What is the effect of second tranche changes on registered trustees?

What are the main changes that may affect me as a Registered Trustee when the second tranche of changes commences on 1 September 2017 and do the changes apply to current administrations?

Part 3 of the Insolvency Practice Schedule (Bankruptcy) “General rules relating to estate administrations ´will apply to an administration of an estate that starts on or after the 1 September 2017 and to most ongoing administrations (but generally only in relation to new events). The new provisions in respect to remuneration apply to new administrations and in relation to a trustee of a regulated debtor’s estate under ongoing administration who is appointed, or who consents to act, on or after the commencement day. Ongoing administration of a regulated debtor's estate means an administration of a regulated debtor's estate that started before the 1 September 2017 and ends after that day.

For remuneration, the “Old Act” continues to apply in relation to trustees already appointed to an administration before 1 September 2017. Section 164 of the Old Act continues to apply in respect to remuneration if both trustees were appointed before 1 September 2017.

The main changes are:

a. The introduction of a new provision at section 70-50 of the Insolvency Practice Schedule (Bankruptcy) and the Insolvency Practice Rules at section 70-30 requiring particular information to be given to creditors at the same time as the trustee first communicates with the creditors in relation to the administration of regulated debtor’s estate.

  1. the name, date of birth, address and occupation of the regulated debtor;
  2. in the case of a deceased debtor – the legal personal representative of the debtor;
  3. the business name or name of any associated entity or related entity of the regulated debtor;
  4. the fact that the trustee has been appointed in relation to the regulated debtor’s estate;
  5. the date and type of administration;
  6. an outline of matters investigated by the trustee up to the date of the notice is given;
  7. if a statement of affairs of the regulated debtor is available – a summary of the statement;
  8. in relation to a bankrupt – advice about any possible contributions that the bankrupt is liable to pay in respect of a contribution assessment period, calculated in accordance with section 139S of the Act;
  9. any matters the trustee has identified as needing further investigation;
  10. the right of creditors to request information, reports and documents under sections 70‑40 and 70‑45 of the Insolvency Practice Schedule (Bankruptcy);
  11. the right of creditors to direct that a meeting of the creditors be held under section 75‑15 of the Insolvency Practice Schedule (Bankruptcy);
  12. the right of creditors to give directions to the trustee under section 85‑5 of the Insolvency Practice Schedule (Bankruptcy);
  13. the right of creditors to apply to the Inspector‑General for a review of the remuneration received by the trustee under section 90‑21 of the Insolvency Practice Schedule (Bankruptcy);
  14. the right of creditors to remove and replace the trustee under section 90‑35 of the Insolvency Practice Schedule (Bankruptcy);
  15. a declaration about relevant relationships.

b. New remuneration report provisions at sections 70-35, 70-45 and 70-47 of the Insolvency Practice Rules which replace, respectively regulations 8.12A, 8.12B and 8.12C of the Bankruptcy Regulations 1996. Although certain additional information is required to be provided, remuneration claim notices will only have to be sent to creditors or a regulated debtor who elects to receive it.

  1. Initial Remuneration Notices requiring in addition to what had previously been required under Regulation 8.12A “the method by which disbursements will be calculated”.
  2. Remuneration Approval Notices (referred to as Reports about remuneration to be given before remuneration determinations are made) now required to be sent to both the creditors and the bankrupt, requiring in addition to what had previously been required under regulation 8.12B, giving advice of:
    • the right of the regulated debtor and creditors to elect within 20 business days of receiving this notice, whether they want to receive a remuneration claim notice under section 70‑47
    • the periods at which the trustee proposes to withdraw funds from the regulated debtor’s estate in respect of the trustee’s remuneration;
    • an estimated total amount, or range of total amounts, of the trustee’s remuneration;
  3. Remuneration Claim Notices now only required to be sent:
    1. if the remuneration exceeds the maximum default amount of remuneration, (i.e. exclusive of GST $5,000 – indexed to the CPI from 1 July 2017) and
    2. to those debtors and creditors (if any) who have elected to receive it and
    3. before finalising the administration (rather than when the claimed amount reaches the amount approved which previously was the case).

The Remuneration Claim Notice must show (with emphasis added):

  1. the total amount of remuneration claimed by the trustee;
  2. details of:
    1. the work performed for which remuneration is claimed; and
    2. the method of calculating the amount of remuneration claimed; and
    3. the amount of disbursements claimed; and
    4. the method of calculating the amount of disbursements claimed;
  3. an explanation of any variation from the amounts set out in any report under Section 70-45 in relation to:
    1. the remuneration claimed; and
    2. the method of calculating the amount of remuneration claimed.

A remuneration claim notice must also include a statement advising the regulated debtor and the creditors that they may, within 20 business days after receiving the notice, request the Inspector‑General to review the amount of remuneration claimed by the trustee.

c. The funds handling provisions, similar to the existing provisions will, from 1 September 2017, be in Division 65 of the Insolvency Practice Schedule (Bankruptcy) Funds are still required to be banked within 5 business days into the estate administration bank account and penalty interest of 20% is, unlike before, clearly stated to be payable to the Commonwealth in relation to any amounts not banked exceeding $50 (or otherwise as prescribed). See also the offence provisions table – link below.

d. Court and creditor oversight of the trustee – there are new provisions replacing sections 176-179 of the Act. The new provision can be found in the Insolvency Practice Schedule (Bankruptcy).
At Division 45 “Court Oversight of Registered Trustee” which commences 1 March 2017 and Divisions 85 “Directions by Creditors” and Division 90 “Review of the administration of a regulated debtor's estate” both of which commence 1 September 2017.

e. The provisions about meetings of creditors in the Act currently in Division 5 of Part IV will be repealed with effect from 1 September 2017. Replacement provisions are in Division 75 of the Insolvency Practice Rules and Divisions 75 and 80 of the Insolvency Practice Schedule (Bankruptcy).

Of particular note in relation to the new provisions:

  • an approved form to be used for all notices of meetings – which from 1 September 2017 can be found here
  • rules around directions by creditors to a trustee to convene a meeting, including not needing to comply if the direction is unreasonable (as defined)
  • a minimum ten business day notice period for meeting of creditors
  • the trustee or the trustee’s representative, presiding at meetings of creditors, throughout the meeting (i.e. no election of president)
  • a new definition of “resolution” – no longer just a majority in value but a majority in both number and value
  • the ability of the trustee to exercise a casting vote unless the motion relates to the removal or remuneration of the trustee
  • a new rule in relation to obtaining resolutions without a meeting such that a person objecting to the resolution being passed without a meeting being held, does not prevent the resolution passing unless that objector holds at least 25% in value of the debts
  • a new requirement for trustees being proposed to replace another trustee to make a declaration as to relationships. See section 75‑265 Insolvency Practice Rules.

f. the maximum default amount for a trustee’s remuneration of $5,000 being indexed from 1 July 2017 onward based on the consumer price index (CPI) in accordance with section 60-15 of the Insolvency Practice Schedule (Bankruptcy).

g. Trustee choosing to be remunerated on a percentage basis having available higher maximum percentages:

  • If the money received by the trustee does not exceed $30,000—20%; or
  • if the money received by the trustee exceeds $30,000 but does not exceed $50,000—20% for the first $30,000 and 17.5% for the balance of the money received; or
  • if the money received by the trustee exceeds $50,000—20% for the first $30,000, 17.5% for the next $20,000 and 15% for the balance of the money received.

h. a prohibition on trustees indirectly or directly deriving a profit or advantage from the estate other than as permitted in the legislation. See section 60-20 of the Insolvency Practice Schedule (Bankruptcy).

i. annual estate return re-badged as an annual administration return. See Section 70-5 of the Insolvency Practice Schedule (Bankruptcy).

j. A new power to the Inspector-General to requisition a meeting of creditors at Section 75-20 of the Insolvency Practice Schedule (Bankruptcy).

k. records of the administration being required to be kept for seven years from the end of the administration (defined as the discharge or annulment date in bankruptcies). See section 70-35 of the Insolvency Practice Schedule (Bankruptcy). The current provision (s312) applies to administrations that have ended (discharged/annulled) before 1 September 2017, but the requirement to keep records for 15 years (where property realised and some remuneration has been received) will be reduced to 7 years.

l. a requirement on a trustee who has been replaced, to provide the books of the administration to the incoming trustee within 10 business days or as agreed. See section 70-30 of Insolvency Practice Schedule (Bankruptcy). This change applies to replacements on or after 1 September 2017.

m. prescription in the Rules of when information is required to be given to the debtor and creditors in respect to requests for information. See Subdivision D of Division 70 of the Insolvency Practice Schedule (Bankruptcy) and Division 70 of the Insolvency Practice Rules. The changes apply to new and ongoing administrations.

o. a power for the Inspector-General to review a registered trustee’s remuneration on his or her own initiative (rather than by debtor/creditor application as is currently the case). This applies to all administrations after 1 September 2017 irrespective of when the remuneration was paid or payable. The current provisions of the Act will continue to apply to remuneration reviews already underway as at 1 September 2017.

p. A new prohibition on inducements to appointment which applies to any arrangements on or after 1 September 2017. See section 60-21 of the Insolvency Practice Schedule (Bankruptcy) and the offence table linked below.