Greater protections for people entering into debt agreements to avoid bankruptcy have been passed by the Australian Parliament, which Attorney-General Christian Porter described as “the most significant reform of the debt agreement system in a decade”.
The Bankruptcy Amendment (Debt Agreement Reform) Act 2018 will commence on 27 June 2019, nine months after it received the royal seal of approval.
Jirsch Sutherland Partner Stewart Free says the comprehensive overhaul is designed to tighten regulation of the debt agreement regime.
“This key piece of legislation will raise industry standards by setting enhanced registration and practice requirements and introduce tougher penalties for misconduct while granting the Inspector-General additional investigative powers to address administrator transgressions,” Stewart Free explains.
The comprehensive reforms include a number of significant changes to:
- The length of a debt agreement a debtor can propose
- Debtor eligibility to enter into a debt agreement
- The Official Receiver’s powers to refuse to accept a debt agreement proposal in exceptional circumstances
- Creditor voting rules around debt agreements
- Debt agreement administrator registration requirements
- The Inspector-General’s investigation and inquiry powers
Protecting vulnerable members of the community from financial exploitation
Available to read on the Federal Register of Legislation, the reforms will enhance the transparency of the debt agreement industry in a bid to protect vulnerable debtors from entering into debt agreements the Hon Christian Porter says are “set up to fail”.
“Debt agreements are an important and increasingly popular alternative to bankruptcy for individuals who are facing financial difficulty,” he says. “But, over time, it had become clear that aspects of the debt agreement framework and some in the industry were putting financially vulnerable people at risk of entering into agreements which were not affordable – further compounding financial stress.”
The Coalition’s reforms, he explains, not only protect the interests of debtors and creditors by ensuring that debt agreements are reasonable and sustainable but will also improve professional standards in the debt agreement administrator industry.
“Debt agreement administrators deal with some of the most vulnerable people in our community, and the [Act] professionalises the industry to reflect its important function.”
The new laws would also ensure repayments under debt agreements are based on an affordable payments schedule based on a percentage of income which will be settled in consultation with key industry bodies, consumer groups and creditor representatives.
“This legislation will make Australia’s debt agreement system more efficient and equitable for debtors and creditors alike while protecting financially vulnerable members of the community from financial exploitation – and hopefully, from personal and professional bankruptcy,” he says.
Read about Jirsch Sutherland’s first inaugural Bankruptcy Summit here.