Document ID: chunk:federal_register_of_legislation:C2004A04993:body:0:p17
Version: federal_register_of_legislation:C2004A04993
Segment Type: other
Provision Reference: 
Character Range: 40835–43473

If the Secretary and a debtor agree that the debtor's debt will be fully satisfied if the debtor pays the Commonwealth an agreed amount less than the amount of the debt outstanding at the time of the agreement (the unpaid amount), the Secretary must waive the right to recover the difference between the unpaid amount and the agreed amount.

Limits on agreement to accept part-payment in satisfaction of outstanding debt

"(5) The Secretary must not make an agreement described in subsection (4) unless the Secretary is satisfied that:

   (a) the debtor cannot repay more of the debt than the agreed amount; and

   (b) the agreed amount is at least the present value of the unpaid amount repaid in instalments whose amount and timing is determined by the Secretary; and

   (c) it would take at least a year to recover the unpaid amount under Part 5.3 if subsection (4) did not apply.

SCHEDULE 3—continued

Formula for working out present value of unpaid amount

"(6) For the purposes of subsection (5), the present value of the unpaid amount is the amount worked out in accordance with the following formula:

where:

annual repayment is the amount of the debt that the Secretary believes would be recovered under Part 5.3 in a year if subsection (4) did not apply in relation to the debt.

interest is the annual rate of interest specified by the Minister in a written notice.

repayment period is the number of years needed to repay the unpaid amount if repayments equal to the annual repayment were made each year.

Example:

Facts:

Bill owed a debt of $35,000 to the Commonwealth. After repaying $5,000 (leaving an unpaid amount of $30,000), he offers to make an immediate payment of a further $20,000 in full satisfaction of the debt. The Secretary is satisfied that Bill cannot repay a larger amount of the debt than this. The Secretary believes that $1,500 of the debt would be recovered under Part 5.3 in a year, at which rate it would take 20 years to repay the debt. The Minister has specified an interest rate of 5% a year for the purpose of subsection (6).

Application:

The Secretary can accept Bill's offer and make an agreement with him as described in subsection (4), because the $20,000 is more than the present value of $30,000 repaid over 20 years at a 5% interest rate (which is $18,693.33 = ($1,500÷0.05) × (1-(1÷(l + 0.05)20))). If the Secretary makes the agreement, the Secretary must waive $10,000 of the debt (the difference between the unpaid amount of $30,000 and the agreed amount of $20,000).

Notice is a disallowahle instrument

"(7) A notice described in the definition of interest in subsection (6)