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Thursday, 26 November 2009
Page: 13199

Ms LIVERMORE (4:52 PM) —I also rise to support the Bankruptcy Legislation Amendment Bill 2009. The amendments before the House today are intended to modernise Australia’s personal solvency system. They will make the system more responsive to the needs of people experiencing financial distress and will improve the efficiency of the scheme. These amendments are the result of consultation with stakeholders who administer the bankruptcy system, those who advise people in financial trouble and those who need to use the laws, either as creditors or as debtors. Submissions on the legislation were received from across the board and talked about the changes to people’s circumstances, to the nature and scale of consumer credit and to the way that bankruptcy laws and other mechanisms like debt agreements are being used. These amendments largely reflect those changes.

It makes sense for us to make these changes to the bankruptcy laws at this time. The last financial year, 2008-09, saw the largest ever number of personal insolvency cases, including an 11 per cent jump in bankruptcies. Over 36,000 insolvency cases were administered, and the vast majority of these were consumer debts rather than business bankruptcies. The government was very conscious from the start of the global financial crisis and the subsequent global recession of the impact the downturn would have on individuals and households carrying debt at a time of increasing unemployment. As well as introducing substantial stimulus measures into the economy to boost economic activity and protect jobs in communities right around Australia, the government has increased funding for programs to assist those who find themselves in financial difficulty.

Last year we doubled funding for the Commonwealth Financial Counselling program and in April this year the Minister for Families, Housing, Community Services and Indigenous Affairs announced a further $1.75 million to rapidly train 50 new financial counsellors. This is in addition to doubling the money in the emergency relief program. Emergency relief funding is given to local organisations to allocate to people who need support to address their immediate needs in times of crisis. Assistance includes food and clothing, transport vouchers, and help with accommodation.

The scale and speed of the downturn that hit our economy over the last year revealed how financially stretched many Australians have become, and this is demonstrated in those record insolvency figures of June 2009. As many people learned during the past year, financial failures are not often seen coming and when they hit there can often be a snowball effect which quickly overwhelms people. We have seen huge growth in the availability of consumer credit, and often people’s financial literacy and capacity to pay has not kept pace with the amount of debt they have assumed. Credit that starts out as the answer to a financial problem can very quickly become the problem itself. Personal debt can consume an enormous amount of money and can create a huge amount of stress for an individual and their family, often leading to the failure of relationships.

Bankruptcy is a very genuine option when debt rises above the capacity to pay it off and people find that they can barely keep up with payments, bills, expenses and the money needed for day-to-day living. When financial commitments are putting individuals further and further into debt, bankruptcy may seem the only outcome, but it is important that people know exactly what it is they are getting into before they go down the road of bankruptcy. Bankruptcy allows legal protection from creditors during the time frame between a financial problem and having an organised answer to obligations. Lenders, banks and financial institutions who have extended money or credit should be repaid. When this is impossible, however, bankruptcy does allow people to pay those creditors back to the best of their ability. The bankruptcy laws set out to achieve a balance between allowing debtors to make fair and reasonable efforts to repay their debts and then make a clean start and providing a means by which creditors can enforce the obligations owed to them.

There are a number of amendments and changes in this legislation. This bill caught my eye when it came through the caucus room a few weeks ago because of the experience of a constituent who came to see me last year. He had gone into bankruptcy but had a stock of assets that he could use to extinguish the debts. He was shocked, however, when he found out how much extra on top of the original debt would be taken out of the returns from those assets once the trustee’s fees were taken into account. So I was pleased to see that, among other things, this bill will provide for a more accessible and streamlined process for debtors who wish to challenge a trustee’s remuneration claim. This is important for debtors, particularly to avoid the type of situation my constituent faced where the fees appeared to be out of proportion to the size of the debt and ended up having quite punitive consequences.

There are changes too that will result in a more streamlined and transparent process for setting and reviewing trustee remuneration. The amendments reinforce the principal that creditors have oversight of a trustee’s administration of a bankrupt estate and should be required to approve claims for remuneration. This ensures creditors who are the beneficiaries can be satisfied that the remuneration is reasonable and reflects the value added to the estate by the trustee’s work. Notwithstanding that, however, it is important for the system to be efficient. These amendments therefore include a streamlined process to allow trustees to claim a basic amount of remuneration, up to $5,000, which reasonably reflects the essential tasks that every trustee must undertake. A trustee will not need creditor approval for claims up to that amount. Whether it is initiated by the creditor or the debtor, the review process to assess a disputed claim for trustees’ fees, overseen by the Inspector-General in Bankruptcy, will be free to the applicant.

Another important amendment contained in this bill is the increase in the minimum debt that must be owed before a creditor’s petition to commence bankruptcy proceedings can be filed. Currently a creditor can petition for bankruptcy in circumstances where they are owed $2,000. The amendments before the House will increase that amount to $10,000. The government has not made this change lightly as we recognise the needs of small businesses in particular to have the means to recover money owing to them. Nonetheless, we believe that this part of the legislation, which has not been changed since 1996, needs to better reflect the current environment. For one thing, levels of personal debt are much higher than they were in 1996 and in recent years the number of bankruptcy cases involving debts for less than $10,000 has been small.

This change reinforces the government’s view that bankruptcy proceedings should be used as a last resort. Bankruptcy should not become a regular means of debt collection for relatively small debts. It is an expensive process and there are more cost-effective options that creditors can use before resorting to bankruptcy with its costs and far-reaching consequences for the debtor. Going down the bankruptcy path to recover a debt of less than $10,000 risks the situation where the trustee’s fees are as high as the amount of the debt.

A number of submissions on the exposure draft of the bill referred to creditors using bankruptcy inappropriately to enforce small debts. The Financial and Consumer Rights Council gave the example of a client who owed a relatively small amount for an internet bill. A creditor’s petition was filed against her and the bankruptcy proceedings added $20,000 in trustee’s fees to the debt owed. The submissions also pointed out the other options available to creditors, usually at a much lower cost than bankruptcy proceedings. Options such as civil debt recovery, negotiated payment arrangements and garnishing income and assets are available to creditors at a lower cost than bankruptcy proceedings.

Just as the government wants to encourage creditors to think through their options and the best course of action for them in enforcing their debt, so too do we want people in financial distress to think carefully about their options when it comes to dealing with their debts. That is why this bill proposes to increase the stay period that follows a declaration of intent to file a debtor’s petition, to allow debtors to better assess their options. Currently, a debtor can give the official receiver a declaration of intent to file a debtor’s petition and, once received, creditors cannot take any action to recover debts for a stay period of seven days. This bill increases the stay period for declarations of intent to file, from seven to 28 days. A seven-day stay does not give a debtor enough time to assess their options. A longer stay period increases the likelihood of the debtor obtaining proper advice and information about all of the options and, if possible, avoiding bankruptcy by using a debt agreement or other arrangement.

The amendment will also require the official receiver to notify creditors of the filing of the declaration. This gives creditors the opportunity to be proactive in coming forward with other options for the debtor to avoid bankruptcy. To help in this process, the debtor will now be required to lodge, with their declaration of intent to file, a statement of affairs. The requirement for the debtor to lodge a statement of affairs at that time will protect creditors by ensuring that the debtor does not dissipate assets during the stay period.

I note that in some of the submissions provided during the consultation on this bill concerns were raised about this point. Those who advise debtors were concerned that the requirement to lodge a statement of affairs might undermine the purpose of the extended stay period. Instead of encouraging the debtor to calmly and carefully think through all of the options, they would be frightened off when faced with the onerous exercise of completing the statement of affairs needed in order to give effect to the stay period. However, this is answered in the explanatory memorandum to the bill, which states that the statement of affairs required to accompany a declaration of intent to file a debtor’s petition will be simpler than that required for bankruptcy.

These changes are designed to help creditors use the bankruptcy system to more effectively and efficiently recover their debts and to help people manage the situations they find themselves in when things go wrong so they can pay their debts as best they can whilst seeing some way to get back on their feet. The CQ Financial Counselling Service, based in Rockhampton, is at the frontline of helping people in financial distress, and it does a great job. The counsellors at the service have been assisting people in the Central Queensland region since 1991. The CQ Financial Counselling Service is funded under the Department of Families, Housing, Community Services and Indigenous Affairs through the Commonwealth Financial Counselling Program, and I am pleased to say that the service benefited from the increased funding in last year’s budget. That was just in time to meet the increased demand brought on by the economic downturn.

The Commonwealth Financial Counselling Program, which funds the CQ Financial Counselling Service, is particularly focused on low-income groups. It funds incorporated non-profit community based organisations to provide free financial counselling services to people who are experiencing financial difficulties due to circumstances such as unemployment, sickness, credit overcommitment and family breakdown. It is great to have the CQ Financial Counselling Service operating in my electorate as a place where constituents can go to get the advice that they need in these very difficult times.

CQ Financial Counselling Service assists people who are experiencing personal financial difficulties for many reasons. A counsellor there gave me a rundown on the main reasons why people come to see them. For example, if someone has a loan, mortgage or credit card and is having difficulty maintaining repayments, CQ Financial Counselling Service can assist in negotiating with creditors to reach an acceptable agreement. Where a person feels overwhelmed by a personal financial problem and would like help to communicate effectively with the government or non-government organisations, CQ Financial Counselling Service can advocate on their behalf. If someone cannot pay an outstanding bill, CQ Financial Counselling Service can help them with their options and explain what they can do. Where a person has received a letter of demand, a summons, a warrant of execution or a judgment summons and is not sure what to do next, the counsellors can explain the debt recovery process and assist them to take the appropriate course of action. If someone is having difficulty in making ends meet, the counsellors can assist them to develop a budgeting plan to suit their circumstances and help them gain financial management skills that will enable them to take control of their lives. The service can also give information on bankruptcy and assist people to explore alternatives.

During the first quarter of this financial year, from July to September 2009, the service has assisted 220 clients. There has been an increase in the number of people requiring financial counselling since July 2009. Of that 220, 74 sought information about personal solvency. Even though the service is funded to cover the Fitzroy statistical region, which is big enough in itself, they in fact extend far beyond this area and have been fielding calls from Capella, Barcaldine, Longreach, Mount Isa, Tambo, Alpha and even Perth. There is a wide cross-section of people seeking assistance, and in recent times there has been a noticeable increase in the number of clients in the high-income brackets, mainly from the mining sector. Also, there has been an increase in the number of people with proprietary limited companies who have given personal guarantees, as well as an increase in the number of sole traders who are having to petition for bankruptcy.

People take up the option of bankruptcy for many reasons, but the major one listed by CQ Financial Counselling Service is relief from the constant contact with debt collectors. Financial counsellors have experienced difficulty in dealing with debt collectors, they tell me, as they invariably take a hard-line attitude and refuse to negotiate affordable repayment plans. The counsellors at CQ Financial Counselling Service do a terrific job. I really do not know what we would do without them in Central Queensland. They have been operating since 1991 and they really are the place to go when people find themselves in difficulty. I hope this legislation gives the service more to work with to assist their clients. The amendments we are debating today have been well thought through. They respond to the changes in the financial environment over the last few years. A lot of consultation has gone into these amendments, and I think they make sensible and balanced changes to our bankruptcy legislation.