AFSA has issued its latest Personal Insolvency Regulator newsletter for January 2025 containing reports on
- Statistics – are numbers plateauing?
- Business insolvencies …
- Regulation – AFSA is the 4th highest referrer of summary offences to the DPP and the 5th highest for indictable offences.
- AFSA’s vulnerability strategy
- Untrustworthy advice – the scale of which is “bigger than expected”
- Retrospective validation of debtors’ petitions since 1992 – where “the thing done, or purportedly done, is taken for all purposes to be valid and effective, and to have always been valid and effective”.
- And more.
See PIR newsletter – January 2025 | Australian Financial Security Authority.
This commentary adds some perspectives to this PIR.
Numbers
In its State of the Personal Insolvency System Report 2023–24, AFSA reports there were 11,644 new personal insolvencies in 2023–24. This was an increase of 17.3% from the previous year but it remains well below the 10-year average of 21,252.
AFSA forecasts personal insolvencies to rise by 15% to 13,400 in 2024–25 and by a further 12% to 14,950 in 2025–26, referring to what it says are
“ongoing cost-of-living pressures [having] an uneven effect on Australian households”.
Latest data showing the lowest rate of inflation in almost three years may affect AFSA’s prediction.
In fact, the latest figures from AFSA, to December 2024, show a continued decline in personal insolvency numbers, extrapolating to around the same levels as in 2023-2024.
Business insolvencies
AFSA reports that just over a quarter (25.1%) of personal insolvencies were business-related. Given that Part IX debt agreements are aimed at domestic rather than business debtors, the better average is to exclude them and say that well over 40% of bankruptcies and Part Xs are business related.
Oddly, there have been no law reforms for MSEs for years and AFSA appears to give only limited focus to small business insolvency, including its regulation – see Is your business experiencing financial difficulty? | Australian Financial Security Authority.
AFSA’s Regulatory Action Statement 2024–25
AFSA’s summary of outcomes against its 2023–24 Regulatory Action Statement include referring offences against the Bankruptcy Act to the Commonwealth DPP, resulting in convictions against 6 individuals, and imprisonment against 5, for disposing of property within 12 months of bankruptcy, apparently in breach of s 266 of the Bankruptcy Act.
One example is R v Abouchabake [2024] NSWDC 42 (1 March 2024). He had sought advice from a trustee firm, to which he had been referred, which requested that he pay approximately $10,000 for fees in administering his estate. The trustee advised him of his responsibilities and obligations as a bankrupt. He paid the trustee $3,000 in cash as a voluntary contribution towards the cost of administration, in exchange for accepting the appointment.
He owed $700,000. He claimed that his business had collapsed, his marriage involved physical violence from his wife and step-son, he suffered from several serious ailments, and he gambled. His bankruptcy had been extended to 8 years. Despite his vulnerable situation, he was referred by AFSA for prosecution and jail. He had not explained the loss of a significant sum of money. He was sentenced to 18 months jail with a 6-month non-parole period.
AFSA has the distinction of being the 4th highest referrer of summary offences to the DPP and the 5th highest for indictable offences.
- AFSA reports on the deregistering of Paul Leroy as a trustee following his “failure to maintain mandatory insurance cover”, but in reality Federal Court action is being taken against him for allegedly taking some millions of dollars. That matter is on-going and AFSA says it is making “broader investigations into related entities to ascertain the full extent of [his] alleged wrongdoing”. Those investigations will need to examine how Leroy may have taken money despite the trustee regulatory regime in place.
- AFSA is also pursuing proceedings in relation to the Part X agreement of Beau Harnett, QUD507/2024, heard by Justice Downes of the Federal Court on 28-30 January 2025. The application is against Mr Hartnett and the joint trustees of the personal insolvency agreement, Anne Meagher and Adam Kersey. This action followed an investigation by the Inspector-General into the circumstances surrounding the agreement and reflects his concern that the terms of the agreement were unreasonable or not in the interests of creditors generally. Leave has been granted to the Fourth Respondent/Cross-Claimant Mr Anthony Robert Bell to file and serve an Amended Notice of Cross-Claim and an Amended Statement of Cross-Claim. Mr Bell was charged excessive legal fees by Mr Hartnett and he succeeded in having these fees substantially reduced: Hartnett v Bell as Executor of the Estate of Deakin-Bell [2023] NSWCA 244; plus costs. Hartnett v Bell as Executor of the Estate of Deakin-Bell (No 2) [2023] NSWCA 311.Judgment is reserved.
- There is also the default judgment against Sam Pos Pty Ltd trading as Debt Cutter and its director for repayment of the sum of $1,130,877.63 together with interest of $40,311.91 in relation to moneys unlawfully taken from debt agreement moneys held by Debt Cutter: QUD287/2023. We will no doubt hear the outcome of that in due course. See Official Trustee in Bankruptcy, in the matter of Sam Pos Pty Ltd (in liq) [2024] FCA 1350
AFSA sought a review of its regulatory processes and the Regulatory Review of 2024 by Hamill and Kingston makes various what may be termed anodyne recommendations including to establish a Regulatory Committee as a strategic advisory body, an Education & Outreach team and an Operational Analytics & Intelligence team.
Vulnerability Strategy update
A new Vulnerability Strategy and Action Plan 2025–28 is being developed. This will provide clarity on how AFSA defines vulnerability, high level objectives to progress over the next 3 years, and guiding principles to underpin the achievement of those objectives.
Untrustworthy advice
AFSA says untrustworthy advice is a significant harm in the credit system, and it is a key focus of AFSA’s Regulatory Action Statement 2024–25.
The likely scale of untrustworthy advice is said to be “bigger than expected”, with the harms impacting people who can least afford the costs, delays and distress associated with untrustworthy advice.
Examples of the untrustworthy practices AFSA is targeting are said to be excessive fees and practitioner remuneration; “delaying entry to the personal insolvency system”; engaging in activities with the intent to defraud creditors; and deficient administration of Part X personal insolvency agreements and Part IX debt agreements.
Obtaining full advice about insolvency and the options available is a little problematic for debtors given the limitations on trustees and liquidators giving advice prior to any appointment. Inspector-General Practice Direction 1 – Independence of personal insolvency practitioners explains the extent of pre-appointment advice that can be provided by a trustee before independence is compromised.
In that respect, actual objective advice is necessarily available from lawyers and accountants, and the services provided through small business helplines listed on AFSA’s website.
Bankruptcy processing times
AFSA says that changes to the Bankruptcy Act in November 2023 from the Bankruptcy Amendment (Discharge from Bankruptcy) Act 2023 have provided
“legal certainty on the calculation of bankruptcy discharge dates for individuals who are or have been bankrupt …dating back to 1992”.
In other words, there have been significant legal concerns about AFSA’s debtor petition processes over some decades which the power of the legislature has sought to address by way of remedial laws with retrospective effect. Given this retrospective impact, the Act includes a provision that the Commonwealth is liable to pay reasonable compensation to a person if the operation of the amendments would result in an “acquisition of property other than on just terms” within the meaning of paragraph 51(xxxi) of the Constitution.
Under the new arrangements, section 57B requires the Official Receiver to accept or refuse to accept a Statement of Affairs (SoA) within 14 days of it being filed, filed meaning presented lodged or given: s 57B(9). If the Official Receiver decides to refuse to accept the SoA, on the basis that it is “inadequate”, the debtor has 14 days to file an updated SoA.
The Official Receiver’s decision to accept or refuse to accept a statement of affairs is not reviewable because, it is said, this would cause further delay to the process. But there is a general ability under s 15(5) and s 303 for the Court to review an act done by the Official Receiver: see note to s 57B(2).
In Thompson v Lane (Trustee) (No 3) [2022] FCA 128 the Judge was critical of the then AFSA process, noting that, in the case before him, the “Bankruptcy Form” was sent off to the office of AFSA in Adelaide and
“exactly what happened upon its receipt there is, on the evidence, something of a mystery. … All that can be determined on the evidence … is that, inferentially, it was accepted by an Official Receiver, because on 1 July 2021”, a trustee was appointed.
See “Voluntarily becoming bankrupt” – the new bankruptcy process – Murrays Legal
AFSA says the Official Receiver assesses 91% of debtors’ petitions within 3 days and 96% within 5 days, well within the 14-day legislated timeframe for an SoA decision. Once the Official Receiver decides, the OR will notify the debtor, the bankrupt, and their trustee via a decision outcome letter.
Interesting?
