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Thursday, 30 May 2002
Page: 2825


Mr WILLIAMS (Attorney-General) (10:42 AM) —I thank the two members who have participated in the debate on the Bankruptcy Legislation Amendment Bill 2002 and the Bankruptcy (Estate Charges) Amendment Bill 2002. Bankruptcy is designed to give people in severe financial difficulty relief as a measure of last resort from overwhelming debts. Bankruptcies trebled in the decade until the 1997-98 financial year and they have remained at high levels since then. Almost all of the increase, as the member for Wentworth pointed out, has been in the non-business consumer bankrupt category. Clearly, greater numbers of consumer debtors are choosing bankruptcy as a way of resolving their financial problems.

The government is concerned to ensure as far as possible that these people are properly informed when making such an important decision as entering into bankruptcy. The Bankruptcy Legislation Amendment Bill 2002 and the Bankruptcy (Estate Charges) Amendment Bill 2002 will amend Australia's bankruptcy laws to address concerns that bankruptcy is too easy and to provide a better balance between the interests of debtors and creditors.

The reforms contained in these bills are designed to encourage people contemplating bankruptcy to consider the seriousness of the step they are about to take and to consider alternatives to bankruptcy. The amendments will also achieve the government's aim of preventing people using bankruptcy in a mischievous or improper way and encouraging people who can or should avoid bankruptcy to consider other options.

Amendments contained in the Bankruptcy Legislation Amendment Bill will give the Official Receiver a discretion to reject debtors' petitions that are a blatant abuse of the bankruptcy system when it is clear that the debtor is solvent and has singled out one creditor for nonpayment or where the debtor is a multiple bankrupt. The exercise of this discretion will be subject to external administrative review. The bill will strengthen the trustee's powers to object to the automatic discharge from bankruptcy of uncooperative bankrupts. The strengthening of the trustee's objection to discharge powers is directed at the intentional failure by a bankrupt to cooperate with his or her trustee and deliberate attempts by the bankrupt to impede the trustee's administration of the estate.

The reforms contained in the bill relating to objection to discharge provisions will overcome a deficiency in the present law which can encourage a bankrupt to cooperate with the trustee only at the last moment. That is when a review hearing is imminent. Reforms contained in the bill will also confirm the court's power to annul a debtor's petition bankruptcy, even if the debtor was insolvent when petitioning. This measure is directed at high-income earners who have chosen not to pay a particular creditor—for example, the Australian Taxation Office—and then petitioned for bankruptcy to extinguish the debt. The bill makes clear that, in such a situation, the court would be able to annul the bankruptcy as an abuse of process, despite the fact that the debtor technically was insolvent.

The bill proposes to increase by 50 per cent the income threshold for debt agreements to about $46,800 after tax to encourage more people to consider the debt agreement option as an alternative to bankruptcy. The practical utility of debt agreements is restricted at present by the relatively low income threshold which applies. The proposed increase will make the debt agreement alternative available to a much larger group of debtors.

Another major proposal contained in the bill is the repeal of the early discharge provisions. That will address unfairness and anomalies in the early discharge arrangements and concerns that some debtors do not think seriously enough about the decision to declare themselves bankrupt. When early discharge was introduced by Labor in 1992, it was argued that keeping low-income debtors bankrupt for three years served no useful purpose if their bankruptcy was due `more to misfortune than misdeed' or unless it was due to `commercially reprehensible behaviour'. However, the qualifying criteria established by Labor have not been an adequate test of whether the bankruptcy indeed arose from `misfortune rather than misdeed'. For example, a debtor with sufficient assets to pay a dividend or sufficient income to make a contribution is not, intrinsically, any less deserving of early discharge than a person with neither assets nor sufficient income to attract a contribution liability. At the same time, a bankrupt who has deliberately incurred debts with no capacity to pay them could quite easily qualify for early discharge, yet their conduct may well be described as `misdeed' or `commercially reprehensible behaviour'.

The current early discharge provisions are discriminatory in other ways. Where a bankrupt couple has joint debts, the male bankrupt will often get early discharge. The female, who generally has a lower income than the male, may not be eligible for early discharge as she will fail the test requiring that her debts be not more than 150 per cent of her income. Approximately 60 per cent of bankrupts are eligible for early discharge. There is no evidence to suggest that the remaining 40 per cent of bankruptcies were due to misdeed rather than misfortune or to commercially reprehensible behaviour. Early discharge has not worked as intended and, instead, undermines the credibility of the bankruptcy system. The repeal of the early discharge provisions will address unfairness and anomalies in the early discharge arrangements and remove a disincentive for debtors to consider options other than bankruptcy.

Other amendments proposed by the bill will streamline the administration of bankruptcies by trustees and improve the operation of the act. For example, the bill will further streamline meeting procedures, simplify the mechanism for changing trustees and allow the inspector-general to examine the affairs of debt agreement administrators. The Bankruptcy (Estate Charges) Amendment Bill 2002 is the second and smaller bill in the government's bankruptcy reforms package. The bill closes a loophole by applying the realisations charge to amounts received by solicitors who are controlling trustees and allows the 2001 act to commence by removing the link between that act and the commencement of the Bankruptcy Legislation Amendment Bill 2002.

The reforms proposed by the Bankruptcy Legislation Amendment Bill 2002 and the Bankruptcy (Estate Charges) Amendment Bill 2002 will amend Australia's bankruptcy laws to address the concerns that bankruptcy is `too easy' and to better balance the interests of debtors and creditors. They will encourage people contemplating bankruptcy to consider alternatives to bankruptcy. By restoring fairness to the system, we will promote confidence in it.

The member for Barton has moved an amendment to the motion for the second reading of the bill. It is hardly surprising that the government does not support that amendment. As Labor is well aware, the bankruptcy reform package does contain several measures to address community concerns about those who use bankruptcy to avoid their taxation liabilities. The main bill is not primarily directed at the issue of abuse of the bankruptcy laws by high-income bankrupts, such as barristers and other professionals, but it addresses it in one significant respect. Section 153B of the Bankruptcy Act 1966 currently permits the court to annul a bankruptcy if the petition ought not to have been either presented or accepted. Item 156 of this bill makes it clear that the court may annul a debtor's petition bankruptcy, whether or not the bankrupt was insolvent when the petition was presented. Therefore, on application by a creditor, such as the Australian Taxation Office, the court might annul the bankruptcy of a high income professional who technically is insolvent but who could have chosen to meet unpaid taxation obligations.

More broadly, in March 2001, I and the Assistant Treasurer announced the establishment of a task force to report to ministers on whether any changes were needed to the bankruptcy and taxation laws to ensure that the bankruptcy law cannot be used to avoid tax obligations. The task force included representatives from the Attorney-General's Department, the Insolvency Trustee Service of Australia, the Australian Taxation Office and Treasury. It consulted with the Australian Federal Police and the Director of Public Prosecutions, and has reported on the best way to address community concerns about such bankruptcy. We expect a government response to that report shortly.

The member for Barton expressed concern that consultation in relation to the bills was not as broad as it could have been, particularly with regard to low-income people and credit counsellors. The member for Barton can be informed that the reforms proposed in the bills were developed following 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 Consultative Forum, a peak consultative body that I established in 1996 to facilitate better consultation between ITSA and key groups with a stake in the bankruptcy laws. One member of the forum is the Australian Financial Counsellors and also a credit reference agency. This agency represents precisely the financial counselling organisations which the member for Barton claims were not consulted. In addition, the proposals contained in the reform package have received wide community support, including from the Law Council of Australia and Credit Union Services Corporation Australia Ltd, the peak industry body for Australian credit unions.

The government also welcomes the report of the Senate Legal and Constitutional Legislation Committee on the bills. The committee recognised that the proposed amendments will achieve the government's aim of preventing people using bankruptcy in a mischievous or improper way and of encouraging people who can or should avoid bankruptcy to consider other options. I thank the committee and its secretariat for its work in examining the bills. I am pleased that the committee recommended that the bills be passed, although I note that Labor senators opposed the proposed abolition of early discharge from bankruptcy—that is, for eligible bankrupts' discharge after six months. As Labor members appear to be in the Main Committee today, no doubt we will return to this issue later.

I am happy to put the member for Barton's mind at rest with regard to the extensive consultations with credit counsellors, amongst others, that have gone into the development of the bills. The member for Barton also criticised the abolition of the early discharge scheme. Since there is an amendment proposed to be moved in respect of that, I will reserve comment on it until the amendment is moved. The member for Barton criticised the maintenance in the Bankruptcy Act of a provision to maintain the gambling offence. In respect of this, the government decided not to repeal the gambling offence in the Bankruptcy Act. The government acknowledges that problem gambling is a real addiction that requires treatment, but believes that gambling which shows careless disregard for creditors' interests should carry a criminal sanction. In practice, very few people are prosecuted, as only the most blatant cases are prosecuted and, even then, only in conjunction with other offences. The existence of the offence assists some trustees in the administration of bankrupt estates. Trustees and creditors report that some mischievous bankrupts will often claim that they have incurred losses at the casino or at the races when they are questioned about what has happened to money borrowed. When trustees mention the offence, such bankrupts will often come up with a more truthful answer which helps locate assets.

I commend the bills to the House. The government opposes the second reading amendment. It would be appropriate that the Main Committee report the bills to the House without amendment.


The DEPUTY SPEAKER (Hon. B.C. Scott)—The original question was that this bill be now read a second time. To this, the honourable member for Barton has moved an amendment that all words after `That' be omitted with a view to substituting other words. The immediate question is that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.