Insolvency News July 2007
- Debt agreements and changes to the Bankruptcy Act
- Corporate Insolvency
Debt agreements and changes to the Bankruptcy Act
On 15 February 2007 the Attorney General, Mr Ruddock introduced to the House the Bankruptcy Legislation Amendment (Debt Agreements) Bill 2007.
As stated by Mr Ruddock in his second reading speech, debt agreements are an important feature of the personal insolvency system. They provide debtors with unmanageable debt who can afford to make some payments to creditors with an opportunity to do so. Many debtors want to consider making a debt agreement as it gives them an opportunity to recover a damaged financial reputation and avoid bankruptcy. Accordingly the bulk of the reforms revolve around what was formerly known as a Part X arrangement.
The amended legislation aims to provide for:
- regulation of debt agreement administrators;
- encourage creditors to make decisions based on the debtor’s capacity to pay;
- provide an effective means of dealing with debtor defaults; and
- other fine tuning mechanisms.
The more significant changes made by the legislation are set out below.
- There are changes to administrators’ duties including dealing with property in accordance with the debt agreement; notifying creditors of arrears in payments, the accounts into which funds ought to be deposited and interest thereon.
- A new process has also been provided for the variation of a debt agreement
- Provision is made for rules allowing for termination of debt agreements in the event of default; and
- Provision for releasing the debtor from the debts once the duration of the agreement has ended.