Guidelines relating to administrators' duty to notify creditors of 3-month arrears default

Example 1 – Major default

Adelaide’s debt agreement commenced on 4 September 2017.  She had agreed to pay $200 per week over 3 years.  Her first payment was due 11 September 2017.  Adelaide paid her $200 weekly payments for the first month of her debt agreement but then stopped paying towards the end of October 2017.

The administrator referred to their records to discover that the last payment made by Adelaide was on 23 October 2017.  Therefore, the last payment that was due but that remained unpaid was on 30 October 2017.  The last day Adelaide has to pay all accrued arrears and to prevent the 3-month arrears default occurring is 30 January 2018.

The 3-month arrears default occurred on 31 January 2018.  The administrator carried out their duty to notify creditors of this occurrence within 10 business days of 31 January 2018 – this was done on 5 February 2018.  The administrator advised creditors that the agreement was $2800 in arrears and that the debtor has skipped without a trace and, to their knowledge, it was unlikely that the debtor will bring payments up to date.  Informed of the debtor’s affairs and the considerable amount of arrears, the creditors resolved to terminate the debt agreement.

The relevant dates in this example are:

^ Note this date is not to be calculated from reference to days, e.g. 3 months * 30 days in a month = 90 days after 30 July 2016 nor from reference to weeks, e.g. 4.3 weeks in a month * 3 months = 13 weeks

Example 2 – Minor default

Brian’s debt agreement commenced on 23 April 2016.  He is required to pay $100 per week over 4 years.  Brian’s first payment was due 30 April 2016.  Brian regularly pays his instalments but is paying $95 per week rather than the $100 required.

It wasn’t until 29 May 2016 that the administrator discovered that Brian was making the incorrect payment amount.  After being notified, Brian immediately switched payments to $100 per week and has maintained these since.  However, despite maintaining the $100 per week payment, Brian has not paid the accrued arrears of $25 from the first 5 weeks of the debt agreement.  The last day Brian has to pay the accrued arrears of $25 is 30 July 2016.

On 31 July 2016, the 3-month arrears default occurs.  The administrator has a duty to report this 3-month arrears default to creditors and did so within 10 business days – this was done on 7 August 2016.  The administrator advised creditors that the agreement was $25 in arrears and that the debtor had inadvertently paid the wrong amount for the first 5 weeks but has since paid the correct amount and has agreed to make good the arrears.  Informed of the debtor’s affairs and the small amount of arrears that were since brought up to date, creditors resolved to allow the debt agreement continue.

In February 2017, Brian missed one weekly payment due to personal issues.  He missed the payment that was due on 18 February 2017 but then made good these arrears on top of his normal payment on 4 March 2017.  All other payments were maintained for the rest of the 3-month period, which began on 18 February 2017.  On 19 May 2017 (i.e. 4 months and one day after 18 February 2017), the administrator is not required to report to creditors because the arrears have been rectified within the 3-month period.

On 16 June 2018, Brian paid $50 rather than the required $100 and did not rectify this shortfall.  The 3-month arrears default occurs on 17 September 2018 and the administrator needs to report to creditors within 10 business days of this date.  The administrator contacted Brian and he immediately paid the $50 arrears amount into the administrator’s trust account.  In the notification to creditors sent on 19 September 2018, the administrator advised that, while the 3-month arrears default had occurred, the amount was only $50 and this amount had since been paid by Brian.  It was the administrator’s recommendation that the administration continue.

The relevant dates in this example are:

# Note this date is not to be calculated from reference to days e.g. 3 months x 30 days in a month = 90 days after 30 July 2016 nor from reference to weeks e.g. 4.3 weeks in a month x 3 months = 13 weeks

Example 3 – Post-27 June 2019 debt agreement

Charlotte’s debt agreement commenced on 24 September 2019.  She is required to pay $120 per week over 3 years.  Although Charlotte begins the agreement paying $120 per week from 22 October 2019, she regularly pays $95 per week instead.  Despite the administrator informing her that she was accruing arrears, Charlotte continues to pay $95 per week.  Therefore, the last payment that was due but that remained unpaid would be 22 October 2019.  The last day by which Charlotte has to pay all accrued arrears to prevent a 3-month arrears default occurring is 22 January 2020.  Charlotte only enters a payment arrangement to rectify her arrears, by increasing her payments to $125 per week, on 28 January 2020.

The 3-month arrears default occurs on 23 January 2020 only if the arrears is the higher of either $300 or 20% of the total of all due payments since the beginning of the 3-month period.

For the 3 months preceding the default, the total due payments during this period were $1680.  20% of this amount is $336, which would be the applicable threshold as it is over $300.

The total arrears during the 3-month period were $350.  This exceeds the threshold and results in a 3-month arrears default occurring on 23 January 2020.

The administrator has a duty to report this 3-month arrears default to creditors and does so within 10 business days – this is done on 30 January 2020.  The administrator advised creditors of the arrears and that a payment arrangement was in place and creditors resolve to allow the debt agreement to continue.

Note the relevant dates in this example are:

@ Note this date is not to be calculated from reference to days, e.g. 3 months * 30 days in a month = 90 days after 19 October 2019 nor from reference to weeks, e.g. 4.3 weeks in a month * 3 months = 13 weeks

Example 4 – Post-27 June 2019 debt agreement

Using the same example above, if Charlotte decided to regularly pay $100 per week from 22 October 2019 instead of $95, the total arrears during the 3-month period would have been $280.  Since this amount does not exceed the threshold (i.e. $336), the administrator would not have a duty to report a 3-month arrears default