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The regulator has warned that abuse of the personal insolvency system will not be tolerated, with a number of active investigations currently underway.
AFSA puts insolvency practitioners on notice over ‘system misuse’
15 May 2025
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8 minute read
The Australian Financial Security Authority is shifting its regulatory approach towards education, compliance and enforcement activities in response to changing economic conditions and global uncertainty, AFSA chief executive Tim Beresford has said.
In a recent speech, Beresford said a number of changing dynamics in the personal insolvency ecosystem were driving AFSA to adapt its practices to meet the evolving needs of the Australian economy and community.
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Beresford said AFSA’s current regulatory approach is based on a bell curve approach, with the regulatory authority focusing its resources on high-risk people entering the system.
The middle of the bell curve is where the vast bulk of people who enter the personal insolvency system sit, he explained in an address to the 2025 Australian Credit Forum.
“Our responsibility to this cohort is to make it as easy as possible for them to use the system, through simple processes and communication,” he said.
The other two parts of the system are lower in volume but higher in risk, he said.
“On the left side of the bell curve are those experiencing serious vulnerability. People experiencing financial vulnerability often have other stresses in their lives, such as mental and physical health issues, addictions, or family and domestic violence.”
“People in this part of the curve, which is called system vulnerability, require a lot of individual support. We need to take the time to understand their unique circumstances and help them navigate the system.
However, Beresford warned there was another group in the system that was deliberately misusing the system for their own benefit.
“They undermine the integrity of the system and the community’s confidence in it – and they place people experiencing vulnerability at risk of even greater financial loss,” he said.
“We call this part of the curve system misuse – and we have a number of active investigations.”
Beresford noted that AFSA had already taken recent action in this area, including an application it made to the Federal Court last year regarding a personal insolvency agreement it considered to be unreasonable.
In its decision in February, the Federal Court set aside the personal insolvency agreement protecting Beau Hartnett and placing his estate into bankruptcy.
“We had acted on concerns that the terms of the agreement were unreasonable or not in the interests of creditors,” Beresford said.
“This was the first time we had made such an application to the court under the Bankruptcy Act.”
Beresford said it highlighted AFSA’s commitment to act where it suspects deliberate system misuse, using all legal tools at its disposal.
Last year, AFSA also cautioned a trustee who agreed to a proposal by two debtors to pay creditors as little as 0.00005c in the dollar, under the same legal mechanism used by Alan Bond to end his bankruptcy.
“After we intervened, the trustee chose not to proceed with the debtors’ offer and transferred the estates to other trustees, who resolved the case with significantly higher creditor returns,” Beresford said.
“I have placed the practitioner community on notice that we expect more from them as joint stewards of the system.”
Beresford also encouraged practitioners to report misconduct where they see it, even where it’s their own firm.
“This is part of the responsibility of their office and the position of trust they hold. At the same time, we’re looking at how we can model best practice for the practitioner community, by positioning the Official Trustee as a model trustee.”
“So, we’re looking to lift our own game, as we ask registered practitioners to lift theirs.”
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