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Wednesday, 27 March 1985
Page: 859

Senator GARETH EVANS (Minister for Resources and Energy)(10.47) —in reply-I am grateful for the general support this measure has received from both the Opposition and the Australian Democrats subject, of course, in the case of the Opposition, to its continuing nostalgic affection for the changes to the legislation wrought by the Fraser Government's razor gang, which the Opposition wants to maintain in place. It would seem that the relative roles of the Official Receiver and private trustees in the administration of bankruptcies are the only issues in the legislation which have attracted comment in the debate from Senator Durack and Senator Haines. Accordingly, I will confine my remarks in reply to those issues.

The situation can be summarised briefly as follows: Before 1981, the Official Receiver was responsible by statute for the investigation and initial administration of all bankruptcies. The thrust of the razor gang's changes, which were implemented in legislation in 1981, was to require the appointment of a private trustee, a registered trustee, wherever the divisible assets exceeded $10,000 in value. This was done by requiring a petitioning debtor-that is, someone seeking to make himself bankrupt-or a petitioning creditor-that is, someone seeking to make someone else bankrupt-to file the consent of a registered trustee along with the petition. The initial proposal of the Government, which was introduced by me last year, was simply to remove that and restore the pre-1981 status quo. The present legislation comes forward in not an absolute reversal of the 1981 legislation but rather a modification of it.

The effect of the proposal now before the chamber is to make the filing of such a consent optional rather than mandatory. The option will be exercised by the petitioner, whether petitioning creditor or petitioning debtor. It will remain possible for the creditors to meet together and pass a resolution appointing a registered trustee as trustee of the state pursuant to section 157 of the Bankruptcy Act. The reversal of the Review of Commonwealth Functions decision will not, therefore, preclude registered trustees from playing a significant role under the Act. However, what it will do, in conjunction with the other provisions before us, is ensure that the involvement of registered trustees is coupled with proper safeguards and checks. Senator Haines outlined in more detail the way in which this optional reference system will operate. It is necessary, in the light of what Senator Durack said, to explain fully for the record what has motivated the Government to change the razor gang, or RCF, decision. It is necessary to explain why the system introduced by the Fraser Government has not been working and why it needs to be fairly substantially overhauled.

The RCF decision was conceived in undue haste. It resulted in some 20 per cent of new estates being administered by private trustees without any measures being introduced to ensure the proper supervision of the work of these trustees. For example, at the time of the reversal, the vast majority of registered trustees had no experience at all in the administration of bankruptcies. A handful of trustees, mainly in Sydney and Melbourne, had experience in administering bankruptcies, but elsewhere there was a total absence of experienced trustees. Despite this, no measures were introduced to ensure that bankruptcies were handled only by those who knew the ropes. As a result, a number of people registered as trustees, but with no experience of bankruptcies, have been guilty of misconduct in their administrations.

Let me give some specific illustrations of matters that have been before the courts where misconduct has been squarely determined. On 6 July last year, in the Federal Court of Australia, Mr Justice Beaumont ordered that the registration of David Geoffrey Bradley as trustee be cancelled pursuant to sub-section 155 (5) of the Act. On 2 May 1983 Richard McDonald Chinner, a trustee, presented a petition against himself. On 23 May that year the Federal Court made an order cancelling his registration as a trustee. There were very substantial defalcations and unauthorised payments in the administrations being handled by Chinner at the date of his bankruptcy. On 20 June last year, Mr Justice Sheppard of the Federal Court ordered that the registration of John Ramsay Paul Partridge be cancelled at his own request. This order was made following the commencement of proceedings by the Registrar in Bankruptcy under section 179 of the Act, seeking an inquiry into the conduct of the trustee and an order cancelling his registration.

Then again, on 7 August 1984, Bernard Putnin, a registered trustee, was remanded to the October sittings of the District Court of Western Australia. Putnin has been charged as a result of his conduct in apparently acting as a financial adviser for a debtor, and assisting him in establishing trusts to put his assets out of the reach of his creditors, and as his trustee of his subsequent deed of assignment under Part X of the Act. The hearing of these charges is listed for later this year. On 5 March 1985 the registration of Brian Malcolm Dunlop was cancelled by order of the court. Mr Dunlop had been made bankrupt on 5 February 1985 when a sequestration order was made against his estate.

There are other individual instances of that kind that one could mention and a number of instances, as I have already mentioned, involving a great many administrations-not just a handful of them-under the Bankruptcy Act being conducted by the persons in question. One other case deserves specific mention, even though it is the subject of a creditor's petition which is before the courts now, and as such should not be the subject of specific reference as to the identities of the persons concerned. It is the case that one of the busiest trustees in Sydney, responsible for some 200 administrations currently under the Bankruptcy Act, is the subject at the moment of a creditor's petition which is based on a debt arising from the trustee's mishandling of an administration under the Bankruptcy Act. That state of affairs was commented upon adversely when the judgment debt was obtained in the Supreme Court of New South Wales last year, with the judge in question referring to the conduct of the trustee and concluding that he was not a credible person.

I could go on and on, but I think I have indicated enough instances-I appreciate that individual instances may be just that-and there is a sufficiently widespread pattern of the kind of conduct to which I have referred to have given rise to very grave concern on the part of the Government about the way the system was operating, which we believe justified the measures that we have taken. It is the case-I can document it now-that since the implementation of the 1981 decision registered trustees, generally speaking, have displayed a pronounced disinclination to take seriously the investigative and reporting duties placed upon a trustee in bankruptcy. I made that statement last year. I now back it up by saying that a survey has been taken of estates in which it could be expected that substantive action would have been taken. This revealed that, in the period from 2 November 1981 to 31 May 1983, the Official Trustee conducted public examinations in 19.3 per cent of such estates administered by it; registered trustees held examinations in 5 per cent of the estates administered by them. Also, the Official Trustee filed reports under paragraph 19 (1) (c) of the Act in 24 per cent of such administrations; the corresponding figure for registered trustees was just 3.9 per cent.

These figures reveal that one result of the RCF decision has been, whether or not one likes it or can live with it, a double standard in the administration of bankruptcies. Estates administered by registered trustees have been subjected to far less vigorous investigation than estates administered by the Official Trustee. Of course, there will be lots of individual exceptions to that generalisation, but as a general proposition it holds good. The figures that I have put on the record demonstrate that fact unequivocally.

The Government's decision, let me finally say, to modify the RCF decision of 1981 does not indicate that the Government is opposed to a significant role in the administration of bankruptcies for registered trustees. We simply believe that the method of implementing the RCF decision was misconceived. We shall seek other more satisfactory ways of increasing the role of registered trustees, while avoiding the pitfalls of the original Fraser razor gang decision. It is expected that the Australian Law Reform Commission will report on this, among other things, pursuant to its general reference on insolvency. An issues paper in respect of that report has recently been issued by the relevant commissioner. This legislation is overdue and thoroughly justified by the situation that has existed on the ground. I commend it to the Senate. (Quorum formed)

Question resolved in the affirmative.

Bill read a second time.