The Federal Court has found that a lack of “direct participation” by the senior management of a debt repair company in contravening conduct is not a mitigating factor when assessing management’s culpability.
A debt agreement administrator, A&M Group, has been fined for breaching the ASIC Act, after the court found that it harassed debtors and engaged in misleading and deceptive conduct in its management of debt agreements.
A&M, which trades as Debt Negotiators, administers registered debt agreements entered into between debtors and their creditors under Part IX of the Bankruptcy Act. It is one of the bigger companies operating in the sector.
Most of these agreements involve consumers with multiple creditors and few assets.
ASIC commenced proceedings against the company in November 2021, in relation to its dealings with six debtors.
Its contravening conduct was directed at debtors who were failing to comply with the debt agreements they had entered into.
Initially Debt Negotiators denied all the allegations but after mediation it admitted the contraventions alleged by ASIC. The company also agreed to make changes to the way it conducts debt agreements.
In Australian Securities and Investments Commission v A&M Group Pty Ltd, the court found that Debt Negotiators engaged in conduct that was misleading or deceptive. Staff contacted debtors and told them their creditors were considering terminating their debt agreements and taking legal action, or that creditors had placed their debt agreements under review for termination.
“Customer support officers” told debtors that creditors had demanded payments by certain dates and would terminate their debt agreements if the deadlines were not met.
They told debtors they could be charged with fraud and sent to prison if they did not make payments and that creditors were planning to contact family and friends to recover debts.
The court found that “for the most part” these representations were based on templates that were used over and over again.
This conduct contravened section 12DA of the ASIC Act.
Debt Negotiators staff also used undue harassment, in contravention of section 12DJ of the ASIC Act. They threatened to contact family members, friends, work colleagues and landlords and, in some cases, did make contact with those people.
In the case of one debtor, third parties were contacted 48 times over a 12-month period.
They pressured debtors to seek assistance of family and friends to help make repayments.
Customer support officers were paid incentives and were paid monthly bonuses based on the value of collections.
In the case of one debtor, who was suffering mental health issues resulting from domestic violence, Debt Negotiators’ threat that she could go to jail made her suicidal.
In his judgment, Justice Robert Bromwich said: “A lack of direct participation by senior management in contravening conduct does not translate to an absence of culpability from those persons, or support a finding that the conduct was engaged in by rogue employees in the abstract.
“There was a very significant failure by Debt Negotiators to train and oversee the customer support officers and thereby prevent, mitigate or detect the contravening conduct. Senior management’s culpability is apparent from the lack of adequate safeguards