Paul Zenkteler
Client Relations Manager – Oracle Insolvency Services
Be On the Lookout for Dodgy Debt Advisors
As reported in a recent circular by the Australian Financial Security Authority (AFSA), as Australians feel the pressure of the rising cost of living and interest rates hikes, it’s important not to let financial stress fog one’s judgement of whether or not they’re getting dodgy financial advice. As stated by John Winter, Chief Executive Officer of the Australian Restructuring Insolvency and Turnaround Association, “Untrustworthy advisors counsel their clients on how to avoid paying their debts and meet their legal obligations. They are ambulance chasers who prey on people and businesses in financial distress.”
AFSA explored the prevalence and warning signs of this in their 2022 Untrustworthy Advisors Report, with data from across the insolvency system suggesting that the problem may be “troublingly widespread”. Namely, in the personal insolvency space, an audit of bankruptcies received in the 2020-21 financial year indicated that 68% of those sampled, who paid for bankruptcy information or advice, did not correctly complete their bankruptcy forms, which has increased AFSA’s concern that untrustworthy advisors are active within the personal insolvency system.
AFSA have also identified that offending becomes more sophisticated when an untrustworthy advisor is involved, with common offences including false declarations, using the Personal Property Securities Register (PPSR) to make false registrations, and hiding property to keep it away from the trustee so it cannot be divided among creditors. Another tactic can be recording a high number of “friendly creditors” as holding unsecured debts, meaning that in a creditors’ meeting, votes can be stacked in favour of accepting a proposal that disadvantages genuine creditors. As such, unethical advice can result in individuals unwittingly committing criminal offences.
Furthermore, the Phoenix Taskforce (comprising of the Australian Securities and Investments Commission and the Australian Taxation Office) have also made findings that untrustworthy advisors are prevalent in corporate insolvency.
AFSA have flagged some key “red flags” that can signal untrustworthy advice, such as:
- Charing a fee to submit a bankruptcy application
- Encouraging false or misleading statements in bankruptcy paperwork
- Creating an unnecessary sense of urgency
- Suggesting that a bankruptcy or debt agreement won’t affect a credit rating
- Claiming they’ve done this many times before and won’t get caught
- Encouraging false or misleading registrations on the PPSR
- Using jargon and not being able to back up claims
- Charging high fees that are often payable in advance
AFSA have also warned people to look beyond slick ads on social media that promise a way out of bankruptcy. On the flipside, sometimes untrustworthy advisers can push people to enter into the insolvency system unnecessarily, when they could have just negotiated a payment plan with their creditors.
AFSA have warned that websites from untrustworthy advisors can promise a quick and easy way of getting out of financial distress, and can include fake evidence to gain the public’s confidence, such as fake testimonials and case studies from happy customers.
AFSA have encouraged members of the public to tackle the issue of untrustworthy advisers with the following methods:
- Engaging early with creditors to stay out of the system, meaning that the earlier people engage with their creditors, the more likely they are to find a workable solution that keeps them out of the insolvency system.
- Using free financial counselling
- Reporting untrustworthy advisers to AFSA
- Cooperating with AFSA in regulatory actions, meaning that if a person believes they have inadvertently taken untrustworthy advice and may have been tricked into criminal activity, the best course of action is to contact AFSA.
