At LCollect we believe that knowledge is power. Every month our debt collection blog gives you practical tips, stories and news from around Australia and the world.
The Australian Financial Security Authority (AFSA) are reporting that personal insolvencies fell 9.7% in the July to September 2018 quarter.
The personal insolvency statistics for this quarter show that the number of new total personal insolvencies reduced from 8,194 to 7,400 with only NSW recording a rise of 0.4% The rise in NSW has been attributed to an increase in consumer Debt Agreement Proposals (DAPs) and Personal Insolvency Agreements (PIAs). Bankrupties were at a record quarterly low in South Australia with Tasmania also recording their lowest quarterly level of bankruptcies since 1989.
Business related personal insolvencies, where an individuals bankruptcy is directly related to his or her proprietary interest in a business, represented 17.8% of total bankruptcies filed Australia-wide with the Australian Capital Territory recording the greatest increase across all States and Territories of 8.33% over the last 12 months.
Further information about the statistics can be read online at Guide to Personal Insolvency Statistics.
The Bankruptcy Amendment (Debt Agreement Reform) Act 2018 received Royal Assent on Thursday, 27 September 2018 with a majority of the amendments commencing on Thursday, 27 June 2019.
The reforms have been passed in an attempt at tighter regulation and greater protections for people entering into Debt Agreement Proposals (DAPs). The Bill was passed in with several key amendments including:
The Australian Financial Security Authority (AFSA) has recently released their regional personal insolvency statistics for the June quarter 2018.
Debtor increases were seen across all regional areas, except Greater Hobart and the Australian Capital Territory, between the March quarter 2018 and June quarter 2018. Wanneroo in Western Australia recorded the most personal bankruptcies being filed with 117 followed by Wyndham in Victoria (93) and Wyong in New South Wales (89).
The regional statistics report on all debtors who became bankrupt or entered into a debt agreement or personal insolvency agreement during the quarter. The number of debtors is measured as follows:
The Australian Financial Security Authority (AFSA) has recently published a fact sheet that they recommend be attached to all future Bankruptcy Notices.
The fact sheet, Warning - You May Be Declared Bankrupt, outlines to the Judgment Debtor the options available to them rather than ignoring the Bankruptcy Notice or unintentionally committing an act of bankruptcy.
AFSA claim that by providing this information it will potentially shorten the administrative burden on Creditors, Judgment Debtors and Trustees with the possibility of potential bankrupts making arrangements to repay their Creditors or contest a Bankruptcy Notice sooner rather than later.
Feedback can be provided to AFSA about the document via firstname.lastname@example.org by 30 July 2018.
Source: AFSA Newsroom - July 2018
A New South Wales man has recently been sentenced to 7 months imprisonment after twice obtaining credit without disclosing to credit providers that he was an undischarged bankrupt.
Tim Xenos, of Peakhurst, was sentenced in January 2018 at Downing Centre Local Court following an investigation by AFSA. It was disclosed at the hearing that Mr Xenos borrowed $1,020,000 from ANZ Bank and $960,000 from La Trobe Financial using the name Efthymios Xenos. Mr Xenos failed to disclose to both Creditors that he was an undischarged bankrupt under another name.
Magistrate Atkinson commented, in her view, that the matter was serious with Mr Xenos not only failing to disclose the fact that he was an undischarged bankrupt but also that he provided false information on his credit applications. While Mr Xenos appealed the sentence this was upheld last month with Judge Russell noting that the imprisonment was the only appropriate punishment in this matter owing to Mr Xenos' criminal history.
The sentence is to be served by way of an Intensive Corrections Order.
Source: AFSA - May 2018
AFSA has released its provisional Bankruptcy Statistics for FY 2015, showing an overall decline in Bankruptcy.
There was a significant drop in the number of full Bankruptcies, over 7% Australia wide. This is likely because of an economic cycle of continuous record low interest rates with no major spikes in unemployment.
Part IX Debt agreements lifted slightly, an extra 200 cases (approx 2%).
A pleasing trend to note is the steady decline in Bankruptcy since the peak during the financial crisis in FY 2009, with a drop of some 25% from these historical highs from approximately 32,000 to 24,000.
With the top 4 reasons for entering bankruptcy easily identifiable, there can be benefits to readily and quickly identifying these in your portfolio and appropriately using hardship provisions to reduce possible loss situation.
|Main reason for entering a non-business related personal insolvency||2008-09||2013-14|
|Unemployment or loss of income||10,724||8,418|
|Excessive use of credit facilities including losses on repossessions, high interest payments and pressure selling||9,722||6,999|
|Domestic discord or relationship breakdowns||3,720||3,056|
|Ill health or absence of health insurance||3,249||2,160|
|Adverse legal action||1,005||682|
|Gambling, speculation & extravagance in living||1,118||544|
|Liabilities due to guarantees||613||446|
|Other non-business reason||1,807||1,627|
Reviewing these metrics as a percentage of bankruptcies, the breakdown by category is largely consistent from year to year. Of note is in the FY 2014 figures, a 2% drop in the number of bankruptcies due to excessive use of credit facilities. This is not surprising given the historical lows of interest rates Australia has experienced. It will be interesting to see if this remains steady or lifts above historical averages when interest rates go up.
|Main reason for entering a non-business related personal insolvency||2008-09||2013-14|
|Unemployment or loss of income||33.20%||34.45%|
|Excessive use of credit facilities including losses on repossessions, high interest payments and pressure selling||30.10%||28.64%|
|Domestic discord or relationship breakdowns||11.52%||12.51%|
|Ill health or absence of health insurance||10.06%||8.84%|
|Adverse legal action||3.11%||2.79%|
|Gambling, speculation & extravagance in living||3.46%||2.23%|
|Liabilities due to guarantees||1.90%||1.83%|
|Other non-business reason||5.59%||6.66%|
These statistics were sourced from AFSA.
Reviewing the AFSA Bankruptcy statistics for individual bankruptcy occurrences can be an interesting exercise when assessing the risk of any one particular industry that your business might be associated with.
When analysing statistics one must be careful to always keep statistics in context. These statistics were sourced from AFSA.
Our first observation is that Bankruptcy occurs on only 0.17% of the employed workforce across all sectors. The lowest sector is the professional sector with only 0.07% and the highest sector being Machinery Operators and drivers with only 0.24%.
Education Professionals, a subset of the Professional group below, experiences only 0.04%, whilst bankruptcy for road and rail drivers is 0.34% of the employed workforce.
Our take from this is that it is interesting to note from a debt collection perspective, as an overall % the instances of bankruptcy are very low compared to the total workforce. And whilst a road / rail driver is over 8 times more likely to be made bankruptcy than an educational professional, the risk weighting differential is only small. This differential could have a large monetary impact for a large institution (such as a big four bank), but would be a lot less significant for a smaller provider of credit. Though a smaller provider of credit to an industry that has a higher risk
|ANZSCO Occupational Group||Total
|Total debt agreement debtors||
|Technicians and Trades Workers||3,121||1,410||29|
|Community and Personal Service Workers||1,751||1,329||13|
|Clerical and Administrative Workers||2,231||1,506||23|
|Machinery Operators and Drivers||1,755||1,158||13|
|ANZSCO Occupational Group||Number of people
in the May
quarter 2014 ('000)
|Technicians and Trades Workers||1,678.4||0.19%||0.08%|
|Community and Personal Service Workers||1,169.1||0.15%||0.11%|
|Clerical and Administrative Workers||1,673.6||0.13%||0.09%|
|Machinery Operators and Drivers||746.7||0.24%||0.16%|
Payments had been redirected for over 3 months. In one instance the payments to the Trustee were going to total $1,500 by the time the payment plan was going to be completed.
The Trustee had had no intention of filing the Part IX Agreement in the immediate future (this is a contentious point that a Trustee would argue). These payments were not going to be distributed to creditors.
In one instance when we reviewed the debtors assets & liabilities it was startlingly obvious to us that a Part IX agreement would never be accepted with the debtor having "negative" capacity to live, before taking into consideration outstanding debts.
In another instance, our client was the only creditor and we would reject any Part IX Agreement on their behalf as we would happily accept the same arrangement without the Trustee charging there $1,500 (and avoid unnecessarily reducing the payments received by our client)
Note that we are still able to pursue the debtor for payments as no Bankruptcy had been lodged, yet the debtor was following the registered (proposed) Trustees direction. When advising the debtors of our right to still pursue this debt through the courts, the debtors advise that the Trustee advised them this will be "fixed up" once the Bankruptcy is lodged.
Our immediate question was what was the debtor actually paying the Trustee for??
The answer is a "preparation" fee for preparing a Bankruptcy (in this instance a Part IX). The Bankruptcy Act allows for charges for preparing Bankruptcies - however the preparation of a Part IX debt agreement is a simple & straight forward process (we believe the Act was allowing this for complex schemes of Arrangement that are complex & involved).
We formed the view that this was the Trustee acting very unscrupulously, using the Bankruptcy Act for something that was unintended. The Bankruptcy Act affords little or no protection from Trustees acting in this manner for debtors who do not know how the system works.
We subsequently phoned ITSA to see if we could register a complaint (in the example where our client was the only creditor), and were advised that only the Debtor could make a formal complaint. In the telephone conversation ASIC agreed & were sympathetic with the points we raised, yet there was nothing they could do. They made the comment that with all the advertising for Part IX debt agreements this was becoming more common.
Perhaps we will see some reform in this area in the coming years......
All of the proposals in increases in the income, asset and debt thresholds for voluntary debt agreements have been deferred which is disappointing given the number of Part IX Debt Agreements our clients are experience on small debts (with Part IX Debt Agreement providers like Fox Symes heavily advertising this service).
Other changes include: