Yulia Petrenko

yulia@oracleis.com.au

The Federal Court has recently awarded a fine of $650,000 and awarded costs against a debt agreement administrator who was found to have engaged in undue harassment or coercion in collecting debt agreement contributions.

The Federal Court has recently found that A&M Group Pty Ltd trading as ‘Debt Negotiators’ (“A&M”) engaged is misleading or deceptive conduct and undue harassment in their collection of payments to distribute to creditors under debt agreements.

Bromwich J in ASIC v A&M Group Pty Ltd trading as Debt Negotiators [2022] FCA 1534, observed the high standard of conduct required of registered debt agreement administrators, “in their dealings with a highly vulnerable part of our society”.

For context, a debt agreement, also known as a ‘Part IX’ agreement as they are made under Part IX of the Bankruptcy Act 1966, is a formal means for a debtor to settle their debts with creditors without entering into bankruptcy.

The case against A&M was brought by the Australian Securities & Investments Commission (“ASIC”), following a referral by the Australian Financial Security Authority (“AFSA”), which initially identified the unlawful conduct while investigating an anonymous tip-off.

ASIC alleged that A&M sent text messages, emails and made telephone calls to 6 separate debtors, where it made statements that were untrue.  The Court found that A&M in making such statements, contravened s. 12DA(1) of the Australian Securities and Investments Commission Act 2001 (“ASIC Act”), in that their statements were misleading or deceptive, or likely to mislead or deceive.  Further, it was found that A&M was in breach of s. 12DJ(1) of the ASIC Act, in engaging in undue harassment or coercion.

The treatment of the debtors that gave rise to such fundings included indiscriminately contacting, or threatening to contact, uninvolved friends, family members and work colleagues of the debtors and informing them that the debtor was being pursued by creditors.

This was evidenced by text messages and emails sent to the debtors, which included the text “Unfortunately if we do not hear from you we will need to extend our searches to get in contact with you. This means we may need to contact friends, family, neighbours, workplaces or even landlords”.  ASIC submitted that this tactic was clearly intended to embarrass and humiliate the debtors.

In addition, A&M had made other statements to the debtors that included representations such as:

1. a) the creditors had communicated to A&M that they were, or might be, considering terminating the debt agreement and pursuing legal action;

1. b) the debtor could be charged with fraud and sentenced to imprisonment for failing to make payments under the debt agreement or selling their assets; and

1. c) if a debt was subject to a garnishee order, the creditors would be entitled to take 80% of the debtor’s income until their debts were fully repaid.

As a consequence of the threat of imprisonment, one of the debtors, who was suffering from mental health issues attributable to domestic violence, had suicidal thoughts.

It was found that the earliest record of A&M becoming aware of the contravening conduct of their staff was in June 2018, where a customer support officer sent an email to a debtor stating that they would be charged with fraud and could face up to 12 months imprisonment if they had received an early release of their superannuation but had not paid it to their debt agreement administrator.

The employee was reprimanded for this by A&M’s general manager but did not face any further disciplinary action.  Further, one month later, that same staff member was praised as a ‘star performer’ in a staff meeting.

Ultimately, the Federal Court imposed A&M with a $650,000 fine, which Bromwich J stated was a penalty that represented the absolute minimum for “such predatory and flagrant conduct”.  A&M were also orders to pay ASIC’s costs of $150,000.

Bromwich J allowed A&M to pay the fine and costs in instalments over time and noted:

“Perhaps ironically, this instalment regime is not unlike the debt instalments payments required to be made under debt agreements administered by Debt Negotiators.”