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Thursday, 26 November 2009
Page: 13205


Mr NEUMANN (5:18 PM) —I rise to speak in support of the Bankruptcy Legislation Amendment Bill 2009. I encourage anyone who may be listening to this debate to go online to the Insolvency and Trustee Service Australia site and look at the statistics. They show an increase in the number of administrations, the number of debt agreements and the number of bankruptcies. It is quite clear that the Australian public has suffered during the global financial crisis. It is quite clear that individuals and individual households across the whole of Australia have suffered. Certainly the people in my electorate have suffered.

A number of financial counsellors in my electorate—and I pay tribute to so many of them, including the lawyers and accountants who act on the front line when it comes to personal insolvency and advice on financial matters—will tell you, as they have told me, that people are under stress and often feel that they are under duress when it comes to the question of their financial positions. They are finding it tough to pay for food and clothing, to meet their children’s social and recreational needs, to ensure that their children are adequately educated and not just that there is enough food on the table but that they have proper, decent and adequate accommodation.

That is the stark reality when it comes to people who are facing financial insolvency. In my many years practising as a lawyer I had many people come and see me about the fact that they were in trouble, whether it was trouble with a business arrangement or whether they were subject to financial stress as a result of a marriage breakdown or whether they had sustained an injury in a motor vehicle accident. They told me they were under stress and they could not take it any longer. I advised them of the implications of those types of matters from a legal point of view but advised them to seek counsel from an accountant or a financial counsellor on the best way to arrange their financial affairs. It is not just the stigma; it is forever feeling a failure. It is the fact that they feel they cannot achieve what they wanted to in life. It affects their esteem, their reputation and their confidence. It also affects their families and their children. Bankruptcy is the human face of tragedy. It is the feeling of failure, the feeling of letting yourself down and letting your family down. That is the human consequence of financial trouble and travails.

We are dealing with complicated law. The Bankruptcy Act reminds me of the Income Tax Assessment Act in its complexity: things like voidable preferences, relation back periods, debtors’ petitions, creditors’ petitions and acts of bankruptcy—complicated legal terms which have implications for people’s very existence. If you are in business and you have taken a punt and set up a newsagency or a fish and chip shop, or you have a good idea and you want to go into small business, you are to be commended, but there is a real risk you could be in financial trouble in the future. Sadly, even though we have four million people employed in small business, working as entrepreneurs or as employees in small businesses, many of the 1.9 million small business operators in this country fail, often in the first year. Approximately one-third of people fail in business. Anyone who takes on a small business is to be commended, but it is a risk not just to yourself but to your personal assets and to your family’s future.

This legislation is about improving the Bankruptcy Act and our bankruptcy system. There must be a balance between helping people who need assistance in this very difficult time and helping businesses that, when faced with the circumstance of a debtor having failed to pay their debt, have legal options. There are many legal options, and this bill includes other options such as garnishing wages or pursuing civil litigation rather than going the route of bankruptcy. Sadly, sometimes issuing a creditors’ petition of bankruptcy after issuing a bankruptcy notice is the only way forward for a company or a business to get back the money which is owed in the circumstances. There are changes in the law as a result of this legislation, and I am happy to go through those.

Issuing a bankruptcy notice is a serious thing. Certainly when I was in practice I took it seriously when someone asked me to issue a bankruptcy notice. For there to be a bankruptcy, there must be an act of bankruptcy, and a failure to comply with a bankruptcy notice is considered an act of bankruptcy. The creditor can then make an application for a creditor’s petition and the bankruptcy notice must be based on the final judgment or order of at least $2,000 which is less than six years old. We are changing the law here to up that to $10,000 in the circumstances, and I think that is sensible and appropriate. The facts that have been given to me by the Attorney-General’s Department show that we are talking about fewer than 400 sequestration orders for less than $10,000 in the year 2008-09. So we are talking not about thousands and thousands of applications for bankruptcy orders but about hundreds. We need a balance to be struck. The provision set back in 1996 was $2,000. It has not been updated since that time, but we all know that inflation has operated since that time upon the value of the dollar. A person’s wages and the value of money back in those days was different from that which it is today, so updating to $10,000 is reasonable in the circumstances. I note that a number of the stakeholders have made comment about that.

There is support in general terms from the Law Council of Australia for this legislation. Subject to a couple of qualifications, the Law Council of Australia does endorse the amendments to the Bankruptcy Act contained in this bill. The Business Law Section of the Law Council of Australia said that it was appropriate to do so, making the comment that the reform of the trustee remuneration procedures are long overdue and are welcomed by the committee. The Law Council of Australia has advocated the offence changes in this legislation for a long time and commends the government for them. The offence changes are ‘long overdue for review and revision of the penalties attached’, as the Law Council of Australia indicates in its letter of 30 September 2009. The 28-day moratorium prior to an act of bankruptcy is also supported by the Law Council of Australia, but it does not support an increase from $2,000 to $10,000. I am a bit mystified about why the Law Council of Australia failed to support that. I thought that particular provision and amendment was fair in the circumstances. The Insolvency Practitioners Association of Australia also supports many of the changes in this legislation to make sure there is a more streamlined procedure for fixing trustee remuneration and a more transparent process, as the Attorney-General made reference to.

I am comforted by the fact that so many of the stakeholders are in support of what we are doing. Extension of the seven-day moratorium under section 54A to 28 days was commented upon by the IPA, because the law should provide opportunities for debtors to fully consider the options available to them before they proceed to bankruptcy. As I said before, going into bankruptcy is a dreadful decision. It is something that everyone should consider carefully before having the stigma of your name being placed on the National Personal Insolvency Index. It is there for all to see. It is a public record. It contains creditors’ petitions, debtors’ agreements, personal insolvency agreements and bankruptcy notices. Your name, date of birth, previous names and aliases, the types of proceedings and the names and business addresses of the trustee and administrator are all there for the public to see. It is a terrible thing for the public to see those records, which have been kept in that database since the late 1920s. We should do all we can to ensure that people do not go down that road. Extending the period from seven to 28 days in the moratorium provides a time for mature reflection in all the circumstances. I think the increase in the $2,000 to $10,000 as the minimum amount for a creditor’s petition is a sensible reform, as I have said.

There are other changes in this legislation which will have an impact by improving the efficacy and the cost-effectiveness of recovery, reducing the stigma of bankruptcy and striking that balance. The exposure draft was available for many people to respond to, and they did. I mentioned a couple of organisations which responded. I think the extension of the stay period so the person can consult financial counsellors is a good thing. The extension of time to negotiate with creditors is also a worthy thing. A debt agreement is far preferable to a creditor’s petition, or indeed even a debtor’s petition, being issued. A debt agreement gives a person the option to manage their debt. Arrangements can be undertaken through, for instance, a weekly or monthly method whereby payment can be effected and it does have the impact of stopping the person going bankrupt. They are not bankrupt—they do not have the stigma, the opprobrium, the ignominy and the shame of bankruptcy. They are released from unsecured debtors when they complete their obligations. It means that creditors cannot take action against them or their property. In the circumstances, negotiating with creditors is a better thing.

The sad thing about a debt agreement, which I think we should look at in the future, is that when someone enters into a debt agreement they do commit an act of bankruptcy. That means that if, for example, the proposal is not accepted by creditors a creditor can make application to the court to make the person bankrupt. So it is a pretty dangerous path to go down. It is not mentioned in this legislation, but it is an area of law reform we could look at in the future because I think there may be some benefit to us changing the law in that regard. It certainly would strike the balance more in favour of a debtor than a creditor and I think it is worthy of consideration.

Debt agreements are binding agreements between a debtor and a creditor or creditors and can agree on a sum of money. In my experience, it does result in a better outcome for creditors and in a reduction in the fees that could be expected to be charged by a trustee. Trustees are entitled to their fair pay for the work they undertake, but, like liquidators when it comes to companies, trustees in bankruptcies seem to get their pound of flesh, in my experience and observation. They make sure that they get paid first, of course, and creditors have to take that into consideration and account when they pursue bankruptcy.

It is important that we benefit small business in the reforms we undertake. Tony Axford and many of the people working in the Ipswich Business Enterprise Centre in my electorate help small business to avoid going into bankruptcy through mentoring, monitoring, advice on loan applications and credit and advice generally on how to set up a business, what the GST is, what a profit and loss statement is and what it means to have a balance sheet—all this kind of advice is very important for small business. I commend the Ipswich Business Enterprise Centre in my electorate because they go around not just to Ipswich but to surrounding rural areas to give small business and householders this type of advice, to avoid and prevent, if at all possible, bankruptcies increasing in the Ipswich and West Moreton area. I thank Tony for his work and commend him on the fact that he and his centre have been nominated for an award. I hope they do well and they continue to prosper. I commend the Rudd government and the Minister for Small Business, Independent Contractors and the Service Economy, the member for Rankin, for the election commitment of $300,000 across four years for that centre. It has made a big difference locally to business in my community and it is a good way to minimise the impact of the global financial crisis and the number of bankruptcies and debt agreements which are undertaken in my local area and my constituency of Blair in South-East Queensland.

In conclusion, we are modernising the insolvency system. We are hoping that fewer and fewer Australians will have to acquaint themselves with complicated legal terms like ‘relation back’, ‘voidable preferences’, ‘debtors petitions’, ‘bankruptcy notices’ and terms of that nature. I hope that they are not in the lexicon of the Australian public in the suburbs and the rural communities in my electorate. I hope that more and more people can avoid going into bankruptcy and that if they are faced with these challenges they will look to advice from lawyers, accountants, financial counsellors and great organisations like Lifeline in Ipswich, who have been tremendous in the way they have helped.

But I also want to finish up by commending one particular organisation in my electorate which has gone a long way in assisting people who are faced with the kinds of challenges we are dealing with, the human face of this sort of legislation, this amendment bill—and that is Harvest Rain. The Rivers of Life church and Pastor Fred Muys have done a tremendous job delivering hundreds of food parcels to struggling families in the Ipswich area. They have helped many people who have been suffering from personal insolvency, many people who have suffered the tragedy of loss of job, loss of accommodation and not being able to feed their families. That is the coalface of these challenges, and I want to thank very much the government for the legislation here, which will improve the lot of the people in my community and the people in the rural areas outside of Ipswich as well. I commend the legislation to the House.