Referring offences against the Bankruptcy Act 1966 to the Inspector-General

1. Introduction

   1. The Australian Financial Security Authority (“AFSA”) investigates and, where appropriate, refers alleged offenders to the Commonwealth Director of Public Prosecutions (“CDPP”) for prosecution.  The decision to prosecute is made solely by the CDPP.
   2. This document provides guidance on when and how to refer alleged offences to AFSA.
   3. As delegates of the Inspector-General in Bankruptcy, AFSA officers exercise powers under the Bankruptcy Act 1966 (“the Bankruptcy Act”) and the Bankruptcy Regulations 2021 (“the Regulations”).  References in this document to AFSA are generally references to delegates of the Inspector-General unless the context indicates otherwise.

   4. Practitioners’ duties

   5. Sections 19 and 185LA of the Bankruptcy Act outline the duties of registered trustees and debt agreement administrators.  In addition, the Insolvency Practice Rules (Bankruptcy) 2016 (“the Rules”) outline general standards for trustees.
   6. Under the Bankruptcy Act, trustees and debt agreement administrators^[1] have duties to:
      • look into the behaviour of a debtor or someone who is bankrupt to make sure they comply with their obligations under the Bankruptcy Act
      • consider whether a debtor or someone who is bankrupt has committed an offence against the Bankruptcy Act
      • refer evidence of any alleged offences to the Inspector-General or relevant law enforcement authority.
   7. Practitioners are required to report any offence committed by a bankrupt or debtor under the Bankruptcy Act, subject to the requirements of this practice document.  For offences committed by someone who is not the bankrupt or debtor, there is an expectation that the practitioner will report the offence and a failure to do so may indicate that the practitioner is not fit and proper to remain registered.
   8. Practitioners play an important role in supporting the integrity of Australia’s personal insolvency system.  Practitioners must act in a way that serves the operation of the Bankruptcy Act and that provides equality between creditors and fairness to a debtor or someone who is bankrupt.
   9. A practitioner may be found in breach of their duties if they fail to refer a matter to AFSA when they have sufficient evidence that an offence may have occurred.  If AFSA thinks a breach of duty has occurred, it will be recorded on the practitioner’s registration profile.

2. Offences

   1. A list of offences^[2] in the Bankruptcy Act, the Rules and the Regulations is available on the AFSA website:
      • Offences list (OFFENCES LIST - 79 KB)
      • Offences List (OFFENCES LIST - 285 KB)

3. Objections to discharge

   1. Where non-compliance by a bankrupt is identified, and where this relates to any of the grounds provided in subsection 149D(1) of the Bankruptcy Act, in the first instance it may be more efficient, effective and timely to file an objection to discharge under section 149B.  This action may influence the bankrupt to comply in the knowledge that the objection to discharge will be withdrawn when compliance is achieved.  See Objections to discharge from bankruptcy for more information about the lodgment of objections.
   2. Where an objection to discharge is lodged for non-compliance, there is no requirement to simultaneously make an offence referral to AFSA.  Where the bankrupt remains non-compliant after 6 months, an offence referral should be made.  See part 10 below regarding extensions of timeframes.
   3. Unless there is further utility in the objection to discharge remaining in place, it should be withdrawn when compliance with the action or inaction that led to its lodgment has been achieved.
   4. There is no requirement to submit an offence referral for an alleged section 272 offence if an objection has been lodged because the bankrupt has left Australia and not returned.  However, an offence referral should be made when the bankrupt returns to Australia.

4. Knowledge of obligations

   1. The majority of offences in the Bankruptcy Act require evidence to prove that someone has intentionally or recklessly failed to comply with their obligations.  There must be sufficient evidence to prove beyond a reasonable doubt that the person knew about their obligations at the relevant time.
   2. Evidence can include:
      • acknowledgement by a debtor or a person who is bankrupt that they have read the prescribed information (depending on the offence)
      • acknowledgment of receipt of a letter advising a person who is bankrupt of their obligations and responsibilities while bankrupt
      • proof of receipt of a request for information.
   3. Proof of notification in these instances can include:
      • an Australia Post delivery confirmation receipt signed by the intended recipient
      • an affidavit of personal service of documents^[3]
      • a case note by the practitioner detailing a conversation or meeting with the debtor or person who is bankrupt where:
        
        1. their obligations are explained, including any legislative timeframes
        2. directions are given
        3. documents are served, and/or
        4. they confirm correspondence has been received.
   4. Enforcement action is unlikely to occur where there is no proof that a bankrupt or debtor is aware of their obligations.  In this case, the practitioner should make a written record (e.g. a file note) outlining the potential offence, the reason(s) why it was not referred and what actions are being taken to ensure the bankrupt or debtor is aware of their obligations.

5. Statement of affairs

   1. For sequestration order bankruptcies, the person who is bankrupt must file a statement of their affairs (also known as the Bankruptcy Form) under section 54 of the Bankruptcy Act.  If they fail to do so, the trustee should then consider making an application to the Official Receiver to issue a section 77CA notice. 
   2. Any practitioner considering referring an alleged offence for non-compliance of section 54 of the Bankruptcy Act, should in the first instance (noting points 5.3 and 5.5 below), make an application to Official Receiver for a section 77CA notice to be issued. 
   3. Subject to 5.5 below, there may be circumstances that warrant an offence referral related to non-compliance of section 54 of the Bankruptcy Act.   Any offence referral must articulate the actions already undertaken to achieve compliance and the reasons why the offence referral is necessary.

   4. Section 77CA notices

   5. A trustee can request that AFSA (in its capacity as the Official Receiver) issue a section 77CA notice if:
      • a statement of affairs has not been filed; and
      • the trustee has evidence that the person who is bankrupt is aware of their bankruptcy and the obligation to file a statement of affairs.
   6. If a section 77CA notice is issued and successfully served on the person who is bankrupt, the trustee does not need to refer the offence to AFSA.
   7. More information about section 77CA notices is available in Official Receiver notices.

6. False declarations

   1. A debtor or person who is bankrupt might provide incorrect information or omit information in their:
      • bankruptcy statement of affairs
      • debt agreement statement of affairs
      • debt agreement proposal and explanatory statement
      • personal insolvency agreement statement of affairs, and/or
      • statement of income.
   2. In these circumstances, evidence to prove the person making the declaration knew it was false will be required to substantiate an offence under subsection 267(2) or paragraph 265(1)(f)^[4] of the Bankruptcy Act.
   3. In addition, any incorrect information provided or omitted needs to be material to the administration of the estate and not simply minor or inconsequential.

7. Time for commencement of prosecution action

   1. Offences punishable by a term of imprisonment of 6 months or less have a 12-month statutory period of limitations.  This means any prosecution action must start within 12 months of the offence being committed.^[5]
   2. These offences include subsections 80(1), 139U(1), 139ZIE(6), 139ZIEA(6), 139ZO(1), 185EC(6), 185MC(6) and 185PC(6) of the Bankruptcy Act.
   3. Due to this time constraint, AFSA will not accept these matters for investigation if the referral is received less than 4 months before the expiry of the statutory period of limitation.
   4. If the offence date is unknown or is within 4 months of the statute of limitation period expiring, the practitioner should make a written record (e.g. a file note) that describes the potential offence and the reason(s) why it was not referred to AFSA.

8. Referrals

   1. A referral must be submitted to AFSA when:
      • there is evidence available to support the criminal conduct being alleged, or
      • there is uncertainty regarding the evidence available and if it is sufficient.
   2. Where the matter can be best dealt with through an objection to discharge, the matter should not be referred immediately (see part 3 above).
   3. If there is insufficient or no evidence to support the allegation(s) or the offending is minor or inconsequential, the matter should not be referred.  Offending is considered minor or inconsequential if it has minimal or no impact on the administration of the estate.
   4. Practitioners are expected to make a written record (e.g. a file note) to document the decision not to refer a matter.  The written record should include a description of the potential offence or circumstances and the reason(s) why it was not referred.  If there is any doubt, refer the matter to AFSA.

   5. Example 1

      A person who is subject to a debt agreement omits a debt from their statement of affairs.  When questioned by the debt agreement administrator, the debtor advised they had not had contact with the debt buyer for 11 years and thought the debt was no longer outstanding.  Checks conducted by the administrator confirm that the debt is no longer actionable as the limitation period to take recovery action had expired.

      The omission of the debt would potentially be an offence under subsection 267(2) of the Bankruptcy Act – knowingly making a false declaration.  However, given there is no impact on the administration of the debt agreement and no detriment to creditors, the offending can be considered minor in nature and there is no requirement to refer the matter to AFSA.  In addition, when considering the response of the person who is subject to the debt agreement and the circumstances, it would be hard to prove that the debtor purposely omitted the debt.

      The administrator is expected to make a written record (e.g. a file note) to document the decision to not refer the offence.

9. Referral process

   1. A referral can be submitted online or by downloading and completing the referral form and emailing it to enforcement@afsa.gov.au.
   2. If there are multiple alleged offenders, a separate form must be completed for each alleged offender.  This is because, if a matter is accepted for prosecution, there may be privacy implications when forwarding the referral form to support allegations against one party if the form also refers to another party.  Separate referrals will also ensure that the conduct and evidence relevant to each specific alleged offender is easily identifiable.
   3. Referrals must also include these documents as attachments (if available):
      
      1. copies of all relevant letters and emails sent to the alleged offender that relate to the allegation(s)
      2. copies of all relevant file notes
      3. copies of relevant Bankruptcy Act notices (e.g. sections 77C, 77A, 139V, 139ZL and subsection 6A(3)), if applicable
      4. proof of service/notification, if applicable
      5. copies of any other information or documents that relate to the allegation (e.g. bank statements, title searches, account applications, loan documentation).
   4. AFSA cannot assess a referral properly unless the referral includes sufficient information and evidence about the alleged offender and their behaviour.  If there is insufficient information or evidence provided, AFSA may reject the referral or request further information.  If a referrer is unsure if a piece of information is relevant, it is best to attach it.

10. Common errors

    1. There are common errors that occur that lead to offence referrals being rejected.  Specifically, these include:
       
       1. Unable to prove knowledge of obligations.
          As noted at paragraph 4.1 above, for most offending conduct a person must be aware of their obligations.
       2. Unable to prove service of requests or directions.
          As noted in paragraph 4.3 above, there must be evidence that any requests or directions have been received by the recipient.
       3. Compliance time frame expired prior to receipt of request or direction or was unreasonable.
          Requests or directions cannot be enforced where confirmed receipt of the request or direction was after the compliance due date.  It is advisable to make any compliance time frame commence from the date of receipt of the request or direction, unless the Bankruptcy Act provides otherwise (e.g. section 139U).
          Time frames must also be reasonable.  Where a large volume of information is required to be produced, it is only reasonable that a greater compliance time frame is provided.  Unreasonable timeframes cannot be enforced.  It is noted that some provisions of the Bankruptcy Act provide a minimum timeframe that must be allowed for compliance (e.g. subsection 6A(3)).
       4. Extensions given to compliance timeframes.
          Any extension of time given either deliberately or accidentally in relation to a formal notice (e.g. under subsection 6A(3) or section 139V) will invalidate the notice, making it unenforceable.  Where a request for extension is made and the request appears reasonable in the circumstances, a fresh notice should be issued providing a reasonable timeframe.  Extensions of time given in relation to other requests or directions (i.e. those that are not formal notices) will not make them unenforceable.
       5. Non-compliance with legislation.
          Requests or directions that are not compliant with the legislation cannot be enforced.  For example, requests given under section 77A of the Bankruptcy Act requiring the production of books cannot include demands for payment of money or for provision of information outside the scope of section 77A.

    2. Example 2

       A trustee cannot make a request under section 139U of the Bankruptcy Act and require a response by a date that is not in accordance with the legislation.  All section 139U requests have a legislated compliance due date of 21 days after the end of a contribution assessment period.

Footnotes