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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
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e val
sy st
em s, wi
thout
t
h e pr
io r wri
tt e n consent
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h e Departm
e nt of Parl
ia m e n
tar y Servi
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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
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fr om
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ation a
n d R
e search Se
rvic
es on
(02)
627
7 27
8 4 .
Warning:
This Digest was prepared for debate.
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t reflects
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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
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e nt official sta
tus of the Bill.