Senate

Replacement Explanatory Memorandum

(Circulated by authority of the Attorney-General, the Hon Christian Porter MP)

Schedule 3 - Registered debt agreement administrators

AMENDMENTS TO THE BANKRUPTCY ACT 1966

GENERAL OUTLINE

224. The amendments in Schedule 3 modify the standards that registered debt agreement administrators must satisfy. These amendments cover a registered debt agreement administrator's prerequisites for registration, ongoing obligations and grounds for deregistration. The amendments also cover the Inspector-General's powers to investigate registered debt agreement administrators.

Part 1 of Schedule 3 - Applications for registration

Items 1 and 2 - Section 185

225. Paragraph 20-20(4)(b) of Schedule 2 of the Bankruptcy Act requires a registered trustee to take out professional indemnity insurance and fidelity insurance to qualify for registration. Currently there is no similar requirement for applicants seeking registration as debt agreement administrators to hold insurance. The absence of a requirement to hold insurance is problematic because large amounts of money flow through the debt agreement system and the larger administrators deal with considerably larger inflows of money than an average registered trustee.

226. Items 6 to 13 of Part 1 Schedule 3 insert provisions that require debt agreement administrators to obtain adequate and appropriate professional indemnity and fidelity insurance, similar to the requirements set out in paragraph 20-20(4)(b) of the Bankruptcy Act, in order to have their applications for registration and renewal of registration approved by the Official Receiver.

227. Section 185 provides definitions for Part IX of the Bankruptcy Act. Item 1 of Part 1 Schedule 3 inserts new definitions of 'adequate and appropriate fidelity insurance' and 'adequate and appropriate professional indemnity insurance' (to apply to Part IX only) to incorporate the meaning of those phrases as effected by new section 185A.

228. New section 185A, as inserted by item 2 of Part 1 Schedule 3, provides that the Inspector-General may determine, in a legislative instrument, what constitutes adequate and appropriate insurance in specified circumstances or for specified classes of registered debt agreement administrators. This amendment aligns with the equivalent provision for trustees at section 25-1 of Schedule 2 of the Bankruptcy Act. It ensures that the Inspector-General can adjust the insurance requirements as necessary to reflect current practices and regulatory standards.

Items 3 and 4 - Subsection 186C(1)

229. Currently under subsection 186C(1), the Inspector-General in Bankruptcy must approve or refuse to approve an application for registration as a debt agreement administrator within 60 days of receiving the application. The process to assess an application is time-consuming, as the Inspector-General must undertake necessary checks as well as process the application before arranging an interview with the applicant. There is not currently a legislative requirement for the Inspector-General to interview applicants, however in practice this routinely takes place as part of the assessment process.

230. Item 3 of Part 1 Schedule 3 inserts a new subsection (1A) into section 186C to require the Inspector-General to interview applicants for registration as debt agreement administrators as soon as practicable after receiving the application. This amendment will minimise delays in processing applications and provide the Inspector-General with sufficient flexibility to adjust timeframes to reflect the varying levels of complexity that each application presents. This amendment aligns with a similar obligation for the assessment of trustee registrations under regulation 8.30 of the Bankruptcy Regulations.

231. Item 4 of Part 1 Schedule 3 amends subsection 186C(1) so that the Inspector-General's deadline for making a decision is 45 business days after the date of interviewing the applicant. Setting a timeframe based on the date of interview, rather than the date of application, will allow the Inspector-General to devote sufficient time to process and consider applications. This amendment will also align the requirement for processing a debt agreement administrator's application with that of a trustee's application for registration under subsection 20-20(3) of Schedule 2 of the Bankruptcy Act.

Items 5 and 6 - Subsection 186C(2)

232. Paragraph 20-20(4)(b) of Schedule 2 of the Bankruptcy Act requires a registered trustee to take out professional indemnity insurance and fidelity insurance to qualify for registration. Currently there is no similar requirement for applicants seeking registration as debt agreement administrators to hold insurance. The absence of a requirement to hold appropriate insurance is problematic because large amounts of money flow through the debt agreement system and the larger administrators deal with considerably larger inflows of money than an average registered trustee.

233. Under subsection 186C(2), the Inspector-General in Bankruptcy must approve an application by an individual for registration as a debt agreement administrator if certain criteria are met. This includes the applicant passing the basic eligibility test (defined by section 186A), having the ability and knowledge to perform the duties of an administrator, and holding the qualifications and experience (if any) prescribed by the Bankruptcy Regulations.

234. Items 5 and 6 of Part 1 Schedule 3 amend subsection 186C(2) to expand the criterion under which the Inspector-General must approve an individual's application for registration as a debt agreement administrator. Under the new paragraphs 186C(2)(f) and (g), the Inspector-General must refuse to approve applications where there is no evidence in writing that the applicant has taken out adequate and appropriate professional indemnity and fidelity insurance, or is not a fit and proper person.

235. The insertion of new paragraph 186C(2)(f) aligns with the equivalent provisions for trustees at section 20-20(4) of Schedule 2 of the Bankruptcy Act. This will ensure that all applicants have sufficient safeguards in place to cover possible future claims against them as registered debt agreement administrators.

236. Currently, the Inspector-General cannot reject an applicant in cases where the applicant passes the criteria set out in the basic eligibility test (defined by section 186A) but nevertheless is not a fit and proper person. Item 6 also inserts paragraph 186C(2)(g) which requires the Inspector-General to refuse to approve an application for registration if the individual is not a fit and proper person.

Item 7 - Subsection 186C(3)

237. Section 186C(3) currently provides that the Inspector-General must approve an individual's application for renewal, regardless of any outstanding charges the administrator owes AFSA. The corresponding registered trustee renewal system provides that the Inspector-General must not extend a trustee's registration if they owe more than $500 of notified estate charges. This condition is established by the combined effect of paragraph 20-75(1)(e) of Schedule 2 and subsection 20-10(2) of the Practice Rules.

238. Section 20-75 of Schedule 2 requires a registered trustee to take out professional indemnity insurance and fidelity insurance to qualify for registration renewal. Currently, debt agreement administrators have no similar prerequisite when applying for registration renewal. The absence of a prerequisite to hold appropriate insurance is problematic because large amounts of money flow through the debt agreement system and the larger administrators deal with considerably larger inflows of money than an average registered trustee.

239. Item 7 of Part 1 Schedule 3 repeals subsection 186C(3) and substitutes a new provision. This amendment provides that the Inspector-General must refuse to approve an individual's application for registration renewal unless adequate and appropriate professional indemnity and fidelity insurance is maintained by the applicant, and the applicant does not owe more than the prescribed amount of notified estate charges.

240. Item 13 of Part 1 Schedule 3 inserts a new subsection 186C(5A) which provides that a person owes a notified estate charge if:

•

the person owes either a charge under the Bankruptcy (Estate Charges) Act 1997 , or a penalty under section 281 (late payment penalty) under the Bankruptcy Act, and the Inspector-General has notified the person of the unpaid estate charge at least one month and 10 business days before the person's registration as a debt agreement administrator ceases to be in force.

241. These amendments align with equivalent provisions for registration renewal for trustees under section 20-75 of Schedule 2 of the Bankruptcy Act. This will ensure that all individual applicants for renewal of debt agreement administrator registration have sufficient insurance in place to cover possible future claims against them as registered debt agreement administrators, as well mandate administrators to pay any outstanding notified estate charges prior to registration renewal. This will ensure that debt agreement administrators set a good example in relation to their own debt management.

Items 8 to12 - Subsection 186C(4)

242. Under subsection 186C(4) the Inspector-General in Bankruptcy must approve an application made by a company for registration as a debt agreement administrator if certain criteria are met. This includes the applicant company passing the basic eligibility test (defined by subsection 186A(3)), and having the ability and knowledge to perform the duties of a debt agreement administrator. If these criteria are not met, the Inspector-General must refuse to approve the application.

243. Items 8 to 12 of Part 1 Schedule 3 insert new provisions into subsection 186C(4) that require prospective company debt agreement administrators to obtain adequate and appropriate professional indemnity and fidelity insurance in order to have their applications for registration approved by the Official Receiver, similar to the requirements set out for trustees in paragraph 20-20(4)(b) of Schedule 2 of the Bankruptcy Act.

244. Section 185 provides definitions for Part IX of the Bankruptcy Act. Item 1 of Part 1 Schedule 3 inserts new definitions of 'adequate and appropriate fidelity insurance' and 'adequate and appropriate professional indemnity insurance' (to apply to Part IX only) to incorporate the meaning of those phrases as effected by new section 185A.

245. New section 185A, as inserted by item 2 of Part 1 Schedule 3, provides that the Inspector-General may determine, in a legislative instrument, what constitutes adequate and appropriate insurance in specified circumstances or for specified classes of registered debt agreement administrators. This amendment aligns with the equivalent provision for trustees at section 25-1 of Schedule 2 of the Bankruptcy Act. It ensures that the Inspector-General can adjust the insurance requirements as necessary to reflect current practices and regulatory standards.

246. Currently, the Inspector-General cannot reject a company applicant in cases where the company applicant passes the criteria set out in the basic eligibility test (defined by section 186A) but has otherwise engaged in unethical practice and is not considered a fit and proper person. Item 12 of Part 1 Schedule 3 also inserts new paragraphs 186C(4)(f) and (g). These provisions require the company applicant to be a fit and proper person, and for each director in the company to be a fit and proper person, in order for the Inspector-General to approve an application for registration as a debt agreement administrator. This amendment aims to protect debtors by ensuring that company debt agreement administrators have the requisite skills and ethical practice to perform their duties with the best interests of the debtor in mind.

Item 13 - Subsection 186C(5)

247. Subsection 186C(5) currently provides that the Inspector-General in Bankruptcy must approve an application by a company for renewal of registration as a debt agreement administrator, regardless of any outstanding charges the administrator owes the AFSA. The registered trustee renewal system, on the other hand, provides that the Inspector-General must not extend a trustee's registration if they owe more than $500 of notified estate charges. This condition is established by the combined effect of paragraph 20-75(1)(e) of Schedule 2 and subsection 20-10(2) of the Practice Rules.

248. Section 20-75 of Schedule 2 requires a registered trustee to take out professional indemnity insurance and fidelity insurance to qualify for registration renewal. Currently, debt agreement administrators have no similar prerequisite when applying for registration renewal. The absence of a prerequisite to hold appropriate insurance is problematic because large amounts of money flow through the debt agreement system and the larger administrators deal with considerably larger inflows of money than an average registered trustee.

249. Item 13 of Part 1 Schedule 3 repeals subsection 186C(5) and substitutes a new subsection (5). This amendment provides that the Inspector-General must refuse to approve applications for registration renewal by a company unless adequate and appropriate professional indemnity and fidelity insurance is maintained by the applicant company, and the applicant company does not owe more than the prescribed amount of notified estate charges.

250. Item 13 also inserts a new subsection 186C(5A) which provides that a person or company owes a notified estate charge if:

•

the person owes either a charge under the Bankruptcy (Estate Charges) Act 1997 , or a penalty under section 281 (late payment penalty) under the Bankruptcy Act, and

•

the Inspector-General has notified the person of the unpaid estate charge at least one month and 10 business days before the person's registration as a debt agreement administrator ceases to be in force.

251. These amendments align the process of registration renewal for company debt agreement administrators with that of trustees under section 20-75 of Schedule 2 of the Bankruptcy Act. This will ensure that all applicant companies have sufficient insurance in place to cover possible future claims against them as registered debt agreement administrators, as well mandate company debt agreement administrators to pay any outstanding notified estate charges prior to registration renewal. This will ensure that debt agreement administrators set a good example in relation to their own debt management.

Item 14 - Application provision

252. Item 14 provides that amendments made under Part 1 Schedule 3 apply in relation to applications for registration and renewal of registration as a debt agreement administrator (under section 186B of the Bankruptcy Act) made on or after the commencement of item 14, being at the end of the period of six months beginning on the day the Amending Act receives the Royal Assent.

Part 2 of Schedule 3 - Conditions of registration

Items 15 to 18 - Subsection 10(1), section 186F and section 186G

253. Section 105-1 of Schedule 2 of the Bankruptcy Act provides the Minister with the power to create practice standards for registered trustees. The Inspector-General in Bankruptcy can give a show-cause notice to a registered trustee who breaches a standard in the Practice Rules and a committee can subsequently deregister them pursuant to section 40-55 of Schedule 2 of the Bankruptcy Act. Currently, the Minister has no power to set industry standards for registered debt agreement administrators.

254. Section 186F sets out the conditions of registration for debt agreement administrators who are individuals (i.e. not companies).The Inspector-General may, by written notice given to the (prospective) debt agreement administrator, impose specified conditions on the person's registration as a debt agreement administrator under subsection 186F(2). Section 186G sets out the equivalent provisions for the registration and conditions for debt agreement administrators that are companies.

255. Items 16 to 18 of Part 2 Schedule 3 insert new subsections into sections 186F and 186G. New subsections 186F(3) and 186G(2A) provide that the registration of individual and company debt agreement administrators is subject to conditions, and that the Minister has the power to make legislative instruments for the purposes of determining the conditions under new subsections 186F(4) (individuals) or 186G(2B) (companies).

256. Currently, the Inspector-General can give an individual debt agreement administrator (under existing paragraph 186K(3)(d)) or a company debt agreement administrator (under existing paragraph 186L(3)(c)) a show-cause notice, as potential grounds for cancelling their registration, upon their contravention of a condition of the individual's or company's registration as a debt agreement administrator. The legislative instrument created by the Minister under new subsection 186F(4) will set these conditions of registration.

257. The amendments introduced by items 16 to 18 of Part 2 Schedule 3 will enable the Minister to more readily adjust specific debt agreement administrator practice requirements and professional attributes to ensure that debtors and creditors are adequately protected from administrator misconduct or unprofessional practice.

258. Subsection 10(1) currently provides that the Minister may delegate all powers under the Bankruptcy Act other than the power to delegate itself under subsection 10(1).

259. Item 15 of Part 2 Schedule 3 builds on the amendments to subsection 10(1) as inserted by item 19 of Part 4 Schedule 1. Item 19 of Part 4 Schedule 1 amends subsection 10(1) to provide that the Minister cannot delegate his power under new subsection 185(4B) (as inserted by item 21 of Part 4 Schedule 1) to determine (by legislative instrument) a percentage by which the total payments under a debt agreement can exceed the debtor's after tax yearly income.

260. Item 15 of Part 2 Schedule 3 amends subsection 10(1) to additionally exclude the powers under new subsections 186F(4) and 186G(2B), as inserted by items 16 and 17 of Part 2 Schedule 3. The legislative instrument making power exercisable by the Minister under new subsections 186F(4) and 186G(2B) to determine industry standards for registered debt agreement administrators is a key consumer-protection safeguard. As such, item 15 amends subsection 10(1) to provide that the Minister cannot delegate this power.

Item 19 - After subsection 186H(1)

261. Section 105-1 of Schedule 2 of the Bankruptcy Act provides the Minister with the power to create practice standards for registered trustees. Currently, the Minister has no power to set industry standards for registered debt agreement administrators.

262. Items 16 to 18 of Part 2 Schedule 3 insert new subsections into sections 186F and 186G. New subsections 186F(3) and 186G(2A) provide that the registration of individual and company debt agreement administrators is subject to conditions, and that the Minister has the power to make legislative instruments for the purposes of determining the conditions under new subsections 186F(4) (individuals) or 186G(2B) (companies).

263. Existing subsection 186H(1) further provides that a debt agreement administrator may apply to the Inspector-General to have any conditions on their registration changed or removed.

264. Item 19 of Part 2 Schedule 3 inserts a new subsection 186H(1A) to ensure that the conditions determined in an instrument under new subsections 186F(4) or 186G(2B), as inserted by items 16 to 18 of Part 2 Schedule 3, cannot be removed upon application under subsection 186H(1). This amendment will ensure that the an application to change or remove registration conditions only applies to specified conditions placed on a debt agreement administrator's registration under subsection 186C(9).

Item 20 - Application provisions

265. Item 20 provides that amendments made to sections 186F and 186G under Part 2 Schedule 3 will apply to all debt agreement administrators regardless of whether they became registered before or after the commencement of item 20, being the end of the period of six months after the day the Amending Act receives the Royal Assent. This will ensure fairness and consistency in the application of industry-wide conditions across the debt agreement regime, as well as simplify and streamline regulatory functions of the AFSA.

Part 3 of Schedule 3 - Ongoing obligation to maintain insurance

Item 21 - After Subdivision B of Division 8 of Part IX

266. Paragraph 20-20(4)(b) of Schedule 2 of the Bankruptcy Act requires a registered trustee to take out professional indemnity insurance and fidelity insurance to qualify for registration. Currently there is no similar requirement for applicants seeking registration as debt agreement administrators to hold insurance. The absence of a requirement to hold appropriate insurance is problematic because large amounts of money flow through the debt agreement system and the larger administrators deal with considerably larger inflows of money than an average registered trustee.

267. Items 6 to 13 of Part 1 Schedule 3 insert provisions that require debt agreement administrators to obtain adequate and appropriate professional indemnity and fidelity insurance, similar to the requirements set out in paragraph 20-20(4)(b) of the Bankruptcy Act, in order to have their applications for registration and registration renewal approved by the Official Receiver.

268. Section 185 provides definitions for Part IX of the Bankruptcy Act. Item 1 of Part 1 Schedule 3 inserts new definitions of 'adequate and appropriate fidelity insurance' and 'adequate and appropriate professional indemnity insurance' (to apply to Part IX only) to incorporate the meaning of those phrases as effected by new section 185A.

269. New section 185A, as inserted by item 2 of Part 1 Schedule 3, provides that the Inspector-General may determine, in a legislative instrument, what constitutes adequate and appropriate insurance in specified circumstances or for specified classes of registered debt agreement administrators.

270. Item 21 of Part 3 Schedule 3 inserts a new section 186HA to mandate that registered debt agreement administrators must maintain adequate and appropriate professional indemnity and fidelity insurance, and that failure to do so amounts to an offence. In the case of intentional or reckless failure, a penalty of 1,000 penalty units will apply. However, if the failure is not intentional or reckless, it is considered a strict liability offence with a penalty of 60 penalty units.

271. The application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for individuals who may be accused of breaching such offences.

272. Strict liability offences are appropriate in this area of regulation, as it is necessary to strongly deter misconduct that can have serious consequences for affected parties. Strict liability offences also reduce non-compliance, which bolsters the integrity of the regulatory regime enforced by the AFSA. Strict liability is particularly beneficial to these regulatory bodies as they need to deal with offences expeditiously to maintain public confidence in their regulatory regimes.

273. The strict liability offences in new subsection 186HA(3) meet all the conditions listed in the Guide to Framing Commonwealth Offences (pages 23 and 24). For example, the fines for the offences do not exceed 60 penalty units for an individual. By providing a strict liability enforcement regime for duties of debt agreement administrators, the Bill significantly enhances the likelihood of compliance by administrators.

274. These amendments align with the equivalent provision for trustees at section 25-1 of Schedule 2 of the Bankruptcy Act. The severity of the penalty for intentionally or recklessly failing to comply with this requirement and the need for a strict liability offence reflects the importance of adequate and appropriate insurance for debt agreement administrators. As providers of professional services who often deal with large sums of money, debt agreement administrators must hold adequate and appropriate insurance to mitigate the risks associated with the profession.

Item 22 - Application provision

275. Item 14 Part 1 Schedule 3 provides that the prerequisite to hold sufficient insurance applies to applications for registration as a debt agreement administrator made after commencement of item 14, being at the end of the period of six months after the Amending Act receives the Royal Assent. Accordingly, item 22 of Part 3 Schedule 3 provides that the obligation for debt agreement administrators to maintain insurance also only applies to registered debt agreement administrators who applied for registration on or after the end of the period of six months after the Amending Act receives the Royal Assent.

Part 4 of Schedule 3 - Cancellation of registration

Items 23 and 24 - Subsections 186K(3) and 186L(3)

276. Section 186K provides the circumstances in which the Inspector-General may cancel an individual's registration as a debt agreement administrator. Subsection 186K(3) lists various grounds for which the Inspector-General can request the debt agreement administrator to provide a written explanation of why they should continue to be registered. The equivalent provisions for company debt agreement administrators are set out in subsection 186L(3).

277. Items 23 and 24 of Part 4 Schedule 3 insert new paragraphs into subsection 186K(3) and 186L(3) to expand the grounds under which the Inspector-General may request a written explanation from the debt agreement administrator to justify their continued registration.

278. New paragraphs 186K(3)(e) and (f) and 186L(3)(d) and (e) empower the Inspector-General to request a written explanation if the debt agreement administrator ceases to have adequate and appropriate professional indemnity or fidelity insurance, or the administrator is not a fit and proper person. Similarly, new paragraph 186L(3)(f) enables the Inspector-General to request a written explanation if the debt agreement administrator is a company and a director of the company is not a fit and proper person.

279. These amendments will enable the Inspector-General to cancel a debt agreement administrator's registration under subsections 186K(4) or 186L(4) if:

•

the debt agreement administrator does not respond to the written request

•

the Inspector-General is not satisfied with the debt agreement administrator's explanation that the administrator does in fact hold the required insurance, or

•

the Inspector-General is not satisfied with the debt agreement administrator's explanation for behaving in a manner that indicates they are not a fit and proper person.

280. Empowering the Inspector-General to deregister administrators on the grounds set out in new paragraphs 186K(3)(e) and (f) and 186L(3)(d), (e) and (f) will enhance compliance by debt agreement administrators. Possible deregistration in these circumstances is appropriate to ensure that debt agreement administrators have sufficient insurance in place to cover future claims against them. Possible deregistration will also ensure that debt agreement administrators are fit and proper persons. These amendments aim to protect debtors by ensuring that debt agreement administrators have the requisite skills and ethical practice to perform their duties with the best interests of the debtor in mind.

Item 25 - Application provision

281. Item 14 Part 1 Schedule 3 provides that the prerequisite to hold sufficient insurance applies to applications for registration as a debt agreement administrator made after commencement of item 14, being at the end of the period of six months after the Amending Act receives the Royal Assent. Accordingly, item 25 of Part 3 Schedule 3 provides that the obligation for debt agreement administrators to maintain insurance and be a fit and proper person also only applies to registered debt agreement administrators who applied for registration on or after the end of the period of six months after the Amending Act receives the Royal Assent.

Part 5 of Schedule 3 - Trust accounts

Item 26 - After subsection 186LA(1)

282. Section 185LD requires registered debt agreement administrators and trustees who are administering one or more debt agreements to maintain a separate bank account and to pay all moneys received from debtors under a debt agreement into that account.

283. Subsection 186LA(1) sets out the conditions under which the Inspector-General in Bankruptcy may obtain information from a bank concerning trust accounts held by a registered debt agreement administrator or a registered trustee administering a debt agreement. Under these conditions, the Inspector-General can only require the bank to provide information on a debt agreement administrator's bank account, administered under section 185LD, if the Inspector-General has already requested a written explanation (also referred to as issuing a show-cause notice) from the debt agreement administrator under subsection 186K(3), subsection 186L(3) or subsection 40-40(1) of Schedule 2 of the Bankruptcy Act. However, the Inspector-General can only issue a show-cause notice to the practitioner if he or she has reasonable grounds to believe any of the criteria specified under those subsections.

284. In certain circumstances, the Inspector-General may need information from a bank regarding a debt agreement administrator's trust accounts in order to reach the 'reasonable grounds to believe' standard. For example, items 14 and 15 of Part 2 Schedule 1 insert a new subsection 185LA(2), which provides that the debt agreement administrator has a duty to not reimburse themselves for expenses that were not specified in new subsection 185C(3B) (as inserted by item 13 of Part 2 Schedule 1). If the Inspector-General suspected a debt agreement administrator had failed to carry out their duties by improperly reimbursing themselves for expenses, the Inspector-General would require the debt agreement trust account bank statements to be reasonably satisfied of the improper use of trust moneys.

285. Currently, if the Inspector-General only suspects (as opposed to reasonably believes) that the debt agreement administrator is misusing trust money, current subsection 186LA(1) does not allow the Inspector-General to make additional enquiries with the bank to test that suspicion and reach the reasonably believes standard. Being unable to be reasonably satisfied in this manner means that the Inspector-General cannot issue a show-cause notice in order to cancel the debt agreement administrator's registration. These conditions currently do not allow the Inspector-General to prevent trust moneys being misused. In the case of a registered trustee administering a debt agreement, while the criteria under subsection 40-40(1) of Schedule 2 of the Bankruptcy Act is more comprehensive, it is still insufficient to reach the reasonable belief standard for the Inspector-General to make additional enquiries with the bank.

286. Item 26 of Part 5 Schedule 3 inserts a new subsection 186LA(1A) to enable the Inspector-General to obtain information concerning a debt agreement administrator or registered trustee's debt agreement trust account from a bank without first issuing a show-cause notice. The Inspector-General will be able to require this information from the bank under existing subsection 186LA(2) if it reasonably suspects, in connection with the account, that the debt agreement administrator has contravened a provision of the Bankruptcy Act, failed to properly carry out their duties, or contravened a condition of their registration.

287. This amendment provides that if the Inspector-General reasonably suspects that the practitioner is misusing trust money, such as under existing subsection 185LD(2) or new subsection 185LA(2) (inserted by items 14 and 15 of Part 2 Schedule 1), it can obtain information from the bank under new subparagraphs 186LA(1A)(b)(i) or (ii). If the obtained information gives the Inspector-General reasonable grounds to believe that the moneys are being misused, the Inspector-General could then issue a show-cause notice to the practitioner under paragraph 186K(3)(b), for example, on the grounds that the practitioner failed to properly carry out their duties as a debt agreement administrator. Issuing the show-cause notice would subsequently allow the Inspector-General to immediately freeze the practitioner's trust account under existing subsection 186LB(2).

288. While the insertion of subsection 186LA(1A) allows the Inspector-General to bypass the show-cause notice requirement when requiring information on a practitioner's trust account, the new power is appropriate given the serious consequences of a debt agreement administrator practitioner misusing trust moneys destined for creditors. To ensure that the Inspector-General cannot misuse this power, new paragraph 186LA(1)(b) includes the test of 'reasonably suspects', which requires reasonableness of the Inspector-General's suspicion and reasonableness of the grounds for suspicion.

Item 27 - Application provision

289. Item 27 provides that amendments contained in Part 5 of Schedule 3 will apply to debt agreements that come into force on or after the commencement of item 27, being the end of the period of six months after the Amending Act receives the Royal Assent.

Part 6 of Schedule 3 - Functions of Inspector-General

Item 29 - After paragraph 12(1)(bc)

290. Section 12 of the Bankruptcy Act sets out the functions of the Inspector-General in Bankruptcy, including the circumstances in which he or she may make enquiries or investigate matters. Paragraph 12(1)(bb) provides the Inspector-General with the power to investigate and inquire into an administrator's conduct relating to a debt agreement. The scope of this power applies to the period starting when a debt agreement is made under section 185H. The Inspector-General's investigation and inquiry powers do not include the period prior to debt agreement being made (including the period before the debtor lodges a debt agreement proposal). Prior to lodging a debt agreement proposal, the debtor will typically sign an engagement contract with the administrator for the administrator's service. Most contracts include the upfront fee amount and set conditions around the upfront fee's payment.

291. Item 29 of Part 6 Schedule 3 inserts a new paragraph 12(1)(bd) to provide that the Inspector-General's investigation and inquiry powers extend to any conduct of a debt agreement administrator. This amendment will allow the Inspector-General to investigate or inquire into the registered debt agreement administrator's conduct during the period starting from when the debt agreement administrator and debtor first engage. If the agreement is not ultimately made, this will not prevent the Inspector-General from investigating or inquiring into the conduct. The Inspector-General will also be able to investigate and inquire into a debt agreement administrator's advertising or other methods used to attract debtors.

Item 30 - Application provision

292. Item 30 provides that the Inspector-General will be able to investigate conduct of a debt agreement administrator that has occurred on or after the commencement of item 30 Part 6 Schedule 3 regardless of whether the administrator was registered before, on or after that commencement. This ensures that the Inspector-General will be able to investigate the conduct of debt agreement administrators registered at commencement, but protects these administrators from having their conduct investigated or inquired into if the conduct occurred prior to commencement.