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Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006



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Parliament of Australia

Department of Parliamentary Services

Parliamentary Library BILLS DIGEST

Information analysis and advice for the Parliament

27 March 2006, no. 110, 2005-06, ISSN 1328-8091

Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006

Susan Dudley Law and Bills Digest Section

Contents

Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Cost Recovery Guidelines - background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ITSA’s Cost Recovery review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

General levy on realisations from debt agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Setting of fees and charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Main provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Concluding comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Appendix Schedule of Fees and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2 Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006

Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006

Date introduced: 16 February 2006

House: House of Representatives

Portfolio: Attorney-General

Commencement: Schedule 1 Part 1, Schedule 2 and Schedule 3 commence on 1 July 2006. Commencement of Schedule 1 Part 2 is dependent on the Bankruptcy Legislation Amendments (Anti-avoidance) Act 2006 commencing operation. Schedule 4 commences on Royal Assent.

Purpose

This Bill amends the Bankruptcy Act 1966 and related legislation to increase the cost recovery measures of the Insolvency and Trustee Service Australia (ITSA).

Background

The Insolvency and Trustee Service Australia is the government agency responsible for the administration and regulation of the personal insolvency system in Australia. During 2004-05 ITSA completed a review of its cost recovery arrangements.

Cost recovery has been described by the Productivity Commission in the following terms:

Cost recovery differs from general taxation which raises revenue to fund a wide range of Government activities or products. Cost recovery, on the other hand, recovers some or all of the costs of a particular Government activity or product……

The most direct forms of cost recovery are where particular users are charged a fee based on the cost of providing the Government product consumed. Less direct forms include special levies or earmarked taxes to fund a specific Government activity. The link between the revenue raised and the funding of a specific activity distinguishes taxes imposed for cost recovery from general taxation. The fact that cost recovery is usually not undertaken with a view to generating a profit distinguishes it from the pricing objectives of government business enterprises. 1

Cost Recovery Guidelines - background

ITSA conducted a review of its cost recovery arrangements in accordance with the Commonwealth Cost Recovery Guidelines for Information and Regulatory Agencies, issued by the Department of Finance and Administration.

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006 3

The Productivity Commission (PC) inquired into cost recovery arrangements within Government Agencies. Its report, Cost Recovery by Government Agencies, was released in March 2002.

In its report the PC noted that ‘notwithstanding its increased significance, cost recovery currently lacks the attributes of good policy - namely, a clear rationale, accountability, transparency, performance assessment and review’.2

In response to the PC’s report the Government, in December 2002, announced that it would introduce a formal cost recovery policy for Government agencies.3 This cost recovery policy is located on the Department of Finance website at

http://www.finance.gov.au/finframework/docs/Guidelines_-_Regulatory_2_Dec.rtf. The cost recovery policy states that Commonwealth regulatory agencies should apply these Guidelines when a review of cost recovery arrangements is required.

ITSA’s Cost Recovery review

In accordance with the cost recovery guidelines, ITSA reviewed all its fees and charges in 2004 and identified which services should be cost recovered, the type of charge to apply, who should pay and which services would be more appropriately funded through general taxation.

ITSA’s portfolio budget statements for 2004-05 state that:

Applying cost recovery policy would result in variations to existing fees and charges in Bankruptcy Act services to ensure they reflect the full cost of the service, and introduction of a new charge - ie extension of the ‘realisations charge’ - to apply to moneys recovered in debt agreements.

The review concluded that fees and charges should be applied to all Bankruptcy Act services provided by ITSA, other than the processing of debtor’s petitions and debt agreement proposals, policy and legislation reform and other support services to the Minister and Parliament, which should be Budget funded.

In connection with ITSA’s proceeds of crime activities, costs of controlling and selling property are recovered from the administration when sufficient assets are forfeited. When assets under control are not forfeited, or if their value is insufficient to cover costs, Budget funding of the Official trustee’s costs is appropriate.

These measures would increase the proportion of ITSA’s costs which are recovered in fees and charges from 58% to 72%. Implementation of cost recovery is estimated to reduce annual net budget funding to ITSA by approximately $6m per year. 4

The portfolio budget statements go on to state that:

Implementation of the revised fees and charges will generate an additional revenue of $6.9m per year once fully implemented. This would be offset by $0.9m per year to

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

4 Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006

meet the cost of changes to existing systems and processes which would be required to deal with new billing and time recording arrangements.5

The following table, drawn from the budget statement, sets out the proposed schedule of fees and charges for ITSA at the time of the review as well as the levels of fees and charges that were in place at the time of the review.

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006 5

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

6 Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006

Source: ITSA Cost Recovery Impact Statement

As noted above, the proposed changes to fee and charge arrangements will raise an additional $6.9 million for ITSA. As the table indicates, many of ITSA’s functions are currently paid for through fees and charges. The review did not suggest that any new fees and charges should be imposed on ITSA’s functions. The review has however recommended that there be an increase in current fees and charges.

Since the time of publishing this information in the budget documents, ITSA has refined the proposed new fee and charge arrangements. The revised fees and charges (current at December 2005) are set out in the appendix.

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006 7

General levy on realisations from debt agreements

The cost recovery review had recommended that a general levy should be imposed on debt agreements. Debt agreements first became available to people in financial difficulties in 1996. As the table below indicates, the use of debt agreements has steadily grown and in the 2004-05 financial year made up 18.6% of all personal insolvency administrations. This rise in the use of debt agreements has taken place at the same time as the share of personal insolvency agreements has fallen to 0.8% and bankruptcies to 80.6%.

Source: ITSA Annual Report 2004-05 6

Currently the realisations from bankruptcies and personal insolvency agreements are subject to an 8% levy. The revised fee and charge arrangements proposed to reduce that levy to 6.5% but to also impose a 6.5% levy on realisations from debt agreements.

Some groups were opposed to imposing such a levy on debt agreements. The Law Council of Australia, for example, argued that:

The sub-committee opposes the implementation of any realisation charges upon Debt Agreements as they would tend to undermine the very purpose for which they were first introduced. Such Agreements are of a low order of magnitude of debts and are intended as an efficient system for keeping bankruptcy numbers down and avoiding the cost which would arise from the administration of these estates as bankruptcies’.7

Creditors and debt agreement administrators also argued that the imposition of this levy would place a significant additional cost on debt agreements and would deter people from using them.8

At the time of the review, however, ITSA argued that debt agreements do require regulatory and compliance work by ITSA and hence should be subject to a levy.9

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

8 Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006

More recently, the Government has decided to continue with the levy on personal administrations and bankruptcies but to not impose it on debt agreements. In the Second Reading Speech to the Bill, the Attorney-General stated that:

The government has decided not to apply the realisations charge to money received in debt agreements. This will ensure that debt agreements continue to be available as a viable alternative to bankruptcy for many debtors.10

The rate of the levy has yet to be determined however the Bill states that the rate must not be more than 15% of realisations.

The money from this levy will be used to fund ITSA functions such as monitoring and investigating complaints against insolvency practitioners,11 providing an information service12, Inspector General reviews,13 and investigation of bankruptcy offences.14

Setting of fees and charges

Currently fees and charges are set either through legislation or regulations. The Bill changes this arrangement so that all fees and charges will now be set by way of legislative instrument made by the Minister.

The explanatory memorandum to the Bill explains that this ‘will provide the responsiveness and flexibility required to enable effective and fair cost recovery for services supplied to stakeholders’.15

The legislative instruments have not been exempted from the Legislative Instruments Act 2003 and hence will be ‘disallowable instruments’ for the purposes of that Act.

Main provisions

Schedule 1, parts 1 and 2 amend the Bankruptcy Act 1966 so that fees for different services under the Act can be set by a legislative instrument by the Minister. Currently these fees are set through regulations.

Schedule 2 amends the Bankruptcy (Estate Charges) Act 1997 so that the Minister will set the percentage amount of the levy on personal administrations and bankruptcies by legislative instrument under that Act. Currently the amount of the levy is set by way of regulation. Schedule 2 also removes the minimum levy amount of 8% but retains the maximum amount of 15%.

Schedule 3 repeals the Bankruptcy (Registration Charges) Act 1997. Fees that were set under this act will now be set under the Bankruptcy Act 1966.

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006 9

Schedule 4 makes some minor technical amendments to the Bankruptcy Act 1966. In particular, the amendments will help ITSA deliver their services electronically.

Concluding comments

This Bill implements cost recovery measures for the Insolvency and Trustee Service Australia. The Bill follows on from a review of the current cost recovery arrangements of ITSA. It is proposed that the new cost recovery arrangements will increase the proportion of ITSA’s costs which are recovered in fees and charges from 58% to 72%.

The Bill does not set out what the new fees and charges for ITSA will be. Rather it creates a series of legislative instrument making powers for the Minister to set the fees and charges. Any legislative instruments made by the Minister under these powers will be disallowable by Federal Parliament. The fees and charges will be reviewed every two years in consultation with stakeholders.

Endnotes

1 Productivity Commission, Cost Recovery by Government Agencies Inquiry Report, Report No. 15, 16 August 2001, Ausinfo, Canberra, 2001, p. xxxii.

2 ibid.

3 Commonwealth Cost Recovery Policy Media Release, Senator Nick Minchin, Minister for Finance and Administration, 4 December 2002.

4. Insolvency and Trustee Service Australia, Budget Papers 2005-06, p. 384.

5. ibid.

6. Insolvency and Trustee Service Australia, Annual Report 2004-2005, Canberra, 2005, p. 17.

7. Law Council of Australia, ‘Submission to the Insolvency and Trustee Service Australia Cost Recovery Review’, 24 January 2005.

8. Discussions with ITSA, March 2006.

9. Insolvency and Trustee Service Australia, Cost Recovery Impact Statement, February 2005, p. 19.

10. Bankruptcy Legislation Amendment (Fees and Charges ) Bill 2005 Second Reading Speech.

11. ibid., p. 5-6.

12. Ibid., p. 5.

13. ibid., p. 6.

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

10 Bankruptcy Legislation Amendment (Fees and Charges) Bill 2006

14. ibid., p. 9.

15. Bankruptcy Legislation Amendment (Fees and Charges) Bill 2005 Explanatory Memorandum, p. 3.

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Bankruptc

y L e gislation Amend

m ent (Fees and Charges) Bill 200

6

11

Appendix Schedule of Fees and Charges

1. CR Ref.

2. A

C TIVI

TIES

3. CR Price ($m)

4. Per uni

t pri

c e

(All fees for t

he Official Trust

ee

attract GS

T and

prices quot

ed ar

e GST inclusive.)

5. Volume at initial

CR review

6. Actual

volume during 04/05

7. Estimated volume 05/06

8. Reco

mme

nde

d v o

lu me

9 . R

e v e

n u e

based o

n

recom

m en

de

d v

o lu

m e

+

adjus

ted RC

& OT

fee ra

te

Polic

y &

Legisl

a ti v

e Re

form

$m

1.1

Policy

, legislation refo

rm a

nd su

pport t

o

ministers

0.80

N/a

N/a

N/a

N/a

N/a

0 .8 0

B u d

g e t

1.2

Funding of t

ruste

es - Section 305

0.60

N/a

80

56

60

60

0 .6 0

B u d

g e t

1.40

1.40

Bankru

ptc

y Reg

istr

y & C

o m

p lia

nce

2.1

Processing Debtor Petitions a

nd DA

proposals

6.50

N/a

26000

27441

29000

30000

6.50

Budget

2.1

Processing PIAs

0.12

$400 per

propos

al

300

206

200

200

0.08

Fee

$400

per notice- cost

composition

4.40

Fee

Cost of processing $135

1.48

2.2

Issue of Bankrup

tcy Notices

3.04

Contribution to c

o st of insolvency

system

$265

7600

9100

12000

11000

2.92

Extension of Ban

k ruptc

y Notices

$100 per

exte

nsion

455

600

550

0.06

Fee

2.3

Issue of O

fficial

Receiver

Notices

0.70

$400+ $200/h

r if > 2hrs

675

500

870

700

0.28

Fee

2.4

NPII searches at

ITSA offices

0.42

$22 per sea

rch

19000

14400

12000

10000

0.22

Fee

2.4

NPII searches -

broker service

2.70

$14 per sea

rch

193000

223500

244000

240000

3.36

Fee

2.4

Personal Insolvency Repo

rting Se

rvice

0.24

$1.62 per

record

+ maintenance charges

151000

167000

170000

170000

0.28

Fee

2.4

Inspection of pub

lic documents

0.02

$20 per inspection + $2 per cop

y

900

500

500

500

0.01

Fee

Warning:

This Digest was prepared for debate.

I

t reflects

the legis

la tion as intro

duce

d and does n

o t can

v ass subseque

nt a

m endments.

This Digest does not have any official legal status. Other sources

shoul

d b e consulted to determine the subsequ

e nt official sta

tus of the Bill.

12

Bankruptc

y L e gislation Amend

m ent (Fees and Charges) Bill 200

6

1. CR Ref.

2. A

C TIVI

TIES

3. CR Price ($m)

4. Per uni

t pri

c e

(All fees for t

he Official Trust

ee

attract GS

T and

prices quot

ed ar

e GST inclusive.)

5. Volume at initial

CR review

6. Actual

volume during 04/05

7. Estimated volume 05/06

8. Reco

mme

nde

d v o

lu me

9 . R

e v e

n u e

based o

n

recom

m en

de

d v

o lu

m e

+

adjus

ted RC

& OT

fee ra

te

Taxation

of trust

ee remune

ration

& costs

$200 per

hour

15

0.06

Fee

13.74

15.24

Bankru

ptc

y Reg

u lati

on

2.5

Regulation of

Tr ustees - inform

ation &

education

0.20

N/a

205

205

205

205

0.20

RC

3.1

Regulation of

Trustees - mo

nitoring,

complaints etc

1.80

N/a

N/a

N/a

N/a

N/a

1.80

RC

3.2

Regulation of

Trustees - inte

rview

ing

applicants

0.02

$2000 per

application

12

9

8

8

0.02

Fee

3.2

Regulation of T

ru s tees - registratio

n

0.01

$1200 per

registr

a tion

11

7

7

7

0.01

Fee

3.2

Regulation of

Trustees -

ren

e wal o

f

registrations

0.07

$1200 ever

y 3

yr s

60

70

70

70

0.08

Fee

3.3

Inspector Gen

e r a l review

s

0.50

N/a

98

71

80

80

0.50

RC

2.60

2.61

Estate A

d m

inis

tration

4.1

Administration of fee

pa

y i ng

bankruptcies*

7.70

* $3000 + 20%

o

f realisations

2150

2136

2100

2100

8.65

Fee

4.2

Administration

of non fee pa

y i n g

bankruptcies

4.90

N/a

2300

2272

2300

2300

3.00

RC

Administration of s73 compositions &

PIAs

0.00

20% of p

roposal

amount

0

27

24

25

0.02

Fee

Administration of OT a

d ministered

DAs

0.00

20% of p

roposal

amount

0

787

750

500

0.01

Fee

Administration

of special esta

tes (eg

Child Support)

0.00

$200 per

hour

0

11

15

15

0.01

Fee

Administration of

s188 Authorities & s50

orders

0.00

$200 per

hour

0

0

5

10

0.01

Fee

Warning:

This Digest was prepared for debate.

I

t reflects

the legis

la tion as intro

duce

d and does n

o t can

v ass subseque

nt a

m endments.

This Digest does not have any official legal status. Other sources

shoul

d b e consulted to determine the subsequ

e nt official sta

tus of the Bill.

Bankruptc

y L e gislation Amend

m ent (Fees and Charges) Bill 200

6

13

1. CR Ref.

2. A

C TIVI

TIES

3. CR Price ($m)

4. Per uni

t pri

c e

(All fees for t

he Official Trust

ee

attract GS

T and

prices quot

ed ar

e GST inclusive.)

5. Volume at initial

CR review

6. Actual

volume during 04/05

7. Estimated volume 05/06

8. Reco

mme

nde

d v o

lu me

9 . R

e v e

n u e

based o

n

recom

m en

de

d v

o lu

m e

+

adjus

ted RC

& OT

fee ra

te

12.60

11.70

Bankru

ptc

y Fra

ud In

v e sti

g ati

o n

5.1

Investigation of bankruptc

y offe

nces

1.80

N/a

697

629

800

800

1.80

RC

1.80

1.80

Proceeds of Crime

6.1

Proceeds of c

rime - mat

ters

w h ich

realise assets

0.30

$200 per

hour

0.20

Fee

6.1

Proceeds of crime - matters

w ith no

assets

1.10

N/a

100

120

130

130

1.10

Budget

1.40

1.30

33.54

TO T

A L COS

T O

F OU

TPU

T S

34.05

Fun

d in

g so

urce

reconcili

atio

n

9.20

Realisations Charge @ 6.5

% on b

ankruptcies, s73 &

PIAs

(note 2)

$114

M

7.30

9.00

Total Budget fun

ded

9.00

15.32

Total fee funde

d

17.75

1a.

The Official T

r ustee's fees fo

r the

administration

of bankruptcies was initially propo

sed at

a flag

fall rate

of $4,500 + 16

% o

f realisations up to $100K and 12%

of r

ealis

ations thereafter.

Ba sed on cost data that has

now been collec

ted, the

$4,500 flag fall rate

appears to be excessi

ve and not reflective

of the

costs of undertaking prelimi

nary enquiries in estates.

It

is proposed that t

he flag fall be set at $30

00 and a flat 20

% fe

e (incl.

GST) be imp

o sed on any

realisations in that

estate. This fee s

tru cture is a bette

r re fle

c tion

of the cost o

f a d minist

ering a typical estate.

1b.

There are occasions

where an admin

istration may be transferred betw

een the Offic

ial Trus

tee and a Re

gistered Tr

ustee.

In those

instances, the Official

Trust

ee's fees will continue to

be

deter

mined based o

n an agreement with

the

Registered Trustee.

The fees that the OT

will be clai

ming in

th ose instances will be the va

lue of

the wor

k performed up to

th e date of the

transfer.

1c.

If

the administration

of a bank

rupt estate

requires the Offi

cial Trustee to manage an ongoing bus

ines

s, it is p

roposed that an

additional fee o

f $200/hr (plus GST)

will a pply

for the time that is

spent in managing the business.

Warning:

This Digest was prepared for debate.

I

t reflects

the legis

la tion as intro

duce

d and does n

o t can

v ass subseque

nt a

m endments.

This Digest does not have any official legal status. Other sources

shoul

d b e consulted to determine the subsequ

e nt official sta

tus of the Bill.

14

Bankruptc

y L e gislation Amend

m ent (Fees and Charges) Bill 200

6

Source: In

so lvency and Trustee Serv

ice Australia

©

C

opy

ri ght

C o m

m onweal

th of

A u st

ral ia

20 0 6

Except

t

o th

e ext

e nt of t

h e uses per

m it te

d under t

h e C

opyri

ght Act

1968

, no part

of t

h i s publ

ic ati

on m

a y b

e reproduced o

r t r ansm

it ted i

n any

for m

or by

any

m e ans i

n cl udi

ng i

n form

ati on st

orage and retri

e val

sy st

em s, wi

thout

t

h e pr

io r wri

tt e n consent

of t

h e Departm

e nt of Parl

ia m e n

tar y Servi

ces, ot

her

th an by

senat

o rs and

m e m

b ers of t

h e Aust

rali an Parli

a m e n

t i n t

h e course of t

h ei r offi

cial duti

e s.

Thi s bri

e f has

been prepared to support

t

h e work of t

h e Aust

ral ian Parli

a m e nt

usi ng i

n for

m ati

on avail

a ble

at t h e

ti m e of produc

ti on. The vi

ews expressed do

not refl

ect an offi

cial positi

on of t

h e Inform

ati on and R

e sear

ch Servi

ce, nor do t

h ey consti

tut e professi

onal

legal

opi ni

on.

Me

m b ers,

Senators a

n d Pa

rlia m

e ntary staff

can obtain

f

u rt her

inf o rm

ation

fr om

the In

fo rm

ation a

n d R

e search Se

rvic

es on

(02)

627

7 27

8 4 .

Warning:

This Digest was prepared for debate.

I

t reflects

the legis

la tion as intro

duce

d and does n

o t can

v ass subseque

nt a

m endments.

This Digest does not have any official legal status. Other sources

shoul

d b e consulted to determine the subsequ

e nt official sta

tus of the Bill.