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Monday, 16 June 2003
Page: 16573


Mr Murphy asked the Attorney-General, upon notice, on 27 March 2003:

(1) Is the stated purpose of the Bankruptcy Legislation Amendment Act 2002 “To make a number of significant changes to the Bankruptcy Act 1966 which... will encourage debtors to seriously consider using alternatives to bankruptcy where possible, and make bankruptcy less of an `easy option' ”.

(2) Can he confirm that bankruptcies have increased threefold over the past ten years from 8,493 in 1989-90 to 23,298 in 1999-2000.

(3) Can he confirm the figures indicating the sharp rise in debtor agreements during the following years: (a) 1996-96 - 47 debt agreements, (b) 1997-98 - 369 debt agreements, (c) 1998-99 - 480 debt agreements, (d) 2000-01 - 2,240 debt agreements, (e) 2001-02 - 5,647 debt agreements.

(4) What is the reason for this sharp increase in debt agreements.

(5) What is the reason for the sharp increase in repeat bankruptcies from less than two per cent of former bankrupts in 1992-93 for both standard and early discharge former bankrupts, to over 10 per cent for repeat bankruptcies after standard discharge and nearly seven per cent for repeat bankruptcies after early discharge.

(6) What are the most common occupations of those engaging in repeat or serial bankruptcies.

(7) What number and percentage of debt agreements have as their sole or principal creditor, the Commissioner of Taxation.

(8) Do the main provisions for making bankruptcy less of an `easy option', include; (a) abolition of the early discharge provision entirely (currently permitting early discharge after six months), making the period of bankruptcy a mandatory three year period, and (b) an increase in the income eligibility threshold of Part IX debt agreements from $32,041 to $48,061.

(9) Can he confirm the observation made in the Bills Digest that “Many of the measures in the Bill appear to be targeted predominantly at low income earners”; if so, what action does he intend to take to correct this apparent imbalance in the legislation.

(10) Is he aware of the large number high profile bankruptcy cases, in particular those from the legal profession and `captains of industry'; if so, what specific provisions are being made to target; (a) barristers, (b) other legal practitioners, (c) medical practitioners, and (e) directors of `phoenix companies' to address the abuse of serial bankruptcy, debtors petitions, debtor arrangements and other instruments under bankruptcy law, for the sole or substantial purpose of avoiding or evading taxation or otherwise taking debtors' assets out of the reach of creditors, in particular, the Commissioner of Taxation.


Mr Williams (Attorney-General) —The answer to the honourable member's question is as follows:

(1) Essentially that is the key purpose of the Bankruptcy Legislation Amendment Act 2002.

(2) The figures given are correct.

(3) The number of Debt Agreements made by debtors with their creditors under Part IX of the Bankruptcy Act 1966 since December 1996, when Part IX commenced operation, and reported in annual reports on the operation of the Bankruptcy Act 1966 is:

Year

No. of Debt Agreements made by debtors with creditors

1996 - 97

48

1997 - 98

354

1998 - 99

507

1999 - 00

801

2000 - 01

1,234

2001 - 02

3,294

(4) I understand that there are several reasons for this growth. As a result of the Insolvency and Trustee Service Australia (ITSA) publicising the availability of debt agreements and their benefits for debtors and creditors, there is a greater awareness among creditors of the benefits to them of agreeing to debt agreement proposals made by eligible debtors. Also a growing number of professional debt agreement administrators are informing their clients of the benefit of debt agreements as an alternative to bankruptcy.

(5) I am not aware of the statistics contained in the question. ITSA has published information about repeat bankruptcies on two occasions. The first was in 1998, in the booklet “Profiles of Debtors” when, based on a sample of 1997 new bankruptcies, it was stated that 8% of bankrupts had been bankrupt on a previous occasion. In 2002 ITSA published “Profiles of Debtors 2002” which was based on all new bankruptcies occurring in 2001-02. That second study found that 13% of bankrupts had been bankrupt previously.

(6) I am not prepared to answer this part of the Question as it would impose an unreasonable demand on resources of the Insolvency and Trustee Service Australia to attempt to retrieve this level of detail from records.

(7) The following table shows the number and percentage of those debt agreements where the Commissioner of Taxation (CT) was the sole or principal creditor.

2000

2001

2002

Total Debt Agreements

801

1,234

3,294

No. where CT sole/principal creditor

56

60

105

% where CT sole/principal creditor

6.99%

4.86%

3.18%

(8) The main provisions of the Bankruptcy Legislation Amendment Act 2002 for making bankruptcy less of an `easy option' and encouraging debtors to look seriously at alternatives to bankruptcy are abolition of early discharge, enabling Official Receivers to reject debtors' petitions in situations which would amount to an abuse of the bankruptcy system, and strengthening the objection to discharge provisions. In addition, the increase in the income threshold required for Part IX debt agreements will make this alternative to bankruptcy available to many more debtors who are experiencing financial difficulty.

(9) I can confirm the observation was made. However, that does not mean there is any imbalance in the legislation. The reforms are designed to provide a more appropriate balance between the rights of debtors and creditors. As indicated in part (8) of the answer, above, a number of measures in the Bankruptcy Legislation Amendment Act 2002 encourage debtors to look seriously at alternatives to bankruptcy. In addition to these measures, the Government is actively reviewing the operation of Part X and relevant interaction of bankruptcy and family laws.

(10) I refer to relevant parts of my Answer to Questions 1782 & 1783 where I explain, first, that the Commissioner of Taxation is the sole or principal creditor in no more than 4% of all bankruptcies, including those commenced by debtors' petition, occurring in recent years. Secondly, I explain that, other than in issues currently being addressed in connection with potential abuse of Part X procedures and also use of family law and bankruptcy law, there is no evidence of widespread tax avoidance or evasion arising from the use of debtors' petitions, debtors' arrangements and other lawful bankruptcy instruments.

Suggested changes to bankruptcy and family law in respect of the activities of high income professionals are flagged in an issues paper released in November 2002 by ITSA and the Attorney-General's Department (AGD). The paper was open for comment from the community and professional bodies until 20 February 2003. A report on the comments received is currently being prepared by ITSA and AGD. Those comments and the report will inform the Government's decision on appropriate action to take.

I understand that the Australian Taxation Office (ATO) has set up specialist cells to target activities of delinquent barristers and legal professionals, directors of phoenix companies and other persistent debtors. The Commissioner outlined some of the strategies and aims of these teams in his annual report for the year ended 30th June 2000. The ATO teams address issues surrounding the misuse or suspected misuse of bankruptcy and insolvency provisions. The ATO liaises with ITSA and ASIC when pursuing such matters and when suggesting or implementing preventative measures.