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Notes and Notices

AAPT financial counsellor line

Thanks to the FCRP News (14.8.06) for making public that AAPT now have a special financial counsellor line for financial hardship cases. The number is 1300 664 596.

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Passing of Alison Patten

Those of us here at Sharkwatch were sorry to hear of the passing of Alison Patten, a financial counsellor from Victoria. We have reprinted below the notice from the Devils Advocate:

“Alison Patten was a financial counsellor for more than 20 years and worked in a number of agencies around Melbourne. She died suddenly in late August 2006. Alison was known for her passion to get a good result for her clients and her enjoyment of life. She will be missed by her many friends and colleagues.”

Our condolences go to Alison’s family, friends and work colleagues.

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CBA informing ITSA of large cash withdrawals, unusual credit card usage, prior to bankruptcy

Thanks also to the Devils Advocate (8.8.06) for noting that “the Commonwealth Bank are referring to ITSA any large cash withdrawals made on credit cards by bankrupts in the 3 or 4 months prior to bankruptcy, as well as any discrepancies on recent credit application forms. ITSA are investigating all of these. Debtors in this situation should expect to get an initial phone call from ITSA, asking them to provide further information. If they can’t provide a reasonable explanation, ITSA will be taking further action — including possible prosecution. It’s quite likely that other major creditors may begin following the CBA’s lead on this”.

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Two major banks offer low interest loans

The National Australia Bank (NAB) has followed the lead of the ANZ Bank by making low interest loans available to low income consumers.

Both banks offer their loans as part of their ongoing relationship with two respected charitable organisations — the ANZ with the Brotherhood of Saint Lawrence and the NAB with the Good Shepherd.

The NAB’s new loan program is called ‘Step Up’ and is being offered in four states — New South Wales, Victoria, South Australia and Western Australia.

The Step Up program lends relatively small amounts — from $800.00 to $3,000.00 — but at the very low interest rate of 6.99%.

Sharkwatch believes the scheme provides a much needed middle ground between No Interest Loan Schemes and regular loans, allowing many low income consumers to borrow money in the mainstream credit system.

This scheme is particularly valuable given the recent proliferation of ‘pay day’ lenders and the like, who target just this group, condemning many to a horrific poverty spiral by taking huge fees and/or high interest payments when lending money for just the sorts of purposes that these loans are intended for.

We can only hope that access to ‘realistically priced’ credit will allow some low income consumers to escape the need to borrow from payday lenders, and start to get back on their feet financially.

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Tax Office Prosecutions

Richard Brading
Principal Solicitor, Wesley Community Legal Service

• Tax evasion is a crime. Recently the Australian Tax Office (ATO) has been provided with additional resources to investigate and prosecute tax fraud. In 2005–06, there were 100 court convictions nationally for serious tax evasion and fraud and of those, 55 received prison sentences. This article provides some general information as to who might be prosecuted and whether they might end up in jail.
• The ATO is currently focussing on tax scheme promoters, tax havens, identity crime and failure to declare capital gains tax. However, it will still prosecute individuals who have been clearly involved in other forms of serious tax evasion such as false Business Activity Statement (BAS) returns or even false tax deductions. Failure to lodge returns or other documentation may also result in prosecution.
• The ATO will usually only prosecute the most serious offenders, and lesser breaches of the tax laws result in administrative penalties being imposed. The ATO will consider all the circumstances of the matter, including such factors as
• The person’s history of taxation compliance
• The seriousness of the offence
• Any mitigating or aggravating factors
• The:
  • youth,
  • age,
  • intelligence,
  • physical health,
  • mental health or
  • special infirmity of the person
• The prevalence of the offence

There is also a deterrent factor in prosecution, both for the individual and the community. The Tax Office’s media unit will often issue press releases regarding successful prosecutions as a warning to others, thus providing public exposure to some who are convicted of tax evasion.

Although most of the clients seen by financial counsellors do not fall into the tax evasion category, a handful are at risk of prosecution. The following are real examples of reported cases of prosecution which provide a guide to the possible outcomes of prosecution.

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The accountant

In March 2005, Stephanie West, an accountant from the town of Currabubula, was sentenced to two years and three months jail for GST and income tax fraud that totalled $114,248. Her non-parole period was one year. The accountant had created three business entities, registered them for GST, then lodged eight false activity statements and pocketed the refunds.

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The eBay fraudster

In April 2006, Timothy Henderson of Coopers Plains was sentenced to four years jail (18 months non-parole) for GST fraud of $408,576. He lodged 18 fraudulent quarterly business activity statements in relation to the sale of second-hand computer parts, programs and DVDs over the internet.

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Fake capital acquisitions

Terry Walters of Newcastle was sentenced to 2½ years jail (15 months non-parole) in August 2006 for claiming non-existent capital items in his activity statements in order to obtain $139,852 refunds from the ATO. When the refunds were investigated, Walters could not provide any evidence to substantiate his claim, admitting that he had ‘plucked figures from the air’.

For more information see the ATO’s Receivables Policy 23 — Referral for Prosecution Action — Debt Recovery and Policy 70 — Referral For Prosecution Action — Lodgment of Documents.

This can be obtained from the ATO website at: http://law.ato.gov.au/atolaw/view.htm?DocID=RMP%2FRP0070

The ATO’s legal database can be accessed at: http://law.ato.gov.au/atolaw/index.htm

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Gambling and Bankruptcy

Ian Macdonald
Solicitor, Financial Counsellors Resource Project, WA

It is well known that the Bankruptcy Act creates an offence in the situation in which a person becomes bankrupt, and within two years before becoming bankrupt, the person has engaged in gambling or speculations that were rash and hazardous, and which materially contributed to, or increased the extent of, their insolvency(s.271). There is an exception in the case of gambling or speculation connected with the trade or business by the person who becomes bankrupt.

A difficulty in interpreting this section is that it is only gambling or speculation that was rash and hazardous in the circumstances at the time which is made an offence. There is an element of subjectivity in deciding whether a particular item of gambling or speculation was hazardous.

There is some guidance on the face of (s271) in that gambling or speculation must be such that they materially contributed to, or increased the extent of, the insolvency. This suggests that small sums, such as a few scratchies, or a weekly lotto ticket, will not constitute an offence. However, where does a person considering bankruptcy draw the line between trivial sums, and more substantial gambling that may constitute an offence?

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The ITSA policy statement

ITSA has put a Policy Statement on its website which gives very useful guidance in this area. The policy statement says that ITSA will not refer a case for prosecution where it appears the debtor could be classified as having a been a problem gambler, and has not engaged in any associated criminal activity to finance their gambling habit. ITSA will consider referring a case to the Director of Public Prosecutions only when it involves:

1. Clear criminality. An example of this is given in the policy statement is where a person gambles with the intention of depriving creditors of money or property which would otherwise become available for distribution to creditors.
2. Complex offences. The example of this given in the policy statement is where gambling is accompanied by other such offences such as obtaining money by deception, or concealing assets from the trustee
3. Ongoing allegations of repeat offending despite warning to the contrary. The example of this in the policy statement is where a person has previously been bankrupt, there was possible evidence of a breach of this section of the bankruptcy act and the person was given a warning letter concerning this. If that person becomes bankrupt again and there is evidence of a breach of the section, then that matter may be referred for prosecution.

This policy statement is available on the ITSA website which is at www.itsa.gov.au. Go to “Publications” and then to “Referral of offences for rash and hazardous gambling — policy statement”.

I strongly recommend that counsellors download and keep this with their bankruptcy checklist in order to provide information to clients to whom it is relevant.

This article has been reprinted from the FCRP E-Newsletter, 18th Edition, 26 September, 2006.

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Relocation of children

Richard Brading
Principal Solicitor, Wesley Community Legal Service

Family Court cases involving issues of relocation of children are often heart-wrenching and difficult for the courts to decide. The May 2006 Report to the Attorney-General of the Family Law Council titled “Relocation” (available at http://www.law.gov.au/flc) provides useful information to those interested in relocation issues. About 90% of court cases involve objections by fathers against mothers who are relocating further away, and where the children reside with the mothers. In about 75% of cases, the court permitted the residence parent to relocate. The issue is more significant in rural, regional and remote communities than in big cities.

Distance is not the critical issue in relocation, but rather what is “the best interests of children”. So, practical considerations are relevant. Relocation between major cities with good transport and communications connections are more likely to be approved than those involving isolated communities with poor transport and communications connections. The most favoured definition of relocation is “a move which will result in changes to the child’s living arrangements that make it significantly more difficult for the child to spend time with a parent.”

However, the interests of parents are also important. Justice Michael Kirby, in the leading case of U v U, said that: “the economic, cultural and psychological welfare of the parents is also to be considered, because they are human beings and citizens too, and because it is accepted that their welfare impacts upon the welfare of the child.”

Parents who are considering relocation (or objecting to it) should be referred to the criteria in s.60CC Family Law Act (available at: www.austlii.edu.au).

The law has recently been changed by the Family Law Amendment (Shared Parental Responsibility) Act, 2006. The law provides a wide range of criteria relating to the child’s best interests particularly:

1. the benefit to the child of having a meaningful relationship with both of the child’s parents; and
2. the need to protect the child from physical or psychological harm from being subjected to, or exposed to, abuse, neglect or family violence.

Some of the other issues to be considered include:

• The views of the child
• The nature of the relationship between child, parents and significant others
• The willingness and ability of each parent to facilitate and encourage a close and continuing relationship between the child and the other parent
• The likely effect on the child of a separation from a parent or significant others
• Practical difficulties and expense of the child spending time with and communicating with a parent
• The attitudes, maturity, sex, lifestyle, culture and traditions of child and parents.

There are four common options that should be considered:

• Child relocates with residence parent
• Child does not move and there is a change of residence parent
• Child does not move and residence parent also stays
• Child relocates with residence parent and contact parent also moves.

The Family Law Council has recommended the addition of guidelines in the Family Law Act setting out in more detail the matters should be considered by the Court in relocation matters. Essentially these could be seen as listing the pros and cons of each of the available options. Such an approach would be familiar to financial counsellors.

When counselling clients who are considering the possibility of relocation, or opposing it, I would suggest that the client be encouraged to follow this approach.

This is not a substitute for legal advice, but rather a preliminary step to enable the client to ascertain a view on whether to proceed with, or oppose, the relocation.

A case study on relocation, provided by Jennifer Gracie, is provided below.

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A Case Study

Jennifer Gracie
Senior Facilitator/Casework Officer, National Financial Counsellors’ Resource Service

Following from Richard Brading’s article on the relocation of children, Jennifer Gracie provides this case example.

Jeannette left her husband in another state and moved to NSW with her children because she wanted a new start and had found a job that she enjoyed in a large country town.

Although she could not say that she was a survivor of serious domestic violence, she said that her ex-husband abused her verbally and emotionally. When she had remained living in the same town as her ex-husband she found that he constantly interfered with her daily life by turning up everywhere she went for entertainment, asking questions of her work colleagues, and visiting her family and friends at the same time she was there. He would question the children on everything she did and then tell her that she “shouldn’t be doing this or that”. It was very insidious and when Jeannette tried to talk to people about it, she felt that it seemed like she was just being petty.

Jeannette reported that, overall, it had felt as though her ex-husband was still controlling every aspect of her life, despite their separation. This is why she felt that she had to move away.

Unfortunately, Jeannette’s ex-husband went to court to demand that the children be returned to the town where he still lived, because they had always gone to the same school, all their friends were there and because both his and Jeannette’s extended families lived there.

The court determined that the children should be returned to their father, and if Jeannette wanted to stay in NSW it would be without the children. Furthermore, if Jeannette wanted the children to visit her in NSW, she would have to pay all the costs for their travel. The court decision was that she could have the children for half of all the school holidays, and if she wanted to see them at other times, then she would have to return to the town where they lived with their father and make arrangements with him for them to visit her at her relatives’ homes.

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CFCP Photos

John Maybanks, a financial counsellor from Lifeline Bundaberg in sunny Queensland. John is funded under the FaCSIA SIRP programme and provides advice and counselling for people affected by changes to the sugar industry. This photo was taken at the SIRP conference (Mackay) in May this year. We still haven’t worked out whether John has a mobile phone in both hands…	Kevin Woon from Coober Pedy in South Australia. Kevin is famous for his colourful shirts and is a lively personality at CFCP events. Apart from financial counselling, Kevin has a strong interest in local community radio and has his own show in Coober Pedy.
At the SIRP conference in Mackay: From left: Terry Harvey (NSW), Jon O’Mally (NSW), Loretta Andrew, (VIC), Emma Ryan (Tasmania) and Tania Buck (QLD).

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The Law Matters

Richard Brading
Principal Solicitor, Wesley Community Legal Service

Bankruptcy and Transferring the Home II: Case Examples; Implications for Financial Counsellors

This article follows the article “Bankruptcy and Transferring the Home” in the June 2006 issue of Sharkwatch.

Queens Counsel, gentleman of the turf, and renowned bankrupt John Cummins has created a lot of interest in the vulnerability of the family home to bankruptcy trustees.

Cummins bought a block of land with his wife way back in 1970. He contributed 23.7% and she contributed 76.3% of the purchase price. The property was bought by them as “joint tenants”, which is the most common form of ownership for couples. If one joint tenant dies, the survivor automatically inherits the deceased owner’s share, without reference to the Will. The other sort of ownership is “tenants-in-common”, which may also be effected by the Cummins decision.

After Cummins became bankrupt, his wife fought it out in the courts with his trustee in bankruptcy. She claimed 76.3% of the house. The trustee claimed 50%. Eventually the High Court decided in favour of the trustee, saying:

“it is often a purely accidental circumstance whether money of the husband or of the wife is actually used to pay the purchase price to the vendor, where both are contributing by money or labour to the various expenses of the household. It is often a matter of chance whether the family expenses are incurred and discharged or services are rendered in the maintenance of the home before or after the purchase.”

The law is now that where a married couple have purchased a home together, then they should be considered to own 50% each, even if the title is only registered in the name of one of them or their contributions to the purchase price were unequal.

This principle is a “rebuttable presumption”, that is, it may not apply in cases where there is evidence to establish that the intention of the couple at the time they acquired the property was something different.

The following 3 scenarios relate to “John” and “Maria”. Soon after marriage, John and Maria bought a home. 20 years later, John developed a severe gambling problem, which resulted in him having to file for bankruptcy. John and Maria are still living together, but their marriage is shaky. Maria wants to know what will happen to the home as a result of John’s bankruptcy.

A. Property owned by Maria

The home is bought in Maria’s name because at the time John was concerned about being sued for negligence. At the time of purchase Maria contributes a small amount towards the deposit, but all of the mortgage payments are made by John. Many years later John has incurred significant gambling debts and files a debtor’s petition.

The trustee makes 2 claims against Maria. Firstly the trustee claims part of the mortgage payments made by John for up to 4 years prior to bankruptcy, relying on s.120(3) Bankruptcy Act (undervalued transactions by a solvent person prior to bankruptcy). Secondly, the trustee claims half the value of Maria’s home on the basis of the Cummins case as Maria will be presumed to hold the home on trust for herself and John in 50–50 shares.

B. Joint tenants, paid for by Maria

Suppose the home was completely paid for by Maria from her inheritance, but registered in joint names. However, John has contributed towards outgoings such as rates, and has carried out repairs to the property. The trustee can still claim 50% of the house, as the Cummins decision regards the contribution of labour or other services in the maintenance of the home to be evidence of intention for joint ownership.

C. Property owned by John, paid for by both, or paid for by John

John and Maria both paid for the purchase of the home, but title was registered in John’s sole name. On bankruptcy, title to the home vests in the bankruptcy trustee. However, Maria can commence an application for lump sum maintenance against the trustee under the Family Law Act (she may need to separate from John to do this).

The Cummins decision means that Maria’s starting point is 50% of the home.

What does this mean in practice?

Insolvency lawyer Stephen Mullette suggests that:

“trustees in bankruptcy around the country should be re-examining all properties in the name of the bankrupt’s spouse (and I suggest, de facto spouse, though the High Court has not yet confirmed this), with a view to seeing whether or not a Cummins claim can be made. They should also examine closely the claims of any non-bankrupt spouse to be entitled to a greater than one-half share because of unequal contributions to the purchase price. Unless supported by clear evidence to the contrary at the time of the transfer, a court will rely on the decision in Cummins to say that the property was owned jointly, and each is entitled to a one-half-share of the equity.”

In practice, bankruptcy trustees are unlikely to be making these sorts of claims in large numbers, as they have an understandable reluctance to get involved in messy court proceedings. However, the more valuable the property in question, the greater the chance of a trustee making a claim.

For John and Maria, this means that careful consideration needs to be given to:

1. Ownership of the home — is it in joint title, tenants-in-common or in John or Maria’s sole name?
2. How long before bankruptcy was the home purchased — even if bought many years ago it could still be at risk;
3. Who paid the actual money for the home?
4. Is there any documentary evidence to show intention at the time of purchase — e.g. a Financial Agreement?
5. Have there been any changes in title since purchase, e.g. transfers or change from joint tenancy to tenancy-in-common?

I suggest that financial counsellors add these questions to any bankruptcy checklist that they are currently using. It may be difficult to find out this information. In some cases the client won’t know the correct answer. At the very least, clients should be warned of the possibility that a claim may be made against the home, or that they may have a potential claim against the bankrupt estate.

The above is a summary of the writer’s understanding of the general principles in Cummins. It should not be relied upon in specific cases, which will all have unique circumstances. Because the law is new, complex, and the 50–50 presumption can be rebutted, any clients who may be in this situation should be advised to seek advice from ITSA or a lawyer before they take any action.

References:

1. The Trustees of the Property of John Daniel Cummins, A Bankrupt v Cummins [2006] HCA 6 (7 March 2006).
2. Brading R. (June 2006). Bankruptcy and Transferring The Home. Sharkwatch, Vol 7, No.2, 8–10.
3. Mullette S. (August 2006). The family home not as Safe as Houses, Law Society Journal, Vol.44, No.7, 64.

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Round Up

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

New South Wales

Parliament House launch of Financial Counsellor Training Package

The Financial Counsellors’ Association of NSW (FCAN) have been working hard to produce an up-to-date, comprehensive Financial Counsellor Training Package.

The package is now complete and looks very impressive.

The FCAN Financial Counsellor Training Package will be launched at the NSW Parliament House in November, and FCAN is keen for as many financial counsellors and other interested parties to come along and enjoy the launch. Here are the details:

Where:

NSW Parliament House, Macquarie Street, Sydney

Date:

Wednesday, November 15th, 2006

Starting Time:

10.00 AM

FCAN has also mentioned to Sharkwatch that there will be no monthly training or General Meeting for that month (i.e., the Training Package launch will replace the meeting that would normally have been held on Friday, November 17th).

Financial pressures begin to show in Sydney’s South West

In a Sydney Morning Herald article from September 28, Matt Wade noted that “parts of south-western Sydney are starting to crack under the pressure of high petrol prices, big debts and falling house prices”. He went on to note that the unemployment rate in the Fairfield-Liverpool region has doubled from 5% to 10% in past year, taking it well past the national rate of 4.9% and the NSW rate of 5.7%. Overall, the picture that emerges is of an area where many residents are beginning to show signs of financial distress.

Richard Brading nominated for ‘Consumer Advocate of the Year’ at the NSW Office of Fair Trading Awards

We at Sharkwatch were delighted to hear that our own Richard Brading has been nominated for the award of ‘Consumer Advocate of the Year’ at the NSW Office of Fair Trading ‘Fair Trading Awards 2006’. Richard has been an outstanding consumer advocate, serving as Principal Solicitor for Wesley Community Legal Service for the last 12 years. Over that time Richard has helped many thousands of clients, has written numerous submissions to Government Departments and regulatory bodies, has served on numerous working parties and committees dedicated to consumer issues, has co-written two key books for financial counsellors (including Consumer Debt Recovery Law, 2002), and has published numerous articles to resource financial counsellors in such publications as Sharkwatch, New Directions in Bankruptcy, and a range of problem gambling journals.

Richard’s submissions have been taken into account as legislators have made changes to the NSW Fair Trading Act and The Bankruptcy Act, and his submission regarding the definition of consumer hardship was quoted extensively in a report about consumer hardship issues to Telstra by the Telstra Consumer Consultative Council Secretariat (this was the report that started the ball rolling for Telstra’s current hardship policy and hardship cell).

Richard is highly respected by financial counsellors, gambling counsellors, government agencies and industry alike. He is also just a great bloke.

Sharkwatch wish Richard the best of luck at the Awards — he certainly deserves it!

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Western Australia

The Financial Counsellors’ Association of Western Australia (FCAWA) are holding their Annual Conference this October. The program runs for four and a half days from Monday October 23rd to lunchtime Friday, October, 27th.

Here are the details:

Venue:

Ruby Hutchinson Rooms, DOCEP,

4th Floor, The Forrest Centre,

221 St Georges Terrace, Perth.

Dates and times:

8.50 AM, Monday 23rd October, 2006 (registration) to 1.15 PM, Friday 27th October, 2006 (close).

Contact details:

Julia Cain, FCAWA Administration Officer

Ph: 08 9325 1617

Office Hours: Tuesday & Wednesday: 8.30–2.30; Friday: 8.30–4.00.

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Northern Territory

Kelli Mullins has replaced Di Bessell at the Katherine Financial Counselling Service in the Northern Territory. This is one of the most remote and demanding financial counselling positions in Australia, with poverty that is endemic in some parts of the area and a large indigenous community to serve. We are sorry to see Di go, but are delighted to see Kelli in the position. We at Sharkwatch wish you well, Kelli.

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What Jennifer, Wayne and Richard have been up to …

We thought it might be of interest to Sharkwatch readers to know what the Sharkwatch staff (Jennifer, Wayne and Richard) have been up to of late. Sharkwatch is produced as an activity of the National Financial Counsellors’ Resource Service (NFCRS) that provides resources, support and supervision for financial counsellors and other workers on the Commonwealth Financial Counselling Programme (CFCP). Jennifer and Wayne try to keep as up to date as possible with relevant information and to provide as wide a range of resources as possible. Here is a brief rundown of some of the things we have been up to lately.

Jennifer has been working hard with a series of training programmes. Recently Jennifer has organised Money Minded courses for 33 financial counsellors (with Maree Crosbie), has arranged Supervision training courses for 22 financial counsellors, and has trained 14 trainers from the Making Cents Community Workers Training Course.

Jennifer, who has recently taken on an additional three supervisees for ongoing supervision, has now more than doubled the amount of financial counsellors that she supervises under the NFCRS umbrella. Both Jennifer and Wayne see supervision as being a critical part of being a professional financial counsellor, and would encourage any CFCP financial counsellors who are concerned about supervision to contact us (1800 647 049) to discuss their situation and to perhaps arrange remote supervision through our programme.

Jennifer has also been working with a team of financial counsellors from the FCAN Training Committee to put together the FCAN Financial Counsellor Training Package.

Many of you may know that Jennifer has been ill for a significant part of the last few months, culminating with a serious operation in late June. She is well now, but has appreciated the many kind words from Sharkwatch readers during her convalescence and recovery.

Wayne is in the final months of producing his PhD on the development of aggressive patterns of thought, and presented a paper on his research at a conference of the International Society for Research on Aggression (ISRA) at Minneapolis in July. Wayne met many of his heroes face to face, ate a terrible hot dog at a baseball game, and reports that his work was very well received by the international research community at the conference. He was particularly pleased to have had the chance to speak at length to the three leading researchers in his field.

Wayne has also been busy working with the Council of the Telecommunications Industry Ombudsman, and has provided financial counsellor training on counselling angry and aggressive clients and self care for counsellors.

Wayne attended the AFCCRA conference in Melbourne in June, where he was delighted to meet a number of CFCP counsellors and to catch up with Sue Barrett and Liz Smith from the Department of Families, Community Services and Indigenous Affairs (FaCSIA), the CFCP funding body. He has also been invited to the FCAWA conference in Perth to give two presentations, one on counselling mental health clients and the other on issues related to self care and boundaries in counselling.

Richard reports that “over the last few months, Wesley Community Legal Service has broadened its scope to provide training for counsellors, lawyers and community workers in gambling-related laws. We are collaborating with the Centre for Community Welfare Training (CCWT) to deliver this training which is available throughout NSW. I have also been involved in the development of new general training courses for gambling counsellors in NSW and the development of a Code of Ethics for gambling counsellors by the N.S.W. Responsible Gambling Fund. Wesley Community Legal Service has been busy with many criminal law cases, including one client who stole $10million for gambling.”

“I have had the pleasure of reviewing the penalty provisions under the Bankruptcy Act which are being reviewed by ITSA. A draft submission has been provided to AFFCRA which explains and comments on the provisions of most interest to financial counsellors.”

So, there it is. What we have been up to. Pictures from Minneapolis appear below!

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Minneapolis

Photos from Minneapolis.

The Weisman Art Museum on the campus of the University of Minnesota, where the ISRA conference was held
Ray Novaco, one of the world’s pre-eminent anger researchers	Minnehaha Falls

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Overhaul of Debt Agreements

Ian Macdonald
Solicitor, Financial Counsellors Resource Project, WA

This article is reprinted from the FCRP E-News, August 14th, 2006.

On 27 July 2006 the Commonwealth Attorney General, speaking at the Bankruptcy Congress in Brisbane, announced a series of substantial reforms to debt agreements. The amendments will operate from 1 July 2007.

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Licensing of Debt Agreement Administrators

Presently there is no requirement for debt agreement administrators to be licensed and there are no prescribed qualifications for a person to be a debt agreement administrator. There are a number of criteria which make some people ineligible to be debt agreement administrators.

The amendments will introduce a requirement for administrators to be licensed. The licensing requirements will focus on a person’s capacity to perform the duties required in administering a debt agreement, but will only apply to administrators who are administering more than five debt agreements.

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New Duties of Administrators

The amendments will set out duties of an administrator in clearer terms. Administrators will be required;

• To ensure debtors are fully informed about all available options;
• To ensure debtors have been through a proper process to determine what they can afford to pay;
• To form a reasonable belief that the debtors have made full and accurate disclosure of their financial affairs;
• To respond promptly to a reasonable request from creditors about the progress of debt agreements; and
• To ensure creditors are informed about default.

Administrators will also have specific duties in regard to handling and properly accounting for money they deal with in the course of the debt agreement administration.

These duties will be backed up with a requirement that a debt agreement administrator must certify, as part of accepting the nomination to administer the debt agreement that the debtor has received information about alternative means of dealing with financial difficulty; based on information available at the time of the proposal, that the debtor can afford to make the promised payments; and that the administrators have a reasonable basis for believing that the debtor has properly disclosed their affairs to creditors.

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Fees

Arrangements relating to fees to be paid to debt agreement administrators will be modified to provide that debt agreement administrators must take their fees proportionately over the life of the debt agreement. It will not be possible for administrators to be paid in priority to creditors.

The fee proposed must incorporate a component of the fees (at least 15%) which the administrator does not receive until all creditors have been paid in full. There will also be a time limit of 14 days in which a proposal for a debt agreement signed by a debtor must be given to the Official Receiver. This is designed to prevent a debt agreement administrator taking a proposal from a debtor, but holding it until the debtor has paid fees, and then forwarding it to the Official Receiver for processing.

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Proportionate Returns to Creditors

The Bankruptcy Act will be amended to provide that all creditors are to be paid the same proportion of their debt. This will prevent a practice where some creditors are offered payment of a higher percentage of their debt in order to obtain their agreement to the debt agreement proposal.

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Abolition of Special Resolution

Presently the Bankruptcy Act provides that a debt agreement proposal is accepted if a majority in number, and at least three quarters in value of creditors who vote accept the proposal. This will be modified, to provide that the agreement proposal will be accepted if a majority in number and a majority in value of the creditors voting agree that it should be accepted.

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Default in Regard to Debt Agreements

There has been concern in the past that some debtors fail to pay in accordance with a debt agreement, and the debt agreement lives on indefinitely with nothing happening. In order to ensure that a debt agreement comes to an end quickly if a debtor does not pay in accordance with it, a number of amendments will be made. These are:

• The debt agreement administrator will be required to tell creditors if the debtor is in default, which will be defined as having arrears equivalent to three months of payments under the agreement;
• If a debtor or creditor proposes that the agreement should be terminated, the voting period will be reduced to 14 days;
• If a debtor fails to pay under a debt agreement and has accumulated arrears equivalent to six months of payments under the agreement, the agreement will be automatically terminated.

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Deferral of Release from Debt

Currently a debtor is released from all debts covered by the agreement at the time when the debt agreement is accepted and details of it are entered on the National Personal Insolvency Index. This will be changed, so that the debtor will not be released from debts covered by the debt agreement until all of the obligations under the agreement have been completed. As is the case at present, creditors will not be able to take action against the debtor for debts that are part of the agreement whilst the agreement is in force.

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Teleconference

Training Issues and the growth in mental health clients.

Participants:

John Haywood, Tania Buck, John Mumford, Jan Pentland, Carol Wakefield, Carissa Scott, Marie Stivala-Andrews, Margaret Clements, David Lawson, Wayne Warburton, Jennifer Gracie.

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Issues for Discussion:

• Financial Counselling Training — including the Diploma
• Experiences with clients who have mental health issues

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Financial Counselling Training — including the Diploma

Jan Pentland gave an update of the current position with the Financial Counselling Diploma and said that Trish Walsh has finalised her complete report which will soon be on the AFCCRA website (http://www.afccra.org/). It will include information about the future of the Diploma.

It was noted that the Commonwealth government regularly reviews all accredited training courses, including the Community Services Training Package which itself includes the Diploma of Community Services (Financial Counselling). AFCCRA will be assisting with this review process by providing input, with Jan Pentland from Victoria and Jillian Fletcher from Queensland taking a key role.

Jan also spoke to a document she had provided to the teleconference participants, which had given a brief outline of the status of the Diploma in different states. For example, it was noted that around 90% of the current financial counsellors in Victoria have completed the Diploma through TAFE. Diminishing demand for the course in Victoria is a challenge for the FCRC, who are currently working with AFCCRA on what the future provision of the Diploma may be for new financial counsellors.

Jennifer read an email from Saskia ten Dam from Townsville, who had not been able to join in the teleconference because of prior commitments. Saskia expressed concerns about the course that has recently been completed in Queensland, particularly related to the cost involved and the requirement for participants to attend face to face training, for a week at a time, and on a number of occasions. She felt that these restrictions made it very hard for many financial counsellors to attend and asked if there are any other more cost effective methods of delivering the training.

Participants from Queensland noted that the course has been specifically targeted to people already working as financial counsellors, with credit for prior learning and experience provided for some elements of the training.

John Haywood noted that, apart from the Diploma, the Financial Counsellors Association of NSW have their own Training Package, which is targeted more specifically to training new financial counsellors. [Sharkwatch understands that the most recent version of this package will be launched at the NSW Parliament House later this year].

Because of the needs of counsellors in more remote areas, AFCCRA considers that the most important changes to the Diploma in the near future will involve making it available by distance education.

It was also noted that the possibility of further funding needs to be explored. Jan noted that it was her belief that the Federal Government provides funding to the Australian National Training Authority (ANTA), with bodies from each state and industry applying for funding to provide training to employees within their industry. For this reason, the course in Victoria was subsidised so that the course was provided through TAFE for around $500 per year (and less for those holding a concession card or with credit for prior learning). Unfortunately, the course is more expensive in other states and territories (i.e., around $1,400 in WA and $2,000 in other states), and this is another issue that AFCCRA are interested in examining further.

The consensus of the group was that, although there is currently no requirement by funding bodies that financial counsellors must have the Diploma or an equivalent, there is a reasonable likelihood that such a requirement may be implemented in the future. Should this become the case, then it seems clear that some consideration would need to be given to those organisations providing some or all of the funding for candidates to complete the Diploma.

Accreditation of financial counsellors has been a requirement in for more than 20 years in NSW, in that to become an accredited member of the Financial Counsellors’ Association of NSW (FCAN), a financial counsellor must have completed an FCAN Accredited Financial Counselling Course. Jan noted that the Financial and Consumer Rights Council (FCRC) in Victoria would soon be following suit, requiring full members to have completed the Diploma.

Marie talked about the huge skills shortage in Victoria within financial counselling and said that new workers would need practical exprience. Wayne asked how the course dealt with the issue of the different practices in each State and territory — for example, the different debt recovery laws and processes, different fine processing bodies, different statutes of limitations and differences in Local Court Acts and other relevant state laws. Jan said that the course doesn’t have a curriculum as such, but, rather, is competency-based, so that financial counsellors would need to demonstrate competency in core areas, including local laws, before they would be awarded the Diploma.

John Haywood raised the issue of volunteers, and noted that it is difficult to find a course being offered that is suitable for volunteer financial counsellors. He further noted the problems with asking a volunteer to part with the substantial sum involved in the Diploma, or asking them to make the time commitment needed for its completion.

Jan noted that when Victoria first got the course there was some resistance to it initially. However, Jan said she feels very positive about where the Diploma is at the moment, and suggested that the benefits include the delivery of standardisation in financial counselling practices across the country, the ability for accreditation qualifications to be transferred interstate, and the ability of Diploma holders to transfer their skills to other services such as welfare or housing. This may then give people a career path to consider.

Tania was asked about the recently completed Diploma that she did in Queensland. She said she has been a financial counsellor for 10 years and feels that to be seen as a professional it will be necessary to have the Diploma. She felt that it was a valuable experience for her.

David said that he did the Diploma through Ballarat 2½ years ago. The main problem was doing a Victorian course from a Queensland perspective. An example was that the course asked for information about the PERIN system, but in Queensland it is the SPER system which is markedly different to the PERIN system. The course required a 250 hour placement, but David was only required to complete 100 hours because of his life experience and other training. He was also required to have internal and external supervisors. David also noted that he has recently seen an advertisement for Rural Financial Counsellors in Queensland which said that preference would be given to people with the Diploma in Financial Counselling.

There was on-going discussion about increasing professionalism for financial counsellors and participants were encouraged to lobby their State and Territory funding bodies.

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Experiences with clients who have mental health issues

All the participants expressed concern that there is an increase in clients with mental health issues and that such clients present particular challenges to the financial counsellor.

John Mumford works in a Family Resource Centre and said that the mental health workers in his area might want to see their clients on a weekly basis but are only able to offer their services monthly. During the interim periods clients present for assistance but without the support for their mental health issue it can be very difficult to assist the clients. There is also an issue with clients being referred for financial counselling because they identify that they have financial problems but their real need is for support with their mental health problems. John also said that these clients are often more challenging because of their inability to make decisions and this puts more emotional pressure on the financial counsellor.

Jennifer said that Peg Mellier, who was unable to join in the teleconference, phoned her to express concerns about assisting clients with mental health issues who need to make binding decisions such as bankruptcy. They will often not return for follow up appointments and the financial counsellor has no knowledge of what effect these decisions will have for the client’s future.

Margaret gave an example of an older client of hers who has never worked. He was loaned a large sum of money, unsecured, from one bank and then given a credit card with a large limit by another bank. He had no capacity to repay either debt. The first bank said they would write the debt off and the second bank said they might do the same thing once they had seen proof that the first bank had done so. When Margaret checked with the first bank she found that they had sold the debt to a collection agency. The client’s psychiatrist recommended bankruptcy for the client, but Margaret has reservations about whether the client is capable of understanding such a decision. The situation has not yet been resolved.

It was generally agreed that clients with mental health issues need a lot of resources to deal with their problems, and their cases are thus time consuming and emotionally draining for the counsellor. In particular, financial problem solving is particularly difficult when dealing with a client whose capacities for rational problem solving are reduced. Because this was seen as an important issue, it was agreed that this topic would be continued at the next teleconference.

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In the Media

Rich folk managed to turn death rattle into tax wheeze

Story by John Garnaut

It is well known that the rich will go a long way to avoid taxes. A new study shows just how far: they will cheat death itself if it saves them money.

Two economists, Andrew Leigh and Joshua Gans, scoured the death records of 27 years ago, when the then treasurer, John Howard, abolished federal inheritance taxes.

Rich people dying before midnight on July 1, 1979, were to be taxed at up to 28 per cent of the value of their estates. But those who saved their final breath for the new financial year were free to die untaxed.

Mr Leigh, of The Australian National University, and Professor Gans of the Melbourne Business School, discovered a large blip in the data as rich people postponed their deaths to the new financial year.

“Over half of those who would have paid the inheritance tax in its last week of operation managed to avoid doing so,” they state in their paper, Did the Death of Australian Inheritance Taxes Affect Deaths?

That is, about five in every nine rich people who, statistically, should have expired in the last week of June did not do so until the first week of July.

Pastor Renton McRae, of the Lifestream Christian Fellowship, said human will could extend life beyond the body’s expiry date. “There is an incredible ability within the human spirit that denies logic and physiology,” he said.

But he doubted whether leaving a larger estate for others could provide sufficient motive.

Did the families who stood to gain keep their benefactors alive until July with the help of medical life support? “As long as you keep the heart beating you can keep people technically alive,” said Pastor McRae.

The authors concede the possibility they have uncovered an outbreak of morbid tax fraud, as relatives concealed the bodies of their rich loved ones until the new financial year.

The abolishing of death taxes made Australia one of the few developed countries that does not impose an explicit or de facto inheritance tax.

But just as tax cuts appear to promote longevity, the authors believe reintroducing an inheritance tax could cause premature death. “Any country that introduced [it] should expect a spike in the death rate in the week before the law takes effect,” they said.

Sydney Morning Herald, June 16, 2006

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Alarm at defaults on interest only home loans

Original story by Jessica Irvine

This story notes that the Reserve Bank has become “alarmed at the rise of interest-only home loans, warning of negative equity for borrowers who fail to make inroads into the principal of their loans while house prices fall”. Negative equity, of course, refers to the situation where a person’s property has less value than the amount owed on it — a situation most likely to arise in terms of home loans during a period of falling prices, such as the current falling housing market.

The article goes on to quote the Reserve Bank’s six-monthly Financial Stability Review, (released September, 29, 2006), which suggested that “nearly one in three new home borrowers is not required to make payments on the principal for up to 15 years”. The report also noted that “the proportion of people aged 55 to 64 with some form of housing debt [has risen] from one in 10 to one in four over the past decade”.

Figures from the Reserve Bank show that for owner occupiers, the percentage of home loans 90 or more days in arrears has risen sharply since 2004 (from less than 0.2% to 0.6%), a frightening statistic for financial counsellors and lenders alike!

Sydney Morning Herald, September 29, 2006

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