The Australian Financial Security Authority (AFSA) is an executive agency which manages the application of bankruptcy and personal property securities laws.
AFSA recently ran a consultation on proposed changes to improve the effectiveness of transferring bankrupt estates from AFSA (the Official Trustee) to registered trustees. AFSA’s proposed changes relate to:
- The principles for determining the type of work undertaken by the Official Trustee and private sector registered trustees, and
- Streamlining the distribution of work to registered trustees.
AFSA’s focus will be on administering estates where there is a public interest. AFSA will distribute matters to registered trustees when certain criteria are met, and when a registered trustee is likely to consent to act in the matter. A set of standard criteria will be applied from the start of the bankruptcy, using information as disclosed in the bankrupt’s Statement of Affairs. This process will determine the estates which AFSA distributes. AFSA’s aim is to transfer matters early and streamline the process.
AFSA’s role as the Official Trustee is an important regulatory tool which helps to ensure insolvency administrations have the appropriate scrutiny where registered trustees have not been appointed. However, AFSA does not have unlimited resources in its capacity as Official Trustee. Hence, AFSA needs to ensure that their Official Trustee obligations are primarily geared towards delivering system-wide benefits as opposed to benefits which only accrue to creditors in particular bankrupt estates.
The proposed changes in more detail
AFSA has released a proposal paper which explains the proposed changes in more detail. AFSA’s need to divert work, appropriately, to registered trustees, will be guided by overarching principles to determine where a particular bankruptcy administration should be administered by AFSA (as Official Trustee) or a registered trustee. These principles can then be used to divert work appropriately as well as deciding whether proposed transfers of work-in-progress from registered trustees should be taken on by AFSA.
Two proposed principles, which will govern both transaction level and practice level decision-making as to which matters AFSA should administer, are outlined below:
- Principle 1 —AFSA will generally not administer matters where it is apparent, at the outset, that a registered trustee may consent to act in the matter.
- Principle 2 — AFSA will investigate and administer matters where there is a public interest in doing so and in order to maintain stakeholder confidence in the insolvency system, even though the administration may not result in a financial return to creditors.
These 2 principles will be achieved through applying, at the start of the bankruptcy, standardised, objective criteria based solely on what is disclosed in the bankrupt’s Statement of Affairs without any further investigation by AFSA.
Criteria for transfer of estates to registered trustees
AFSA proposes that it will transfer estates to registered trustees based on the following criteria: