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Thursday, 30 August 2001
Page: 30655


Mrs MOYLAN (1:19 PM) —I listened with great interest to what the member for Barton had to say. I understand that he and the opposition broadly support the direction of the Bankruptcy Legislation Amendment Bill 2001. I listened with particular interest to his comments about small business and small business bankruptcies. However, my contribution to the debate today clearly indicates that the biggest rise in bankruptcies has been at a personal level. I take the House back to when I first entered this House in 1993 and when I was shadow minister for small business.

The fact is that under a Labor government business bankruptcies reached epidemic proportions. I am pleased that the member for Barton highlighted that some of the problems that have emanated from the downfall of HIH Insurance and other problems were not generated by the government. Many of the bankruptcies which occurred while his party was in government were generated by that government through its mismanagement of the broad economic settings of this country. I was in business in the time preceding my election to parliament, and what sent a lot of my colleagues bankrupt and what facilitated that high level of bankruptcy was poor management by the Labor government, which presided over very high business interest rates, very high inflation rates and poor market opportunities. It sent businesses, particularly small businesses which have less capacity to ride out the highs and lows of the marketplace, on a roller-coaster ride along the peaks and troughs of a market they could never feel any certainty in and in a financial climate in which they never had any certainty. I think the House needs to be reminded of the Labor Party's record in government in making life extremely difficult for small business.

On a personal note, I welcome the opportunity to speak to the Bankruptcy Legislation Amendment Bill 2001 because I have always had great concern about business bankruptcies, particularly those of larger businesses, which often seem to fall into a chronic pattern of indebtedness. Those who suffer the most because of this and because of the fashion towards easy access to the option of bankruptcy are small businesses. I am sure that the member for Barton, my colleague on the other side of the House, joins me in welcoming any bill that seeks to make it more difficult for other companies to enter into bankruptcy, get out of it within a few years— sometimes within six months—and then repeat the cycle at the expense of many people, people who perhaps can less afford to pick themselves up and get going again.

I do not know how many in this place have actually been involved with people in the business sector who have gone bankrupt, but it was one of the issues that drove me into parliament in 1993. I saw how government policy could actually send small businesses bankrupt through no fault of their own. There was no way small businesses in that era could sustain the kind of policy settings we saw. They just did not have the long-term capital to withstand the peaks and troughs of the kind of economic settings that we saw Labor put into place. They have suffered greatly. I have watched as men and women have been locked out of the businesses they have been in for 20 or 30 years. I have watched the impact on the family—the breakdown of the marriages and the stress on the children. It is not a happy picture and it is not one that I would like to see repeated any more often than has to be.

We all know that going into business is risky, and people do have to realise that when they undertake any business venture. But I have certainly expressed before in this place the ease with which people can declare bankruptcy and the impact on the community at large. I think this was highlighted—and the member for Barton also mentioned it in his address to the House—when it was revealed that highly qualified lawyers and in some cases QCs were declaring themselves bankrupt to avoid paying tax. I think that was of grave concern to all Australians who pay their fair share of tax and who meet their obligations. There was certainly a resounding public response to this as thousands of ordinary taxpayers realised that the actions of high income earners avoiding tax add to their burden of tax, particularly to the burden of tax paid by low and middle income earners.

It has concerned me for some time that after three years or, as I said, sometimes less a bankrupt can automatically be discharged from bankruptcy and start the process all over again. It was not so long ago that I got up in this House and spoke about people in my electorate who worked for companies that had gone bankrupt or, in one case, gone into receivership and subsequently into bankruptcy. Those workers came to me alleging that certain individuals responsible for the company had been shifting assets when they had walked away with none of their entitlements as workers who had given loyal service over many, many years. In one case which was referred to me the person rebought the business when it was in receivership. I referred those matters to the minister and, indeed, to ASIC. I think these are the kinds of things that we have to continue to work towards stamping out. This bill does not address a couple of those issues such as the shifting of assets, but it does move some way down the track towards improving the situation and trying to get people to look at options other than bankruptcy.

There is some evidence that there are chronic bankrupts. Although the official receiver can object and postpone the discharge of the bankrupt for up to five years, repeat bankruptcies are common. In some circumstances, as I said, a bankrupt can apply for early discharge at any time after six months. None of us would like to see Australia or anyone else go back to the old system of throwing debtors into prison, but I think that there is a balance to be struck here and it is certainly not a practice we should be in any way encouraging.

In the case of those people who continue on this roller-coaster, there is no future obligation for them to pay remaining debts except debts related to child support and bail bonds. It is concerning that bankruptcies become somewhat fashionable and that people think that it is an easy option to have their debts wiped out in possibly six months. What is not always appreciated is that the money they owe is not always to a large corporation, as I said earlier, or to a bank which can withstand the loss of cash flow and build it in. In many cases that money is owed to small businesses or individuals who, through no fault of their own, are also rendered bankrupt due to the outstanding debts. We have heard a lot about employees left without entitlements because the company has gone bankrupt. As I said, I have spoken on that issue in this place before.

As I said, I have had employees in my office who have given loyal service to a company for over 20 years and found themselves without a job and owed money that was put away for superannuation and for other entitlements and years after they had still not received any of the money, leaving them in a precarious financial situation. More particularly, I have had constituents who were still owed money aware of their former employers obtaining an early discharge and then setting up business again only to do this to more unsuspecting victims. While the bill goes some way to discouraging easy options for would-be bankrupts, there is still a long way to go to stop some of the shonky practices that leave unsuspecting people with no recourse to justice.

Sadly, the vast number of bankrupts are people on low incomes. In fact, in 1999-2000 there were 5,208 unemployed bankrupts, followed by 2,112 pensioners. Housewives and househusbands totalled 2,088 people. In the business sector, tradespeople and labourers were more likely to be bankrupts. Again, this has some relevance to the fact that often the company they are contracted to does not pay them. There seem to be a number of industries in which this practice is chronically bad, and I think the building industry is one of those industries. Business bankruptcies totalled 3,899 in the year 1999-2000, or less than 17 per cent of all bankruptcies. In fact, compared with the period 1989-90, the number of bankruptcies has halved, from almost 35 per cent. Under our government, people have seen considerable improvement in that area. The risk of bankruptcy among business managers and professionals is less likely. The growth has been in the personal bankruptcies area, which in the financial year 1999-2000 were 19,399 or 83.3 per cent. Given that so many low income people become bankrupt, it is obvious that more needs to be done to assist these people to manage their finances and to address the problems that they may have with gambling, for example, which this government has acknowledged and done something about.

This bill aims to get people to consider the seriousness of becoming bankrupt and to encourage people to take alternative steps. As Terry Gallagher, the Inspector-General of Bankruptcies, said:

While it is easier to go bankrupt now than it has been for many years, it is likely that excessive borrowing prompted by ready credit availability, perceptions of attainable living standards and a lessening of the stigma of bankruptcy have contributed to this increase.

As I said, we have come a long way from throwing debtors into prison and nobody would advocate that we return to that. However, it is clear that with the increase in bankruptcies for individuals, in particular, measures need to be put in place to ensure that there are no easy options for people who seek to escape their financial responsibilities.

The measures that we are talking about in this bill include a mandatory 30-day cooling-off period to encourage debtors to enter into a settlement with creditors. This means that the debtor will not become bankrupt until 30 days after presenting their petition and the measure allows creditors to negotiate alternative arrangements with debtors. I noted the comments by the member for Barton, but in my experience in business it is often a heated time and a time when a lot of pressure is being applied and I think that cooling-off period is an important move forward.

Some debtors will be ineligible for the cooling-off period if it is likely to prejudice creditors due to a trustee not being appointed immediately a petition is presented. The circumstances in which a debtor is ineligible for the cooling-off period include where they have been carrying on a business at any time in the 30 days beforehand, where they are subject to a creditor's petition or a specified legal proceeding against him or her which is scheduled for substantive hearing on a day that is less than 60 days after the day on which the debtor's petition is presented. These measures offer protection to creditors against the possible abuse by the debtor of a cooling-off period. It is important that a trustee has the ability to take immediate control of business assets to facilitate the sale of a business as a going concern and to prevent the possible loss of valuable stock, plant and equipment through deterioration or dissipation.

The other measures include the discretion for the official receiver to reject a debtor's petition if it appears to be an abuse of the bankruptcy process. There has never been an insolvency test for petitioning debtors and this basic principle will remain largely undisturbed by this bill. However, some debtors petition for bankruptcy for the wrong reasons and their petitions are an abuse of laws intended to protect debtors who cannot pay their debts and to give them a fresh start.

The third major part of this bill is the abolition of early discharge, which I do support very strongly. The bill proposes the abolition of the early discharge provisions because they are cited most often as the cause of concern—that bankruptcy is too easy. The reduced period of bankruptcy is seen to discourage debtors from trying to enter formal or informal arrangements with their creditors to settle debts and to provide little opportunity for debtors to become better financial managers.

The fourth part is the strengthening of the objection to discharge provisions. This allows bankruptcy trustees to lodge an objection to the bankrupt's automatic discharge at the end of the three-year standard period of bankruptcy. Depending on the grounds of objection, the standard bankruptcy period can be extended by two years or in a more serious case by five years.

The fifth point is the annulment of bankruptcy by a court whether or not the petitioning debtor is insolvent. One of the final points that I wanted to make in relation to this bill concerns the doubling of the current income threshold for debt agreements. The memorandum to the bill makes the point that it has been noted the debtors who were too poor to be required under one part of the act to make contributions from their income for the benefit of the creditors were nonetheless invited under another part of the act to make a debt agreement proposal to creditors. Debt agreements were introduced in 1996 as a low cost alternative to bankruptcy available to low income debtors with assets and debts below specified thresholds. Debtors cannot access the provisions if they have an after tax income of more than $30,530, or if there are no dependants and either their assets or debts exceed $61,061. Those are the March 2001 figures subject to six-monthly indexation. The comparative low income threshold has been criticised as denying a large group of debtors any realistic alternative to bankruptcy.

One of the important final points that I would like to make about this bill is that it has been the subject of considerable scrutiny. The amendments proposed in the bill reflect the outcome of more than two years of consultation with various stakeholders in the personal insolvency field. In particular, there has been consultation with members of the Bankruptcy Reform Consultative Forum, which is a peak consultative body. The bill has had a lot of airing in the public arena and some good contributions have been made, which I think has brought forward amendments to this bill that are very helpful in perhaps addressing some of the problems that have been evident for some time. The one exception is that it does not deal with the transferring or acquiring of assets in other people's names or the interaction of bankruptcy law with family law issues. So there are some deficiencies, but I commend the minister and the government for addressing some of the major concerns. I hope that in future we will be able to go forward and address the remaining concerns.