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Thursday, 30 May 2002
Page: 2822


Mr KING (10:27 AM) —The Australian system of robust independence extends to the business community and it is in this tradition that the legislation before the House is proposed. These reforms were developed after more than two years of consultation with various stakeholders in the personal insolvency field and not just the business community but right across the community. In particular, there was consultation with members of the Bankruptcy Reform Consultative Forum, a peak consultative body established in 1996 by the Attorney-General to facilitate better consultation between the Insolvency and Trustee Service Australia, known as ITSA, and key groups with a stake in the bankruptcy laws. The reforms of the committee included a proposal aimed at preventing people using bankruptcy in a mischievous or improper way and encouraging people who can or should avoid bankruptcy to consider other options. One principal reform in the bill which will achieve this objective is to give the court the power to annul a bankruptcy even if the debtor was insolvent when petitioning.

The issues before the parliament are as follows: the first proposal gives the official receiver a discretion to reject the debtor's petition which appears to be an abuse of the bankruptcy process; second, it involves the abolition of early discharge provisions; third, it strengthens trustees' powers to make objections to discharge; fourth, it strengthens the court's power to annul a bankruptcy; and, finally, it doubles the income threshold for debt agreements. The major reform proposals may be divided into three distinct areas: provisions aimed at making bankruptcy more difficult, those which encourage use of alternatives to bankruptcy, and those which address abuses of the system.

Before I address the actual provisions of the proposed legislation, let me mention a little background in relation to an increase in bankruptcies in recent years and part of the problem that the legislation is addressing. Bankruptcies have increased threefold over the past 10 years, to a level of 23,298 in 1999-2000, compared with only 8,493 in 1989-90. There have been fluctuations in the annual number of bankruptcies over that time, but the majority of those bankruptcies have not necessarily been business related. In the financial year 1999-2000, there were 3,899 business related bankruptcies—approximately 17 per cent of bankruptcies—and 83 per cent were non-business bankruptcies. The proportion of business related bankruptcies has approximately halved in the last 10 years. There were some 800 part IX debt agreements accepted by creditors in 1999, and the use of debt agreements has increased exponentially since they were first introduced in 1996. It is recorded that there were some 47 debt agreements in that year, 369 in 1997 and 480 in 1998. The number of debt agreement proposals has, however, risen sharply in the last year, to around 420 a month, well over double the rate of 2000.

By way of further background, it ought to be noted that, in contrast to bankruptcy and alternatives to bankruptcy, the use of part X arrangements has declined significantly. In 1999, only 453 agreements, assignments and compositions under part X were accepted, compared with approximately 800 a decade ago. This decline cannot be solely attributed to the introduction of alternative part IX agreements, as it began several years prior to 1996.

The Inspector-General in Bankruptcy, Mr Gallagher, recently stated that, while it is no easier to go bankrupt now than it has been for many years, the increase in bankruptcies has had a range of contributive factors, such as excessive borrowing prompted by ready credit availability, perceptions of attainable living standards and a lessening of the stigma of bankruptcy. At any given time, the key cause of non-business bankruptcy identified by bankrupts seems to be unemployment, perhaps followed by discord in the family and excessive use of credit.

The proposals that are currently before the House are contained in two bills, the Bankruptcy Legislation Amendment Bill 2002 and the Bankruptcy (Estate Charges) Amendment Bill 2002. The bills will make a number of significant changes to the law. They address concerns that the system is biased towards the debtor and that debtors are not encouraged to think seriously about the decision to declare themselves bankrupt. The changes address unfairness and anomalies, particularly in relation to the operation of the early discharge arrangements and the lack of effective sanctions on uncooperative bankrupts. Finally, they will streamline the administration.

The objects of the bills are, first, to give official receivers a discretion to reject a debtor's petition where it appears that, within a reasonable time, the debtor could pay all the debts listed in the statement of affairs and that the petition is an abuse of the system; second, to abolish the early discharge from bankruptcy; third, to strengthen the objection to discharge provisions; fourth, to make clear that a bankruptcy can be annulled by the court whether or not the bankrupt was insolvent when a debtor's petition was accepted; and , finally, to raise by 50 per cent the current income threshold in the manner that I referred to a little while ago.

Other changes are consequential on these measures and streamline the operation of the act or are a consequence of the proposals from ITSA to which I have referred. These include: to allow the inspector-general to inquire into the activities of debt agreement administrators and solicitors who are controlling trustees; to give the court a power in specified circumstances to effect the discharge of a bankrupt despite the failure to meet the formal requirements for filing of a statement of affairs; to make the filing of a debtor's petition itself to be an act of bankruptcy; to allow the amount of final judgments or final orders obtained by a creditor to be amalgamated for the purpose of meeting the $2,000 threshold for the issue of a notice; to require an official receiver to reject petitions of debtors who do not have the same connection with Australia as is required in relation to creditors' petitions; and to amend several machinery provisions regarding creditors' meetings, the details of which it is unnecessary for me to go into.

Also, there are changes: to introduce a streamlined meeting procedure to allow creditors to meet and vote by post and to receive proposals for variations of section 73 compositions and schemes of arrangements by similar means, if there is no objection to the procedure; to require bankrupts to notify trustees of material changes to matters relevant to administration; to provide that a debtor is liable for new debts incurred during his or her cooling-off period, even when bankruptcy follows at the end of that period; to allow the court to deny to those debtors who file frivolous counterclaims, set-offs or cross-demands as defences to a bankruptcy notice the benefit of section 41(7) extensions of time for compliance with the notice; to allow creditors by special resolution to permit a bankrupt to retain sentimental property of a prescribed kind; to require trustees to realise assets in a bankrupt estate within a six-year period after discharge; to alter certain aspects of the contributions scheme provisions to ensure that a bankruptcy cannot be annulled on full payment of debts unless interest on the interest-bearing debts has been paid; to ensure that no person who applies to be registered can be registered unless at that time the person has the ability, and not merely the capacity to acquire the ability, satisfactorily to perform the duties of a trustee; to increase the statutory minimum remuneration for registered trustees by 8.4 per cent; to allow administration to be transferred from one trustee to another; to introduce a streamlined procedure to allow variations in terminations of part X deeds of arrangement; to allow the trustee, rather than the court, to consent to a bankrupt travelling overseas; to require the applications for an extension of time for payment of interest charges and realisations charge; to extend part X trustees eligibility for the assistance available under section 305 to trustees in a bankruptcy; and to abolish the direct access to an external tribunal for review of trustees' decisions by a bankrupt.

Those provisions, as can be seen, are detailed; they are the subject of extensive consultation; and, contrary to the suggestions of the opposition, are the result of a very careful review of the whole legislation. In that regard it should be noted that most of the provisions in these bills were contained in the Bankruptcy Legislation Amendment Bill 2001, which was introduced into the House on 7 June last year. It was ultimately passed by the Senate on 27 September, but lapsed when parliament was prorogued for the 2001 general election. It should be noted that the government has in fact taken into account some of the criticisms that occurred in the Senate, some referred to at that time by the opposition, and has made some adjustments to the original proposals to ensure that there is a thoroughgoing reform which will address the government's concerns.

I wish to briefly mention the proposals for amendment put forward by the opposition spokesperson. In those, he proposes to condemn the government for introducing reforms which crack down on low income bankrupts while leaving loopholes for the rich to exploit. With the greatest respect, this legislation does not do that at all. Rather, what it does do is address community standards. In particular, it addresses the problem to which I have already made reference—namely, the concern of the community that some persons have been using bankruptcy mischievously or improperly and have encouraged some to use bankruptcy as a way of avoiding their proper tax obligations.

As a member of the profession, I have to say that, regrettably, my colleagues represent a section of the community which indulges in practices that are completely and utterly unacceptable. I say to the parliament, as a member of that profession, that I warmly support these provisions, because the law should not be abused to avoid the proper payment of tax by people who can pay the tax but who choose to use the law so as to avoid doing so. I feel sure that the general public would warmly support these provisions for that reason alone.

I mentioned that the legislation addresses some changes to bills that were considered by the parliament before I was elected to this place. The two major changes in that regard are, firstly, that the proposed 30-day cooling-off period during which a debtor's petition for bankruptcy could be withdrawn will not now be included. Additional consultation revealed opposition in some parts of the community to the proposal amongst some personal insolvency industry stakeholders and there were doubts that it would prevent many bankruptcies. Secondly, the current proposals will raise the income threshold for debt agreements by 50 per cent, not by 100 per cent as was originally proposed. Again, stakeholders in the industry have supported this change.

I conclude by commenting that the legislation is part of the government's commitment to reform the bankruptcy system to balance the interests of debtors and creditors, thereby restoring the integrity of the personal insolvency system and improving public confidence in it. The bills will streamline technical and machinery provisions to ensure its efficient operation. Bankruptcy will still be applicable to people in severe financial difficulty who simply need a fresh start. It does not make it harder for them but it is still available to them. These new measures will encourage people who can and should avoid bankruptcy to consider carefully other options, such as debt agreement, and will make bankruptcy tougher for those bankrupts who do not cooperate with their trustee.