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Thursday, 26 November 2009
Page: 13196

Ms COLLINS (4:44 PM) —I rise to indicate my support for theBankruptcy Legislation Amendment Bill 2009. This bill is part of the government’s wider macroeconomic reform agenda which continues to improve the effectiveness of Australia’s credit market. The amendments in this bill are designed to modernise Australia’s personal insolvency system. They will also give people in financial distress a more realistic opportunity to consider their options and where possible avoid bankruptcy.

The objectives of the bill specifically are to provide a more streamlined process for fixing trustee remuneration and a more transparent process for reviewing that remuneration; to strengthen the penalties for some offences and ensure that these are in line with the penalties for other similar offences; to remove the outdated concept of bankruptcy districts in order to provide more flexibility in personal insolvency administration; and to ensure that those who find themselves in financial difficulties have access to proper information and advice about all options when it comes to insolvency.

The amendments, I believe, strike a real balance between the rights of debtors and creditors when they access the insolvency system. The bill protects the debtor when it comes to additional fees often charged through the insolvency and bankruptcy process. There will be an increased flexibility for debtors to pay their debt and for creditors who are recovering debts. Financial distress, as we all know, is not a pleasant situation to be in whether you are a small business operator or an individual. These amendments are important additions to strengthening Australia’s personal insolvency system as they will combine protectionist measures alongside the financial options to assist people to still pay their debt while avoiding bankruptcy, or having bankruptcy as the last resort.

In addition to these changes we are also seeking an increase in the minimum debt threshold. Currently, people can claim bankruptcy or be forced into bankruptcy for what I believe are small debt amounts. Where the debtor owes at least $2,000 creditors can petition for bankruptcy. This amount has not been updated since 1996. We seek to increase the minimum debt for a creditor’s petition to $10,000. A change to the minimum debt level is an important part of this reform package. It will assist to end a creditor’s inappropriate means of enforcing payment of very small debts where cases such as these often result in trustee’s fees which are many times the amount of the original debt.

Along with an increase in the minimum debt, the amendments also include an increase in the stay period for declarations from seven to 28 days for automatic defaults. A longer stay period will increase the likelihood of the debtor obtaining proper information and advice about their financial options to make an informed decision. This will allow the debtor to take charge when it comes to negotiating alternative arrangements and to try to avoid bankruptcy. The debtor will be required to file a simple statement of affairs with the declaration. This will mitigate the risk of the debtor dissipating assets during the period and provide an opportunity to explain to the debtor the seriousness of the action that is being taken. If confronted by short time frames and financial problems, it is not always easy to consider all of the options and get appropriate advice quickly. So these extra days will be an appropriate and relevant change within this legislation.

As I said earlier, these amendments offer a balanced approach to debtors paying monies owed and creditors recovering the debts. What these amendments will offer creditors are also options when seeking to recover debts. Their first option will not be to force bankruptcy on an individual—debt agreements will also be more readily available as a tool for debt collection. For some Australians in financial difficulty, bankruptcy is the only option to solve their financial woes. For some, it seems an easy choice at the time for someone who owes money to creditors. Some believe simply claiming bankruptcy will make their problems go away. Admittedly bankruptcy, whether it is forced or voluntary, is a control mechanism to assist people to confront their financial situation. However, claiming bankruptcy is a last resort and is not as simple as just signing your name away on a piece of paper—nor should it be.

Claiming bankruptcy brings with it many disadvantages. There is a distinct lack of control when a person becomes bankrupt. There are restrictions on the bankrupt’s life in the future. There is a permanent record of the bankruptcy kept on the National Personal Insolvency Index. Assets will be sold, investigations of their financial affairs will occur and there can be mandated contributions from their income once they earn over a certain amount.

What this bill does is give people in financial distress more options before they head down this path of bankruptcy. One of the options made available to debtors through these amendments is having access to a debt agreement rather than a bankruptcy claim. Debt agreements will give debtors more choice while at the same time giving creditors a better return on the money that is owed to them. This bill is much more than just debt agreements that will be made available. Negotiated payment arrangements and civil debt recovery will also be available for debtors, giving them choice to consider a personal insolvency scheme that suits their individual circumstance. It will also benefit the creditors who will no longer need to force bankruptcy on debtors as a collection tool for monies owed. More importantly, people will not be forced into bankruptcy over small debts.

I think it is fair to say that sometimes people make financial decisions without appropriate or proper advice. From time to time financing business ideas or personal purchases seems a good idea at the time but it is not until a person’s finances go pear-shaped that we see them head toward a claim of bankruptcy rather than have a number of options to choose from and, where possible, avoid the bankruptcy altogether. This makes good sense. These impending changes around giving what would be good for the debtor are also good for the creditor.

In October this year, the Insolvency and Trustee Service Australia released its latest data on personal insolvency across the nation for the September 2009 quarter. In relation to bankruptcies, there were 7,329 new claims in the September quarter. This is an increase of 9.62 per cent against the September quarter in the previous year. There was also an increase in total personal insolvency activity of 7.91 per cent against the same period in 2008-09.

To give a more accurate picture, it is worth looking at some annual figures. Figures released by the Insolvency and Trustee Service Australia reveal that in the 2008-09 financial year there were 3,822 business related bankruptcies across Australia and 23,681 non-business bankruptcies. In Tasmania, there were 204 new non-business related bankruptcies in the recent September quarter. ABS statistics show that most of the bankruptcies, particularly in Tasmania, are due to excessive credit card use and/or loss of employment. We all know that, during this global financial crisis, loss of employment is a big issue as more and more people find themselves in that difficult situation. There is an increase in insolvency activity across most states and territories. When you compare the last two financial years, there is an overall increase in total insolvency activity of 11 per cent; bankruptcies in isolation are up around six per cent.

In supporting this bill, I would like to ensure that individuals who experience financial hardship in the future have at least some access to choice, other options, before heading down the insolvency path of bankruptcy. I think that, with figures like these before us, we really do need to do something. To expect that debtors and creditors would be happy with the status quo is simply folly. I think both debtors and creditors would like to see some changes made to the current situation.

As I said, these amendments are an important part of improving the effectiveness of Australia’s credit markets. These changes will modernise Australia’s personal insolvency system, bringing it into the 21st century. The options for debtors will increase along with added protection to ensure they pay only their original debt, without any further penalties or imposts. The amendments will balance the options for debtors as well as those for creditors, who will be provided with a much better return on the debt owed to them. Debtors will no longer be bankrupted by small debts, and creditors will have other options available to them without resorting to bankruptcy as a collection tool. With its combination of protection, increased options and flexibility, I commend this bill to the House.