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Thursday, 17 February 2005
Page: 30

Mr RUDDOCK (Attorney-General) (11:06 AM) —I move:

That this bill be now read a second time.

The Bankruptcy and Family Law Legislation Amendment Bill 2005 is a part of the Howard government's continuing reform of both family law and bankruptcy law.

In particular, this bill addresses the interaction of bankruptcy law and family law, and implements key recommendations of the Joint taskforce report on the use of bankruptcy and family law schemes to avoid payment of tax (the task force).

The most significant amendments contained in this bill are designed to harmonise the law that applies to the division of assets upon insolvency and upon the breakdown of a marriage and, in particular, to the interaction between the Family Law Act 1975 and the Bankruptcy Act 1966. There have been longstanding concerns about the uncertainty facing both bankruptcy trustees and non-bankrupt spouses when these two areas of law operate concurrently.

This bill will make comprehensive changes, some of which affect the Bankruptcy Act 1966, but are mainly focused on powers and procedures in relation to family property and financial arrangements under the Family Law Act 1975.

Schedule 1 contains amendments designed to clarify the rights of the bankruptcy trustee and the non-bankrupt spouse, and to offer certainty as to the competing claims of creditors and the non-bankrupt spouse.

The amendments in schedule 1 will enable concurrent bankruptcy and family law proceedings to be brought together in a court exercising family law jurisdiction, to ensure that all issues are dealt with at the same time. This is achieved by giving courts exercising family law jurisdiction additional jurisdiction to deal with bankruptcy matters that are run concurrently with a family law financial matter, and by facilitating the bankruptcy trustees' and third party creditors' involvement in family law proceedings. By merging the courts' jurisdiction on bankruptcy and family law matters in cases where these areas interact, the amendments will allow the courts exercising family law jurisdiction to consider the non-financial contributions of a non-bankrupt spouse to the acquisition of family property.

Under the schedule 1 amendments, the trustee in bankruptcy can be a party to property or spousal maintenance proceedings under the Family Law Act 1975, and the court will have jurisdiction over property that has become vested bankruptcy property. The court will be able to make an order against the relevant bankruptcy trustee as part of the property adjustment order, allowing the trustee effectively to stand in the shoes of the bankrupt spouse.

The effect of these amendments will be to offer procedures and protections to the non-bankrupt spouse that were not previously available. At the same time, the court can be on notice about the interests of creditors of a bankrupt spouse and can take those interests into account in determining family property or spousal maintenance orders.

Schedule 2 to the bill will establish an enhanced regime for collecting income contributions under the Bankruptcy Act 1966. Currently, the Official Receiver can collect contributions to repay outstanding creditors from a bankrupt wage earner's salary and/or bank accounts. However, the existing provisions offer limited recovery of contributions against a self-employed bankrupt. These amendments will introduce a supervised account regime, giving the trustee access to all of the bankrupt's income before it reaches the bankrupt, ensuring that the contribution scheme applies in a more even-handed and effective manner.

Schedules 3 and 4 to the bill contain amendments that are designed to prevent people using financial agreements under part VIIIA of the Family Law Act 1975 to defeat the claims of creditors. The amendments will ensure that the existing `clawback' provisions in the Bankruptcy Act 1966 can be used to recover transfers made pursuant to financial agreements. The amendments will also create a new act of bankruptcy which will occur when a person is rendered insolvent as a result of transfers made pursuant to a financial agreement. This will allow the bankruptcy trustee access to dispositions of property made after that act of bankruptcy is committed.

Schedule 5 contains amendments to the Family Law Act 1975 that clarify the role of third parties, including creditors, in family property and spousal maintenance proceedings under that act. There are also provisions in this schedule designed to ensure that binding financial agreements made under part VIIIA of the Family Law Act 1975 are not used to defeat the claims of creditors. These provisions will require that a separation declaration be made by parties to a binding financial agreement that deals with post-separation financial arrangements, before those aspects of the agreement come into effect.

The government is committed to enhancing and making the family law and bankruptcy systems more accessible, efficient and effective, and this bill is part of the government's commitment to that goal.

Full details of the measures contained in this bill are outlined in the explanatory memorandum to the bill, which I present to the House.