Personal insolvency compliance – prosecutions and investigations

AFSA, the Government body that regulates personal insolvencies, has released a report on prosecutions and investigations during the 2020/21 year.  Compliance action appears high, despite the low level of new personal insolvencies during that COVID-19 affected year.

 

According to the Personal Insolvency Compliance Report for 2020/21 (the “Report”) issued by the Australian Financial Security Authority (“AFSA”) the COVID-19 pandemic, in conjunction with the Government’s temporary relief response to dealing with personal insolvencies during the pandemic, has led to some noteworthy differences in prosecutions and investigations compared to the preceding year.

This is surprising, considering the temporary relief measures resulted in a downturn in personal insolvencies and, accordingly, a decrease in the number of new administrations for insolvency practitioners.

The temporary relief measures were introduced by the Federal Government in March 2020, which included the following changes:

  • an increase to the timeframe for a debtor to respond to a bankruptcy notice;
  • an increase in the debt threshold which enabled creditors to apply for a bankruptcy notice; and
  • an increase to the temporary debt protection period available to debtors.

On 1 January 2021 the temporary changes ceased, however, an amendment was also made to adjust the bankruptcy threshold, meaning:

  • the minimum amount of debt that can trigger bankruptcy is $10,000, down from the temporary $20,000;
  • the amount of time an individual has to respond to a bankruptcy notice is 21 days, reduced from the temporary 6 months; and
  • temporary debt protection allows for 21 days relief from creditors, instead of 6 months.

Prior to the temporary changes being introduced in response to the pandemic, the minimum amount of debt that could trigger a bankruptcy was $5,000.

The statistics for prosecutions and investigations as outlined in the Report for 2020/21, in comparison to the previous year, show that the response by insolvency practitioners and AFSA to matters concerning compliance in personal insolvencies remain strong, irrespective of the impacts of the temporary relief measures.

 

Namely:

  • there were 865 offence referrals received by AFSA, an increase in the 772 received in the 2019/20 period;
  • there were 123 briefs sent to the Commonwealth Director of Public Prosecutions (“CDPP)”, an increase in the 77 that were sent in the previous year;
  • there were 534 referrals accepted for investigation, a decrease from the 552 recorded in the previous year;
  • there were 87 referrals accepted by the CDPP, an increase from the 63 accepted in the previous year; and
  • there were 69 individuals prosecuted, which is a decrease from the 94 prosecuted in the previous year. However, noting the significant decrease in new personal insolvency administrations, the number of prosecutions for the 2020/21 year is significant.

The Report also identified figures regarding Official Receiver notices under the Bankruptcy Act 1966 that were issued during the 2020/21 year.

These notices are used as a measure to request more information from bankrupt individuals, gain access to relevant premises or accounting records, or recover unpaid funds owed to creditors.  A summary of the notices issued and complied with for 2020/21 is below:

 

Notice Type Implication Applications Received Notices Issued and Served Notices Complied With Compliance Value
s. 77AA Grants access to premises and books 7 2 2 n/a
s. 77C Requires a person to attend before the Official Receiver to produce books or produce books without a requirement to attend 209 186 162 n/a
s. 77C Examination Requires a person to give information, attend before the Official Receiver and give evidence 49 23 17 n/a
s. 81A Requires a person who is outside Australia to give to the Official Receiver information to provide books relevant to the examinable affairs of a bankrupt 2 0 0 n/a
s. 128E Allows the Official Receiver to issue a notice to the trustee of an eligible superannuation plan freezing the interest of a member of the plan where the trustee of the bankrupt estate of the member demonstrates that a contribution or contributions made to that plan are void under s. 128B or s.128C 1 1 1 $334,000
s. 139ZL Allows the Official Receiver to issue a notice for the recovery of income contributions payable by a bankrupt. A notice can also be issued in relation to a discharged bankrupt whose income contribution remains unpaid. 253 225 201 $6,774,337
s. 139ZQ Allows the Official Receiver to issue a notice to a person who has received money or property as a result of a transaction that is void against the trustee, with the notice requiring that person to pay to the trustee an amount equal to the money or the value of the property received. 40 20 6 $4,657,804
s. 139ZR Provides that if a notice under section 139ZQ is given to a person in respect of any property, the property is to be charged with the liability of the person arising under the notice. 5 4 4 n/a
TOTAL   566 461 393 $11,766,141

 

The need for attention to compliance in personal insolvency matters, despite the everchanging impacts of COVID-19, is imperative to ensuring confidence in Australia’s personal insolvency system.

 

 

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