy, or termination of a liquidation.

Conversely, the bankrupt may not see themselves as having any interest in pursuing the AFCA complaint further, if in their mind, any compensation goes “only” to their creditors or to the IP. Directors may take that view also.

‘Personal’ claims

AFCA can also make an order for compensation for an individual’s non-economic loss – humiliation, serious inconvenience, breach of privacy etc – although this is capped at $5,000 and is assessed “conservatively”. AFCA’s Operational Guidelines[3] say that it may decide on a non-financial remedy, such as a letter of apology, rather than monetary compensation. But in a privacy complaint, non-financial loss compensation is possible, an example given of the financier’s revealing the complainant’s new address to her estranged spouse in circumstances of domestic violence. Compensation may be ordered in other cases for “an unusual amount of physical inconvenience or stress”, or excessive time taken because of the financier’s conduct.

In bankruptcy terms, such compensation – limited to $5000 – would be excluded from divisible property and would be payable direct to the bankrupt.[4]

In a superannuation complaint, AFCA says that no consent of the trustee is required because “generally, a bankrupt’s superannuation interests are excluded from property available to creditors”. The exception would be if the trustee’s claim was made on the basis of a transfer of funds into a superannuation fund in anticipation of bankruptcy.[5]

If the IP does not consent, AFCA cannot consider the complaint and its file is closed.


Guarantors of debts of a bankrupt or a company in liquidation can be subject to claims by the trustee or liquidator. AFCA says it can also consider their complaints without the IP’s consent and make a decision accordingly.


If a company is in receivership, under Part 5.2 of the Corporations Act, AFCA says it will consider a claim by the directors that the financial firm was not entitled to appoint a receiver, or a complaint about the financial firm’s conduct before the appointment of the receiver.

AFCA will investigate such complaints whether or not the receiver consents and any decision made is binding on the financial firm if it is accepted by the complainant directors.

That is significant given that such challenges typically involve court proceedings.

AFCA says that it cannot make any enforceable orders against the receiver, but if it concludes that the financial firm was not entitled to appoint, AFCA “would expect the financial firm to appropriately direct the Receiver to retire”.

Other than these circumstances, AFCA acknowledges it cannot intervene in or review any actions taken by the receiver.

An IP’s involvement

AFCA says that the incidence of complaints by “insolvent consumers or small businesses” – that is, involving a business operating through a company under external administration, or an individual who is bankrupt – has been rising. As a result, AFCA says it has been interacting more with insolvency practitioners.

AFCA’s settlement discussions are conducted through telephone conciliation conferences. Whether an IP takes part in those conferences will much depend on the circumstances; any decision must be made in accord with the IP’s duty to consider the various interests in an insolvency, including the creditors and the insolvent. It may in fact be consistent with the duties of a trustee under s 19 Bankruptcy Act to be involved,[6]  and with similar duties of a liquidator.

Certainly there should be open communications between AFCA and the IP as needed.

It should be note that a bankrupt may challenge the decision of the trustee not to allow the complaint to proceed.[7]


If a trustee or liquidator declines to be involved in the AFCA process, that is not necessarily the end of it. The trustee or liquidator has a quasi-judicial role in assessing proofs of debt and they may ultimately decide that the debt of the financial firm is not provable, or in the full amount claimed.

Other issues

Separate issues may arise for other types of insolvency arrangements. And separate parties are involved in matter arising before any insolvency, as to the impact of AFCA action on a creditor’s pending winding up or sequestration proceedings.[8]

It should also be mentioned that a Senate committee has recommended[9] that AFCA take a role in relation to the regulation of debt advisers, including what the insolvency profession pejoratively terms ‘pre-insolvency advisers’.

More soon, perhaps.  Comments welcome.


[2] AFCA Complaint Resolution Scheme Rules, 1 November 2018

[3] AFCA Operational Guidelines to the Rules, D3. Compensation for complaints other than Superannuation Complaints

[4] Bankruptcy Act s 116(2)(g)(i).

[5] Bankruptcy Act s Part VI, Div 3, Subdiv B – ss 128A-128N

[6] BA s 19(1)(j),(k).


[7] Mann v Condon [2013] FCCA 780

[8] See for example Watson v Owners Corporation Strata Plan 79827 [2018] FCA 1959

[9] 22 February 2019

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