Inside this issue:

• Notes & Notices
• Bankruptcy and Family Law: Who Gets The House?
  Anna Mandoki 
• ABNs Post-Bankruptcy
  Elizabeth Terry 
• Official Receiver’s Practice Statements
  Richard Brading 
• More on Counselling For Bankruptcy
  Jennifer Gracie;  
• A Note on the Position of ITSA in Regard to Counselling for Bankruptcy
  Bob Cruickshanks (Deputy Official Receiver, NSW) 
• The Law Matters: Truth In Lending
  Richard Brading 
• AFCCRA Update
• Casenote: Centrelink Changes Policy on Recoveries After Bankruptcy
  Michael Lhuede 
• AFCCRA Bankruptcy Update
• Round-Up
  News, views and information about financial counselling around Australia
• In the Media
  Snippets of interest and information found in the media regarding issues around financial counselling 

   Notes & Notices

TIO Poster

Included with this issue of Sharkwatch is a poster that details ways that people can access the services of the Telecommunications Industry Ombudsman (TIO). The TIO helped more than 100,000 Australians resolve issues with their telecommunications providers in 2006-07. Of these, over 95,000 were resolved quickly and easily (at Level 1 of the TIO complaint handling process).

At Sharkwatch we have received feedback from a number of financial counsellors that lodging a complaint with the TIO had been easy for their clients, and had resulted in a satisfactory outcome. The TIO is currently concerned that many Australians, especially those from disadvantaged groups and rural or remote regions, are not aware that their service is available. For this reason, Sharkwatch hopes that readers will consider putting up the TIO poster in their workplaces, in order to get the message out there that, when a person has unsuccessfully tried to sort out an issue with a Telco, using the TIO is simple, free and effective way of resolving the problem.

Number for Telstra Special Assistance Team

“All financial counsellors/welfare workers ringing on behalf of clients who need particular attention should ring the Telstra Special Assistance Team on 1800 045 092. Note this is not a public number, but is available to    financial counsellors and similar. The associated fax number is Fax: 03 9632 1937.

Financial assistance for this Project was provided by the New South Wales Government from the Responsible Gambling Fund. The views expressed in this publication are solely those of the authors and do not represent the views of the Responsible Gambling Fund or of the New South Wales Government.

“If the client is with you, and you get through, you should be able to deal with the matter immediately. If the client is not with you, or you have to leave a message, and need to send in the privacy authority, then you can fax it through straight away, marked “Attention: Telstra Special Assistance Team”, and someone from the team will ring you back as soon as they can.”

[Editors Note: Thanks to Tricia Ross from Anglicare NT for sending this in]

CDMA migration postponed; new CDMA Hotline set up

The Minister for Broadband, Communications and the Digital Economy, The Hon Stephen Conroy, has announced that the CDMA network closure will be postponed, but is urging customers to make the necessary arrangements to migrate as quickly as possible.  Telstra expects it will be in a position to have rectified all contentious matters by the end of March 2008, and are expecting to switch-off CDMA on 28 April 2008.

It should be noted that Telstra has launched a special Hotline — 1800 888 888 — for customers to call if they are having genuine issues with handsets and equipment when making the move from CDMA to the Next G(tm) mobile network.

To view the relevant media release online visit: http://www.telstra.com.au/abouttelstra/media/announcements_article.cfm?ObjectID=41597.

Drowning in Debt Report

Louis Schetzer from the Victorian Department of Justice has recently released a report on the experiences of people who seek assistance from financial counselling services in Victoria. Entitled ‘Drowning in Debt’, the report underlines the value of the financial counselling sector and concludes greater access to services is needed. The report is at http://www.justice.vic.gov.au/resources/file/eb425f4d5fd8284/DrowningInDebt.pdf.

Wesley Community Legal Service gratefully acknowledge the sponsorship of LexisNexis, whose assistance has enabled our solicitors to have  access to the Butterworths Direct Online package.

   Bankruptcy and Family Law: Who Gets The House?

Anna MandokiFinancial Counsellor, Victoria

Bob Cruickshanks of ITSA NSW has drawn to my attention some recent cases testing the interaction of Family Law and the Bankruptcy Act in property settlements. When it comes to deciding who gets the family home, it seems the Courts are tending to favour the interests of the non-bankrupt spouse over the interests of the bankrupt spouse’s creditors. In other words, the spouse usually gets the house.

Background – interaction of Bankruptcy Act and Family Law

Historically, bankruptcy trustees have had limited success in the Family Court. Such successes have been restricted to those cases where both the husband and the wife deliberately set out to defeat the creditors by going through a “sham divorce”.

Then in September 2005, amendments were introduced to the Bankruptcy Act and the Family Law Act. These  provisions require that where one spouse involved in a Family Law matter is an undischarged bankrupt, the Court must take the interests of the bankrupt spouse’s creditors into account when deciding on any property settlement. Where a spouse becomes bankrupt after a Family Court order has already been made, the Trustee can apply to have the matter re-heard, so that the interests of the creditors can be taken into account.

Until recently, there were few cases that tested how the 2005 amendments would work in practice. But a number of new cases are indicating that, so far at least, the 2005 amendments are not helping trustees to get Family Law Agreements set aside in favour of creditors. Instead, the amendments seem to have worked the other way, enhancing the rights of the non-bankrupt spouse to obtain property vested in the trustee.

Perhaps the most important of these recent cases is Witt & Witt [2007] FMCAfam 681 (20 September 2007). See  www.austlii.edu.au for full details of the case. The key aspects are outlined below.

Witt & Witt [2007]

Mrs Witt applied for a property settlement following her husband’s bankruptcy and the breakdown of their marriage. The couple had seven children together, the three youngest of which were living with Mrs Witt in the family home. The husband had moved out and remarried. The main asset of the marriage was the home, held in joint names, and with equity of about $108,000.

The husband had become bankrupt through a creditor’s petition – the creditor was RACV Finance, and the creditor’s petition was issued over a judgment debt of $8,122. By the time the property settlement matter was heard at the Federal Magistrate’s Court in Melbourne, this debt had risen to $69k, due to the addition of the Trustee’s fees.

Mr Witt failed to attend the hearing, but the Trustee was there to represent the creditor’s interests. Mrs Witt was represented by Lander & Rogers, acting pro bono through the Public Interest Law Clearing House. The Trustee sought the sale of the house, with a 50:50 split of the net proceeds. Mrs Witt wanted 95% of the assets.

After considering all submissions, the Court ordered that the house title be transferred to Mrs Witt, and that the Trustees’ caveat over the property be withdrawn. Mrs Witt was also given 95% of Mr Witt’s superannuation, plus she got to keep her car, her own superannuation, and the balance of the joint bank  account.

There are two particularly interesting aspects of this case: how the Court dealt with the competing interests of Mrs Witt and the creditor RACV Finance; and the issue of the Trustees fees.

Competing claims of spouse and creditors

On this issue, the Court accepted Mrs Witt’s submission that RACV’s ability to recover its debt was only one factor of many, and should not take priority over other considerations. The Court took into account the fact that Mrs Witt had made substantial financial as well as non-financial contributions throughout the marriage. These were key factors in the decision to award the house to Mrs Witt.

Trustees Fees

The Court refused to include these in the total pool of assets available for settlement. Instead, it included the value of the original debt only. It took the view that the Trustee had chosen to incur additional costs in pursuing the matter. The Court also commented that: “… it would not be just and equitable to make  orders that would see the wife and the children removed from the former matrimonial home in order to meet what is in large part the Trustees’ costs.”

Other Cases

There are two other cases on the interaction of bankruptcy and Family Law: Livanes & Livanes (August 2007) and Lalic & Lalic (2006). In Livanes & Livanes, the non-bankrupt spouse again had a very good win against the Trustee. In Lalic & Lalic, the Trustee succeeded in having an existing Family Law Agreement set aside under s121 of the Bankruptcy Act, as it was found the couple had colluded to defeat the creditor. Even so, while the creditor would get his money, the Court ordered that the Trustee was not entitled to recover costs – which left the Trustee out of pocket by about $540,000.

Implications

While it is still early days in testing the interaction of Family Law and the Bankruptcy Act, as I see it the decisions in the above cases do have the following implications:

• The Family Court will not give the interests of  creditors priority over the interests of the non-bankrupt spouse. Therefore if there are strong     reasons why a non-bankrupt spouse should be entitled to the majority of a property settlement, it could be well worth taking the matter to         court, rather than accepting a 50:50 split with the Trustees.
• A prudent trustee will be unlikely to approach the Family Court in the future without first obtaining funding and indemnity from the creditors to cover their fees. It is likely that in most cases, creditors would not be prepared to do this.

About the author

Anna Mandoki has worked for five years as a financial counsellor in South Melbourne, and more recently as a project worker for AFCCRA. Her special area of interest is bankruptcy, and for the past two years she has been convenor of the Victorian financial counsellors' Bankruptcy Working Group. She is also a qualified accountant, and an author whose work has appeared in various anthologies and journals. Her recent publications include Molotov Cocktails, a book about the 1956 Hungarian Uprising.

   ABNs Post-Bankruptcy

Elizabeth TerryGambling and Financial Counsellor, Wesley Counselling Services

Keeping an ABN and operating under the GST system post-bankruptcy

Elizabeth Terry from Wesley Gambling Counselling Services sent us the following letter with helpful information for people who may want to keep their Australian Business Number (ABN) and operate  under the GST system after bankruptcy. Elizabeth writes:

“I had a client who asked me to ring the Australian Tax Office (ATO) while he was here, in relation to him still operating under the GST system post    bankruptcy. He wanted the answer so he would not have to worry about filing his bankruptcy.

“After much ringing around I was able to speak to the ATO Insolvency Team and their phone number is 1300 303 570.

“I was told that if my client wants to operate under the GST system post insolvency he needs to write to the ATO at PO Box 9003 Penrith NSW 2740, inform them of his bankruptcy number, and tell them he wants to trade on under the same ABN. I was told ATO will then create a post insolvency account and any GST credits will be retained by ATO. If there is no dividend, the ATO will not pursue the GST.”

   Official Receiver’s Practice Statements

Richard Brading
Principal Solicitor, Wesley Community Legal Service

Have you ever wondered how Insolvency Trustee  Service of Australia (ITSA) staff are directed to deal with bankruptcy issues? Wouldn’t it be helpful to be able to explain to your clients how ITSA actually works? Well now you can find out! 

One of the best things to come from ITSA in 2007 was the publication of Official Receiver’s Practice Statements. These are helpfully published on the ITSA website – www.itsa.gov.au. To get to the practice statements, just click on “About Us” and then “Our Practices & Policies”.  The relevant practice statements can be viewed online, printed out, or downloaded as pdf files.

Currently, the website has information about:

• Dealing with Debtor’s Petitions
• Exercising Official Receiver Powers
• Personal Insolvency Agreements
• Suppressing National Personal Insolvency Index Information
• Bankruptcy Notices
• Annual Estate Return
• Collection of Realisations and Interest Charges
• Creditor’s Petitions
• Declaration of Intention to Present a Debtor’s Petition
• Taxation of trustee costs and remuneration.

Rejection of Debtor’s Petitions

The Dealing with Debtor’s Petitions paper provides these useful examples of situations when the Official Receiver may reject a debtor’s petition:

• When the debtor has an ability to pay all his or her debts immediately from existing cash reserves or by selling an asset
• When the debtor has incurred debts within a very short period of time prior to lodging the Petition and his or her stated income indicates there may be capacity to pay
• When the debtor has not explored the alternatives available to deal with his or her financial difficulties.

Declaration of Intention to Present a Debtor’s Petition

The Direction explains the criteria that must be fulfilled before ITSA will process a Declaration of Intention, such as the need to fully complete the current version of the form.  It explains the effect of the Declaration of Intention in freezing creditor activity, and thus could be useful to send to a creditor who persists in taking action whilst the Declaration is in force.

Decisions to remove or not enter information on the NPII

This Practice Statement explains the grounds upon which a debtor can ask ITSA to not enter certain information on their National Personal Insolvency  Index (NPII) record, or for a bankrupt to ask ITSA to remove certain information. 

Essentially a strong case needs to be made that inclusion of the information on the NPII would jeopardise the person’s safety.

Income contributions

The 22 page Best Practice Statement explains the income contributions process in detail with examples. 

It explains that ITSA will require an income statement when:

• Total debts in the statement of affairs are greater than $100K, or
• Bankrupts hold trade or professional qualifications, or
• Income disclosed in the statement of affairs is greater than $40K for the 12 months prior to bankruptcy.

A very comprehensive list of exclusions to income is included, as well as an explanation of how ITSA deals with fringe benefits.

The Practice Statements page is a terrific resource for financial counsellors. Relevant practice statements could be bookmarked on your computer, or relevant statements could be printed out and kept for review on a rainy day.

   More on Counselling For Bankruptcy

Jennifer Gracie
National Financial Counsellors’ Resource Service

In the last issue of Sharkwatch (Vol 8, No 4), in my article “Financial Counselling and Assisting with the Statement of Affairs”, I dealt with issues surrounding best practice in terms of advising clients about      bankruptcy. There are many viewpoints on these   issues, and, because parts of my article could be interpreted in different ways, I would like to flesh out my ideas further, and to make my position clear.

Both I and my colleagues at Sharkwatch adhere to the belief that a single appointment, in almost all cases, is insufficient when assisting a client into bankruptcy. When ITSA refer clients to us, they expect that we will give our clients all their options and then allow them time to consider the implications. This is crucial to the notion of informed consent, and all potential bankrupts are asked if they have explored all their options in the mandatory prescribed information sheet (see note from ITSA below). For this reason, we believe that, in most circumstances, there should be a minimum of two appointments — one in which to advise clients of the consequences of bankruptcy and a second to assist with their decided course of action.

I am constantly hearing stories of issues that could affect a bankruptcy not arising until a second or subsequent interview. For example, one financial counsellor told me of a client who had completed his paperwork and wanted to go bankrupt immediately. The counsellor said that he should think through everything they had discussed and then come back for another appointment. During the interim, the client realised he had forgotten about a car registered in his name that had been recently purchased by his daughter. Clearly this was something that needed to be addressed with the Trustee.

In addition, the full implications of bankruptcy are rarely immediately apparent. Financial counsellors have been sued for advising bankruptcy to clients who have later regretted the decision when the full import of the consequences became clear to them.

The remedy in all cases is assisting the client to fully informed consent (see note from ITSA below).

I would also like to clarify my position on informing clients about agency policy. If the financial counsellor works for one of the many organisations that have a no-single-appointment-bankruptcy-assistance policy, letting the client know about this policy will assist when the client is reluctant to return. Indeed, given that financial counsellors have a workplace obligation to follow the policies of their particular organisations, clients need to be informed that a second appointment is standard in those instances where such a policy exists. As already noted, many services across Australia either already have, or are looking at putting in place, policies that direct their workers that a minimum of two appointments are necessary for clients entering voluntary bankruptcy. In some instances these policies have been (or are being) introduced because financial counsellors have been sued, have been threatened with legal action, or have missed providing crucial information to their clients. In my opinion, further discussion about what is best practice in bankruptcy counselling is clearly in the best interests of the financial counselling sector and the agencies themselves.

   A Note on the Position of ITSA

Bob Cruickshanks (Deputy Official Receiver, NSW) has provided the following comments on ITSA’s expectations regarding the advice of practitioners to potential bankrupts. Bob noted in his covering email that there is a “danger that debtors can be ‘assisted’ straight into bankruptcy without first exploring the other options available”. Here is Bob’s full comment:

"Not surprisingly the number of insolvent debtors presenting a debtor's petition is steadily increasing and it appears that it will be some time before there is an abatement in those numbers.

Accordingly, there is increasing pressure on those persons from whom insolvent debtors seek a solution to their financial woes. Whilst in a lot of cases, the debtor has little other option than to go bankrupt, the person assisting the debtor should always  explore the other options with the debtor before explaining to the debtor the advantages and disadvantages of becoming bankrupt.

The Prescribed Information sheet that the debtor is required to read before presenting their debtor's petition, starts by asking the debtor "Have you considered all your options?" and then proceeds to explain the debtor's options with the last one being bankruptcy.

So whilst there will be increased pressure on financial counsellors to deal with their growing client lists, it is ITSA's expectation that financial counsellors will explore all the debtor's other   options before looking at bankruptcy."

   The Law Matters

Richard Brading
Principal SolicitorWesley Community Legal Service

Truth In Lending

“So we’re going to learn right now the most advanced techniques I know of how you can go and buy property at wholesale or how you can buy bulk property with no money or how you can take out whole projects.  I’ll be teaching you what I’m actually doing every day right now” said Henry Kaye, disgraced get-rich-quick spruiker 1.  

Henry claimed that 75,000 Australians attended his seminars – the $15,000 four-day course, the $20,000 advanced course, and the $55,000 Platinum Club offering priority access to Henry Kaye properties.  Henry’s company National Investment Institute   employed an army of high-pressure sales reps to flog the overpriced courses, paying them $1,000 commission for everyone they signed up. 

And how did the gullible multitudes find the money to pay for Henry’s pricey pearls of wisdom?  You guessed it – easy credit.  The linked credit provider was Australian Finance Direct Ltd (AFD), a subsidiary of the NZ-based Hanover Group.  In about February 2002,  AFD purchased the business of Rodney Adler’s FAI Finance from its liquidator, taking over the financing of courses provided by Henry Kaye’s National Investment Institute (NII).  In later times, Australian Finance Direct would be criticised for its failure to satisfy itself that NII was a reputable business 2. 

A consumer described how he signed up for the NII course – “I attended a free seminar by National Investment Institute in June 2003 at Moonee Ponds.  Then my wife and I had a meeting with one of their consultants at their Melbourne Office…  He said NII is an approved and registered training company and explained the details of the courses, how to become rich in a short period of time, and we were convinced that we could buy properties with no deposit.  The course fee was $15,000 if paid in full or $95 per week for 4 years.  So we decided to sign up for the course.” 3

The Australian Finance Direct loan contracts used to finance the National Investment Institute seminars were unusual in that the borrowers were not informed of a secret “holdback fee” arrangement that existed between AFD and NII. A typical loan contract informed the borrower that the total amount of repayments was $20,121.12 payable by 48 monthly amounts of $419.19.  The seminar fee of $15,340 would be paid to National Investment Institute and the remainder of $4781.12 was interest charged by Australian Finance Direct at a respectable interest rate of 13.5%. 

However the borrower was not informed of the “holdback” where Australian Finance Direct was secretly retaining an additional amount of money – 10% for standard loans and 40% for high risk loans. 

So the National Investment Institute was really only receiving $13,806 for standard loans and $7,670 for high risk loans rather than the disclosed price of $15,340.  The holdback enabled AFD to lend on more favourable terms (that is, at a lower rate of interest) than it would otherwise have been prepared to lend and, in some cases, to lend to customers who did not meet the normal credit criteria and would otherwise not have been able to borrow at all.

Consumers and regulators were not impressed when they found out about the secret “holdback fees” and court proceedings were instituted in Victoria that   eventually made their way to the High Court as the case of Australian Finance Direct Limited v Director of Consumer Affairs Victoria 4.   

The issue was whether AFD had breached s.15(B)(a)(ii) Consumer Credit Code, which requires contractual disclosure of “the persons, bodies or agents (including credit provider) to whom it is to be paid and the amounts payable to each of them, but only if both the person, body or agent and the amount are ascertainable.”

The conservative majority judges of the High Court held that Australian Finance Direct had breached the Code by failing to disclose the “holdback” arrangement. However they took a very narrow approach to applying the Code, saying:"The purpose of imposing such a requirement was to enable the debtor to see how the amount of credit was to be disbursed in a case, such as the present, where it was not to be paid by way of loan to a borrower…Wider considerations of “truth in lending” are not to be disregarded, but they tend to divert the argument into unproductive speculation about the importance, or possible importance, to the debtors of knowledge of the holdback.” 5 

The liberal judge Kirby agreed that the holdback arrangement breached the Code, and gave the old conservative judges a blast over their comments, saying: 

“To confine oneself to the text of a disputed legislative provision to the exclusion of its context is to risk lapsing back into a literalistic approach to the interpretation of statutes.” 6

Kirby pointed out that disclosure of the holdback would have encouraged and promoted informed assessment, and perhaps, questioning by the borrower of the cost of the NII courses. It was likely that borrowers would have been more cautious had they known the true arrangements between AFD and NII.

Consumer Affairs Victoria can now take Australian Finance Direct back to the Victorian Civil and Administrative Tribunal which will decide whether to impose a civil penalty on AFD for breaching the Code7. 

Although the High Court judgment in Australian Finance Direct Limited v Director of Consumer Affairs Victoria 8 was a win for the consumer, it gives cause for concern about the future of consumer protection. 

The case against AFD was a strong one, and it is surprising that the conservative High Court judges expressed such a negative attitude towards the fundamental consumer principle of truth in lending. 

Unfortunately, now that the High Court has expressed a restrictive attitude to consumer protection, all the other courts around Australia will be forced to follow suit.  We hope that Fair Trading and Consumer Affairs regulators and advocates will continue to press for  improvements in the Code and consumer protection law generally, as they won’t be able to count on much help from the courts for a long time to come.  Expressly enshrining the principle of “truth in lending” in the  legislation would be a good start.

The Henry Kaye saga has caused much grief for AFD. In the case of Agussol v Australian Finance Direct Ltd 9, the consumer was induced to sign up for a $15,300 loan from AFD to finance a NII course at the very time that ASIC was in the Federal Court prosecuting NII for various naughty acts. The dodgy salesman assured the consumer that the problems with ASIC had been cleared up and she signed the contract in reliance on that misrepresentation. Shortly afterwards, the consumer saw a less-than-complimentary piece about Henry Kaye on “Today Tonight” and decided she wanted to get out of the NII contract. The tribunal decided that she was entitled to terminate the contract and ordered a full  refund.

In the NSW case of Clegg v National Investment Institute 10, the consumer signed up for a course, relying on the salesperson’s misrepresentation that the course was “government approved” and she could cancel the contract at any time and get her money back. She sought a refund from AFD, as a linked credit provider, because NII was in liquidation by then and could not be sued. The right to sue a linked credit provider is found in s.119 of the Code where a debtor suffers loss or damage as a result of misrepresentation or breach of the main contract of supply. However, there is a defence available to the linked credit provider under s.119(2)(b) Code, if the credit provider can prove that it made appropriate due diligence checks of the supplier. The tribunal considered the enquiries made by AFD before it became a linked credit provider for the National    Investment Institute and concluded that they were inadequate to provide a defence under s.119(2)(b). So Ms Clegg got her refund.

Australian Finance Direct hasn’t always lost.  In the case of Rous v Australian Finance Direct 11, Ms Rous entered into a credit contract with AFD. But the purpose of the loan was for her to attend the course on behalf of her family company RC Property Group Pty Ltd.  The   tribunal concluded that the knowledge gained by Ms Rous through the NII course was to be used by her company so that it could engage in property transactions with a view to making profits. Therefore the purpose of the loan was a business one. Where the credit is not provided wholly for personal, domestic or household purposes, the Code has no operation, so Ms Rous lost her case.  There are also a couple of cases involving wives who took out loans from AFD for their husbands to attend NII courses and were unable to escape liability for the sexually transmitted debts12.

A class action of 200 consumers is currently doing battle with Australian Finance Direct in the Victorian Supreme Court13.  They are represented by the law firm of Slater and Gordon14.  They are relying on   misrepresentations by NII that their courses were ASIC-approved, and that they could get a refund on their fees at any time if they were not satisfied with the course. As a linked credit provider, AFD is likely to be held accountable for any misrepresentations by NII salespeople that the consumers can prove. NII is not a party to the litigation because it is in liquidation.

One would think that Australian Finance Direct would have learnt to be more careful about what sort of   entities it got involved with. But it appears that AFD is now providing finance for the purchase of mathematics education software, and has been the  subject of more consumer claims 15.

1 Four Corners Transcript “Tall Stories”, ABC Television, broadcast
2 1/04/20032 See comments in Jugovic & Stevens v National Investment Institute & Australian Finance Direct [2003] NSWCTTT 812 (30 November 2003)
3 www.jenman.com.au/news_story.php?id=68
4 [2007] HCA 57 (12 December 2007)
5 Australian Finance Direct Ltd v Director of Consumer Affairs, at para 19.
6 Australian Finance Direct Ltd v Director of Consumer Affairs, at para 30
7 Minister for Consumer Affairs Press Release, 16th July 2004
8 [2007] HCA 57 (12 December 2007)
9 [2004] VCAT 1560 (6 August 2004)
10 [2004] NSWCTTT 669 (22 November 2004)
11 [2006] NSWCTTT 2 (10 January 2006)
12 Gaszewski v Australian Finance Direct [2005] NSWCTTT 320 (24 May 2005); Elderton v Australian Finance Direct  [2007] NSWSC 1192 (24 October 2007)
13 Hall v Australian Finance Direct, Victorian Supreme Court plaint number 2023 of 2004
14 Slater & Gordon media release, 3rd July 2007
15 See Brayovic v Maths Achievers P/L and Australian Finance Direct [2006] NSWCTTT 3 (4 January 2006);

   AFCCRA Update

Jan Pentland
AFCCRA Chairperson

AFCCRA Council

AFCCRA’s Annual General Meeting was held in Canberra on 11 December. David Tennant did not renominate and his position representing the ACT has been taken on by Carmel Franklin. Fortunately AFCCRA will still be able to draw on David’s expertise in drafting submissions, representing the sector in   hearings, including the current Productivity Review of Austrlaia’s Consumer Policy Framework. A big thank you to David for his substantial contribution over many years.

The outcome of the AFCCRA Council election is:

Chair	Jan Pentland	Victoria
Dep. Chair	Russell Franks	NSW
Secretary	Carmel Franklin	ACT
Treasurer	Phillip Powell	Tasmania
Reps.	Marianne Mayer	WA
	Tricia Ross	NT
	Fiona Hawkins	Queensland
	Gerry Phillips	SA

Council also reconfirmed its representative positions on the:

• Bankruptcy Reform Consultative Forum
• ACCC Consumer Consultative Committee
• ASIC Consumer Advisory Panel
• Telstra Consumer Consultative Council
• Optus Consumer Liaison Forum

The AFCCRA priorities for 2008 are to:

1. Build capacity in the financial counselling sector;
2. Enhance the professionalism of Financial Counselling;
3. Continue to work on national policy issues.

AFCCRA Conference

Dates for your diary:

External Disputes Resolution Forum 29 July 2008;AFCCRA Conference 30 July 2008;AFCCRA Financial Literacy and Inclusion Forum 31 July 2008.

All these forums will be held at the same venue as last year – the Citigate Sebel, Albion Street, Sydney.

Further information as it becomes available will be on the AFCCRA website at  www.afccra.org.

Review of the Diploma of Community Services (Financial Counselling)

AFCCRA continues its work on the review of the Community Services Training Package of which our Diploma is a small part. The review concludes on 30 June 2008. Information on the contributions of AFCCRA’s working group is available at www.afccra.org.

Partnerships with industry and conflict of interest.

The focus of AFCCRA’s Conference in 2007 was a workshop on conflict of interest in partnerships with industry. This was part of a year long national discussion with presentations at all state association conferences as well as the workshop at the AFCCRA Conference.

The report on the consultations with the sector is being finalised and will be available soon at www.afccra.org. AFCCRA Council is determining what the next steps in this process will be.

Pilot project to establish an independent Foundation

A project to pilot an independent foundation/trust as a conduit for industry funding support of the financial counselling sector is underway. Seed funders for the project are the four major banks and the credit union peak body.

Research on models of financial counselling

The research being undertaken by Dr. Charles Livingstone at Monash University to compare the models of financial counselling in Australia with overseas models is underway. Further information will be made available as the project progresses.

Reconciliation Action Plan

AFCCRA welcomes the launch of the ‘Banking for the Future’ report: a background paper on financial literacy and financial services for indigenous Australians’ on 26 February by Minister Jenny Macklin. Jan Pentland represented AFCCRA in the NIMMA process which has produced this report. The report confirms the  importance of financial counselling and is available at www.reconciliation.org.au. 

AFCCRA has a strong commitment to the provision of financial literacy and financial counselling for indigenous communities. As part of the ‘close the gap’ initiative of Reconciliation Australia, AFCCRA has developed a Reconciliation Action Plan and is reporting its progress at www.afccra.org.

Centrepay

AFCCRA continues its work on concerns about the use of Centrepay to collect debts and sell dodgy goods and services to the most vulnerable consumers. A Government review of Centrepay’s policies and procedures is underway. AFCCRA remains very     supportive of the role of Centrepay as a payment system for essential goods and services.

Telstra Contacts

Tricia Ross, AFCCRA’s representative on the Telstra Consumer Consultative Council, provided valuable information from the last Telstra Credit Management Working Group regarding contacts within Telstra (Eds. Note. see page 3 of this edition of Sharkwatch for full details).

If you have any feedback on Telstra matters please forward them on to Tricia at tross@anglicare.org.au. If you would like further information on any of the above please contact Jan Pentland at janpentland@hotmail.com or call 0407 042 483.

   Casenote: Centrelink Changes Policy on Recoveries After Bankruptcy

Michael Lhuede 1Partner - Piper Alderman Lawyers

A recent change in policy by Centrelink means that recovery actions will no longer be taken by the Commonwealth against bankrupts against whom it has obtained a reparation order prior to bankruptcy.  This change, while receiving little publicity, has been of significant interest to the Financial Counselling sector.

The case giving rise to this change of policy concerned an individual who was convicted of defrauding the  Commonwealth for wrongfully claiming sickness benefits under the Social Security Act.  Upon conviction the Commonwealth sought a reparation order for an amount in excess of $221,000. The reparation order was registered as a judgment and in 2002 the Commonwealth bankrupted the convicted person. The Commonwealth proved in the bankruptcy and received a dividend. 

Notwithstanding that the Commonwealth elected to bankrupt the individual and prove in his bankruptcy, it denied that the debt due to it was stayed, and ultimately discharged, by the bankruptcy. Accordingly the Commonwealth continued to garnishee amounts due to the individual from Centrelink and also income tax returns to be applied against money owing under the reparation order.

Section 153 of the Bankruptcy Act 1966 (Act) provides that upon discharge from bankruptcy the bankrupt is released from all debts provable in the bankruptcy. This general rule is subject to a number of exceptions contained in sub-section 153(2). 

In particular 153(2)(b) provides that the discharge of a bankrupt from bankruptcy does not release the bankrupt from a debt incurred by means of fraud or fraudulent breach of trust to which he or she was a party.  However, the general rule with respect to section 153(2)(b) has been considered by the courts and is not as all encompassing as may be suggested.

In Power v Kenny [1977] WAR 87 the Honourable Justice Wallace held that if a claim for fraud merged in (or was converted to) a judgment debt prior to bankruptcy, then such debt would be released upon discharge from   bankruptcy notwithstanding that the underlying claim arose in fraud. Accordingly, in the present case, when the Commonwealth, having sought the reparation order registered it as a judgment debt, it converted its claim in fraud to a judgment debt. 

Further, in Gaffney v Commissioner of Taxation (1998) 81 FCR 574 the Honourable Justice Mansfield of the Federal Court of Australia held that a judgment arising from a reparation order was capable of founding a bankruptcy notice, but only became a provable debt upon the making of such reparation order. While not directly on point, the decision reinforces the proposition that the earlier facts giving rise to the reparation order are subsumed by such order which becomes the relevant basis to recover the claim.

In Secretary for the Department of Social Security v Southcott (1998) 50 ALD 162, Justice North in the Federal Court of Australia held that a debt to the Commonwealth under section 1224 (now repealed) of the Social Security Act is subject to the usual consequences of bankruptcy and that it was not open to the Commonwealth to garnishee a bankrupt's entitlement once bankruptcy intervened.  In particular, His Honour held:

“Similarly, it is not open to the Secretary to give a garnishee notice during bankruptcy. After the bankruptcy has commenced the debt due to the Commonwealth is replaced by a right of the Commonwealth to prove in the bankruptcy and the precondition for the issue of the notice cannot be fulfilled.”

The decision of Justice North was referred to with approval in the decision of the Commonwealth Administrative Appeals Tribunal in Dobson v Department of  Family and Community Services [2000] AATA 41. That decision referred to the question of the operation of sub-section 153(2)(b) and whether a debt incurred by fraud would be released. It did not deal with the present case where the claim in fraud had converted to a judgment debt.

Following receipt of an opinion detailing the aforementioned authorities on behalf of the bankrupt, the Commonwealth has accepted that, where it has  obtained a reparation order, it is not entitled to seek to enforce any garnishee notice as against a person who subsequently becomes bankrupt 2. It is presumed that the Commonwealth would continue to maintain its rights against individuals where no reparation order has been obtained. 

While the implications of Centrelink's decision are of relatively narrow ambit, it has been well received within the financial counselling community, which has long been aware of the harsh economic impact it can have on those least able to afford such impost. 

While the change of policy has caused Centrelink to address other cases as and when they are brought to its attention, it is understood Centrelink has no means itself to identify relevant cases.  It has thus fallen largely to the financial counselling sector to bring this decision to the attention of those affected, with a view to obtaining appropriate recompense.

Note 1: The author acknowledges the input of Carla Harvey, Business Manager, Debt Business Integrity Network, Centrelink in the settling of this casenote.

Note 2: Mr Michael Lhuede of Piper Alderman Lawyers provided legal assistance to the bankrupt through Incolink's senior financial rights counsellor, Mr Kit Hauptmann, who represented the bankrupt in his dealings with Centrelink resulting in the changes that were effected.

Michael Lhuede is a partner with Piper Alderman lawyers, and leads the Victorian arm of the firm’s national Insolvency & Reconstruction Practice Group. Michael practises exclusively in the areas of corporate and personal insolvency law, and has an enviable reputation as one of Australia’s leading bankruptcy lawyers. Michael currently serves on the Law Council of Australia’s Insolvency and Reconstruction Committee, and is Chair of the Bankruptcy Sub- Committee. Michael is also the Law Council Representative on the National Bankruptcy Forum.

   AFCCRA Bankruptcy Update

Jan Pentland

The last Bankruptcy Reform Consultative Forum  meeting was held in Sydney on 5 December. Jan Pentland and Richard Brading represented consumer bankruptcy issues. Reports were received from those representing creditors, registered trustees, the ATO, AG’s Department, debt agreement administrators and financial counsellors.

The biennial review of cost recovery within ITSA confirmed that there will continue to be no costs to lodge debtors’ petitions. This was the outcome of a hard fought campaign by the financial counselling sector in 2005.

There were updates on the review of offences; and the issues paper on remuneration of trustees. An update was also given on the implementation of the changes to Part IX of the Act which came into effect on 1 July 2008.

ITSA continues its process of developing policy and practice statements and posting them on their website. A recent one of these is the ‘Official Receiver’s Best Practice Statement on Bankruptcy Notices’. Go to ‘Our practices and policies’ at www.itsa.gov.au. 

The biennial Bankruptcy Congress will be held in Sydney in October 2008 – more information available at www.itsa.gov.au.  

The next meeting of the Bankruptcy Reform Consultation Forum will be in Melbourne on 7 April. The new Attorney General, Robert McClelland, will be attending.

Trustees’ Fees

The project funded by the Consumer Credit Fund and undertaken by Eastern Access Community Health (EACH) has been finalised and the report ‘Homes at risk: using bankruptcy to collect small debts’ is now available from Jan Pentland. A strategy is being developed to progress the report’s recommendations.

If you would like further information on any of the above please contact Jan Pentland on 0407 042 483 or at janpentland@hotmail.com.

   Round Up

New South Wales

ITSA Sydney move premises

ITSA Sydney have moved their premises and are now located at Level 4, 201 Elizabeth Street Sydney which is not far from Town Hall station.

The phone numbers and GPO box remain the same.

New Code of Conduct for NSW Justices of the Peace

The Attorney General for NSW, John Hatzistergos, has recently announced two changes for NSW Justices of the Peace. The 5-yearly re-application process will be made simpler, and a Code of Conduct will be introduced. The Attorney General noted in a press release that “The Code of Conduct will remind JPs they are to behave courteously, must not charge fees for their services and are obliged to notify the Attorney General’s Department if they are convicted of an offence or declared bankrupt.” These changes will be relevant for the large number of NSW financial counsellors who are also Justices of the Peace.

SDRO introduce Centrepay and Advocacy Hotline

The State Debt Recovery Office (SDRO) in NSW has made two changes to its operation. It now has a Centrepay option, and has set up an Advocacy Hotline.

Clients can contact the SDRO on 1300 655 805 to arrange Centrepay deductions. This applies to both existing time to pay clients and new time to pay clients.

For financial counsellors to use the Advocacy Hotline, they need to register by faxing or mailing a completed Request for Access to SDRO Advocacy Hotline” form to the SDRO. Once the request is processed, the financial counsellor will be issued with the Advocacy Hotline direct number, and will be able to call the Hotline to discuss their clients’ issues.

Contact details:

State Debt Recovery OfficePO Box 786Strawberry Hills, NSW, 2012Phone: 1300 655 805 Fax: 02 6354 7302Email: info@sdro.nsw.gov.auWebsite: http://www.sdro.nsw.gov.au/

Victoria

Review of financial counselling in Victoria announced by Premier, John Brumby

At the request of the Premier of Victoria, John Brumby, the State Services Authority (SSA) is conducting a Review of Government Funded Financial Counselling Services in that state.

In conducting the review, the SSA has been looking at a number of issues, including:

• The role, functions and funding of government funded financial counselling services;
• The effectiveness of the financial counselling services delivery model with respect to community need;
• The effectiveness, responsiveness and merit of the financial counselling service model with respect to communities in crisis or emergency, such as those affected by drought and bush fire;
• The integration and links between current financial counselling services and other counselling and social services, including those funded through other levels of government;
• The merit of other strategies such as prevention and early intervention to improve the effectiveness of financial counselling services; and
• The findings of other reviews of financial counselling services.

News, views and information on what’s happening in financial counselling around Australia.

According to an SSA information brief, the information collected during the review will be used to produce a set of recommendations about the following:

• The appropriate scope and functions of the financial counselling services including responding to emerging issues;
• The appropriate governance structures, service   delivery models, accountability arrangements and skills and capabilities to support these and the Government’s objectives; and
• Any other necessary or incidental recommendations relating to the terms of reference.

We at Sharkwatch will be watching with interest for the final report, which may well have implications for other government-funded financial counselling services in Australia.

It is noteworthy that the Victorian government is interested in how well the financial counselling sector can respond to emergencies (e.g., floods, bushfires etc.) and to emerging issues. In both instances, flexibility and readiness to respond are crucial. Global warming will increase the number of severe weather events in coming years, and world economic   conditions are increasingly unstable. It seems likely that our sector, in order to maintain relevance, will need to be proactive in addressing how we can increase our preparedness to be able to respond quickly to the many types of events the next decade may bring.

Other news

St George Bank financial hardship requests

St George Bank has requested that all financial hardship requests be directed to its Customer Assistance Department. The contact details are as follows:

Customer Assistance DepartmentSt George Bank National CollectionsLevel 1, 4-16 Montgomery St,

Kogarah NSW 2217Locked Bag 1,Kogarah, NSW 1485Ph: 02 9553 5337Fax: 02 9995 8115Other: 1300 554 001

The following forms of assistance are able to be provided to people in financial hardship by St George’s Customer Assistance Department:

• deferments followed by short-term payment plans where the financial difficulty is short-term;
• arrears capitalization in suitable cases;
• refinance or formal restructure under special circumstances;
• unsecured debts may be consolidated into a personal loan, subject to the Bank’s lending guidelines;
• on credit cards, the arrears can be cleared to assist the customer to maintain affordable payments provided the customer can maintain minimum monthly repayments over 3 months and reasons for the arrears are legitimate;
• fees on credit cards can be reversed to reduce the arrears or balance of the card; and
• discussion about the possibility of a moratorium.

Bills of Exchange now covered under the Uniform Consumer Credit Code

Non-bank lenders are no longer able to use bills of exchange and promissory notes to avoid the application of the Code with the passage of the Consumer Credit (Bill Facilities) Amendment Regulation (No. 1) 2007. The Consumer Credit Code now applies to the use of bill facilities where the credit is provided wholly or predominantly for personal, domestic or household purposes.

Bills of exchange and promissory notes previously provided a loop-hole that allowed many lenders to continue to avoid the 48% cap on interest, fees and charges.

This change was effective as of Friday 30 November 2007 for NSW and QLD. As the QLD legislation is a template for CCC legislation in other states, the same is expected to apply in other states and territories as well.

Any contributions to "Round Up" would be most welcome. Our aim is to include some news from each state and territory. Contact Wayne Warburton on 1800 647 409 if you have anything you would like to have included.

   In the Media

The real deal on debt

Original story by Steve Keen

In this article, Dr Keen makes a number of interesting points about credit card debt.

It has risen ~500% since 1997; It has risen ~1200% since 1987; In 2008 credit card balances increased by ~$4 billion;

Since 1987: Credit card debt has grown by ~$38 billion;Personal debt overall has grown by ~$125 billion;Mortgage debt has risen by a staggering  $850 billion.

Debt growth is outstripping GDP growth, and the author argues that this can’t continue forever. However, if spending does slow down, there will be some sort of ‘recession’, as happened in 1990 after a period of unrestrained borrowing in the business sector.

This time, however, the cutbacks and bankruptcies won’t be in the commercial sector, they will be in ordinary families who can’t sack staff or streamline consumption as the companies did.

2 January 2008; retrieved fromhttp://www.abc.net.au/unleashed/stories/s2130307.htm

Debt and stress make Sydney a violent city

Original story by Sarah Price

This article cites research from Dr James Arvanitakis of the University of Western Sydney showing that increasing levels of debt, longer working hours, and growing competitiveness, are causing the inhabitants of Sydney to be more and more frustrated and angry.

The article also notes that Sydney has seen a dramatic increase in drug and alcohol-related violence.

Sun Herald, January 13, 2008

Pokies Greed: Hotels raking in $1.7bn a year from poorest suburbs

Original story by Claire Masters
Supplementary story by Claire Masters and Michelle Cazzulino

These articles note that there has been a huge increase in the number of poker machines in hotels over the last decade, with revenue from hotel based pokies exceeding 1.7 billion dollars in 2007.

A table of the top 25 hotels shows that each of the 748 poker machines in these establishments averages $219,528 in takings, with the most profitable machines taking up to $250,000.

In the reports, it is shown that the most profitable hotels are in Sydney’s mortgage belt, where many struggling working families are losing their homes, particularly in Sydney’s inner west, and western and south-western suburbs.

For example, Fairfield’s 18 establishments turn over $705 million in poker machine takings, Parramatta’s 24 establishments $623 million, Blacktown’s 25 establishments $581 million, Bankstown’s 19 establishments $561 million, Marrickville’s 32  establishments $421 million, Newcastle’s 70 establishments $414 million, Penrith’s 19 establishments $386 million, and Liverpool’s 13 establishments $362 million. Overall, in these 8 areas alone, there are 4,260 poker machines in hotels, and these machines turn over a whopping $4.05 billion!

The top 10 money earners are located in Hurstville (ranked 1 & 2), Burwood (3), Campsie (4 & 5), Castle Hill (6), Fairfield (7), Kingsford (8), Kings Cross (9), and Canley Heights (10).

Clearly, many of the profits from hotel-based pokies are being made in the areas of Sydney where people can least afford to be pumping their money into the insatiable collection boxes of poker machines.

Daily Telegraph, December 3, 2007