Explanatory Memorandum
(Circulated by authority of the Attorney-General, the Honourable Daryl Williams AM QC MP)Readers' Guide
Regulation Impact Statement
proposed Amendments to the Bankruptcy Act and Regulations Applying to the Registration of Bankruptcy Trustees.
Background: The present trustee registration scheme
6 The Bankruptcy Act 1966 (the Act) makes provision for the registration of private sector trustees to administer bankrupt estates. Trustees are registered for an initial period of 3 years and can apply for re-registration after that time. Re-registration is automatic on application and payment of a fee (currently $1,000). The fee partially recovers the costs of administering the registration system. The provisions of the Act require applicants to hold certain qualifications and to have relevant experience and prescribe the duties of a trustee.
7 On receiving an application a Committee is convened to consider it. The Committee comprises the Inspector-General, an officer of the Attorney-General's Department and a member chosen by the Insolvency Practitioners Association of Australia (IPAA). The Inspector-General must act in accordance with the Committee's recommendation.
8 A person who applies to become a trustee is registered if they meet criteria set out in section 155A of the Act. The Committee assesses the suitability of the applicant using criteria relating to minimum academic qualifications, experience, knowledge and abilities, insurance coverage, and moral and business conduct.
9 Section 155A(3) of the Regulations provides the Committee with some discretion to register a trustee who does not meet all the requirements (defined in Regulation 8.02) prescribed by the regulations.
10 There are about 200 trustees registered, of which 165 are active. An inactive trustee is one who has not taken on any new estates in the past year. He or she may still be working on older estates, as an estate can take several years to finalise.
11 There are no limits to the number of trustees registered at any time. In the past, where there were insufficient trustees in a particular area, staff of ITSA encouraged qualified people to apply for registration.
12 Qualifications and experience are tested not only at initial registration. Continued eligibility is tested through ITSA investigations of complaints about specific conduct of trustees, its periodic inspections of the trustees' practices and regular reporting to the Inspector-General in Bankruptcy.
13 If ITSA considers a trustee is not performing satisfactorily, the Inspector-General may call upon a Committee to determine whether the trustee should be de-registered or have conditions imposed on his or her further practice as a registered trustee.
14 There is a right of review to the Administrative Appeals Tribunal (the AAT) of all the Inspector-General's decisions regarding registration.
15 Two issues needed to be addressed:
- (a)
- In November 1998, the AAT made a decision that two applicants who did not meet the specific criteria could nonetheless be registered because, in its opinion, they had the capacity to become trustees. The Tribunal members relied, as they were entitled to, upon a strict view of subsection 155A(3). That provision was intended to allow registration of otherwise qualified applicants who may have had international qualifications that did not exactly fit those prescribed. However, it was cast in wider terms and the applicants fell within them.
- Following the AAT decision, senior counsel advised that, in his view, it was a real threat to the continued efficacy of the registration scheme, particularly if applied in future registration review matters before the AAT. Counsel also recommended that the Committee be able to require applicants to sit an exam.
- (b)
- Unrelated issues have been the lateness of applications by some trustees to extend their registrations and the delay by some in paying estate charge due by trustees under the Bankruptcy (Estate Charges) Act 1997 .
16 The objectives of the current trustee registration system are:
- (a)
- that only competent and adequately qualified practitioners work as bankruptcy trustees; and
- (b)
- that registration extension applications be lodged before the expiry of current registration and that charge debts be paid by the due date.
17 As to objective (a), there were only two options available. Option one, doing nothing, was undesirable because, first, it would not achieve the outcome required of the registration system and, secondly, applicants would be left unsure about the standard of knowledge required of them.
18 Option 2 was to recast section 155A to ensure that applicants cannot be registered if the Committee is not satisfied that they have the ability (including knowledge) to perform satisfactorily the duties of a registered trustee. In that regard, the proposed insertion of a provision empowering a Committee to require applicants to sit for an exam will assist the Committee's decision making.
19 In parallel, the involuntary termination provisions in section 155H are proposed to be amended to extend the grounds on which a trustee can be asked to give the Inspector-General a written explanation why he or she should continue to be registered. Under the proposal, an explanation can be sought if the Inspector-General believes that the trustee no longer has the ability (including knowledge) to perform satisfactorily the duties of a registered trustee. Regulations would also be amended to support this course of action.
20 As to objective (b), again, one option would have been to do nothing. However, this was unacceptable, as trustee re-registration applications should be lodged before the relevant expiry date, and charge payments should be made by the due date for payment. Option 2 was to make the necessary changes to address these issues.
21 To encourage trustees to apply and pay for re-registration on time, it is proposed to add a provision prohibiting re-registration if the person owes more than $50 of notified charge, or of penalty in relation to it. It is also proposed to bring forward the due date for applications and payment of fees to a month before current registration expires.
22 Payment of the fee late, but before the current registration expiry date, will attract a 20% penalty. If the fee and the penalty are not paid before the current registration expiry date, the trustee will be unregistered and will need to apply to the Court to become registered again.
Costs imposed by the new regulatory measures
23 Under both proposed measures, there ordinarily will be no additional registration costs to the Government or trustees. The assessment of a trustee for initial registration will continue to be made by a Committee using standards applied before the AAT decision, but with the Committee also having the proposed new option of requiring the applicant to sit an exam.
24 Trustees will re-register, as, as at present, by application. By encouraging on-time payment this proposal is expected to reduce trustee applications to the Court for registration and the associated expense.
25 Additional costs will be incurred if a trustee has failed to perform in a satisfactory manner in the preceding 3 year period. This will be assessed by ITSA periodically and the trustee given advice after each inspection. If a trustee falls short of the standards, he or she will be asked prior to the date for re-registration to explain why he or she should continue to be registered. If the response is unsatisfactory, a Committee will be convened to assess the application for re-registration.
26 The proposed amendments will impose a small additional cost on ITSA, which must evaluate trustee performance. This is consistent with the regulatory role already performed and in line with planned enhancements to regulatory procedures in other areas.
27 It is anticipated that the need to convene the Committee would be rare, as most trustees respond to reports made following annual inspections. The costs of convening Committees are about $3,000.
28 The consultants who reviewed the trustee registration provisions consulted key stakeholders in the personal insolvency system, including registered trustees, creditors, and financial counsellors, the Bankruptcy Reform Consultative Forum and a bankruptcy discussion group in Melbourne. Public submissions were called for but no submissions were received.
29 The parties affected are the trustees. The IPAA has agreed that regulation of trustees is desirable and should continue in its present form. It has indicated that it is desirable to have an effective mechanism for weeding out non-performers.
30 Without competent trustees, creditors and bankrupts could be affected adversely and costs to government in dealing with complaints would escalate. Eventually, creditor confidence in the bankruptcy system as a whole would be affected adversely.
31 The Bankruptcy Reform Consultative Forum and a reasonable sample of active trustees in each State were consulted by ITSA about the proposed registration extension procedures. No objections were raised.
32 The amendments proposed clarify and strengthen the registration provisions to enable the registration Committee to recommend for registration only those applicants who have the necessary qualifications, experience and practical expertise to undertake satisfactorily the duties of a trustee. They encourage trustees to lodge and pay for re-registration on time.
33 The proposed amendments will have little financial impact while enhancing the Inspector-General's capacity to ensure the desired outcome that only those individuals who are competent are registered and remain registered
34 The proposals are to be implemented by amendments to Division 1 of Part VIII of the Act and by amendments to the Bankruptcy Regulations.
35 The registration scheme and the inspections of trustees are reviewed regularly to ensure they are meeting their objectives. The Inspector-General reports annually to Parliament on both the outcomes achieved by regulation of trustees and the registration process.