The Australian Financial Security Authority wants creditors, including banks, to do more to keep their debtors out of the hands of untrustworthy insolvency advisers.

AFSA has released a paper on the problems created by untrustworthy advisers, reporting that they are often involved where there is evidence of incorrect disclosures and false declarations on bankruptcy forms, non-compliance with trustees’ directions and attempts to hide assets. 

It said frauds perpetrated by debtors working with untrustworthy advisers include recording fake creditors holding unsecured debts to stack the voting numbers in creditors’ meetings, and using the Personal Property Securities Register to make false registrations.

AFSA said such activity exposes debtors to the risk of criminal prosecution, harms creditors and reduces confidence in the insolvency system.

Another concern is with advisers pushing people to enter the insolvency system unnecessarily, to the financial benefit of the adviser, when they could have negotiated a payment plan with their creditor.

AFSA said creditors can support debtors in the pre-insolvency period by encouraging discussion about resolving outstanding debts and suggesting debtors seek only trustworthy advice.

By putting debtors in touch with financial counsellors, creditors can limit the scope for untrustworthy advisers to operate.

It also wants creditors to notify it if they see evidence of vote stacking or other signs that untrustworthy advisers are undermining the system.

The paper said: “AFSA has come across instances where debtors are complicit in defrauding the insolvency system and actively seek out advice with the intention of avoiding payment to their creditors. But in many cases we see debtors, often in a very vulnerable or stressful position, embroiled in untrustworthy advice when they thought what they were doing was acceptable.”