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Wednesday, 9 February 2005
Page: 28


Senator LUDWIG (11:28 AM) —The two amendments proposed are on sheet 4505, and I will move them separately. I move opposition amendment (1):

(1)    Schedule 1, page 4 (after line 25) after item 6, insert:

6A  After section 121

Insert:

121A  Rebuttable presumptions of insolvency

         (1)    A rebuttable presumption that a person is deemed to be insolvent arises for the purposes of sections 120 and 121 where it is established that the person:

              (a)    has made a transfer of property; and

              (b)    had an outstanding tax return, or outstanding tax returns, at the time the transfer of property was made.

         (2)    A rebuttable presumption that a person is deemed to be insolvent arises for the purposes of sections 120 and 121 where it is established that the person:

              (a)    has made a transfer of property; and

              (b)    has failed to keep adequate books, accounts and records in accordance with section 270.

These matters are not new. They were raised during the hearings of the House of Representatives Standing Committee on Family and Community Affairs when a number of submissions received went to the idea of rebuttable presumption. It seems to be a sensible improvement, and Labor propose that we pick up on the matters that were raised in the submissions and that there be a presumption of insolvency in two circumstances: where the bankrupt has made a transfer of property while they have an outstanding tax return—you can understand the sense of that—and where the bankrupt has made a transfer of property and has failed to keep adequate books, accounts and records in accordance with their obligations. In these cases clearly there have been transfers made when they should not have been made. This is a way of ensuring that legitimate transfers are not caught but that transfers that can be seen to be inappropriate are visited with a rebuttable presumption. That does not mean that it cannot be rebutted, but it certainly means it can be looked at. It would ensure that a person who transfers assets to a third party at a below market value at a time when they were proved to be insolvent could have action taken against them in recovering the assets. That would address the problem of high-income tax debtors abusing the present system. I would invite Senator Humphries to support this. He did indicate during the second reading stage that he would look at improvements that would catch high-income earners if Labor could come up with one. I invite him to support the amendment.

This amendment effectively shifts the onus onto the very people whose actions are in question to ensure that their records are accurate and that their obligations to the Australian tax office are fulfilled, particularly when they have failed to do so and there is a presumption of insolvency against them. What flows from that presumption will bring the focus of the law on them. Labor’s amendment reduces the evidentiary burden on the trustee so that a bankrupt cannot rely on the absence of proper records to avoid scrutiny of particular asset transfers. Sometimes when businesses are starting to fail, their records might not be attended to and proper accounting procedures may not be followed. The failure could be deliberate or accidental—we do not know what is in people’s minds when they start to go down that slope. We tried to look at this in a pragmatic way and say that in this instance the presumption should flow to a person. It is rebuttable, which means that people can explain to the authorities in a sensible way what happened and the problem they had. It may have been one of the reasons outlined in the amendment—for example, the books may not have been adequately kept—and people get an opportunity to explain why that was the case. There could have been a flood, a fire or some other reasonable excuse, or it could have been sloppiness, which is inexcusable. In some instances, which I would hope not to see, people may have deliberately tried to hide or destroy records to avoid proper scrutiny.

There is a terrible onus on the trustee in all of this. At some point when we start to go down this track where a business is failing, the trustee has to make sure that their duties are discharged and that the act’s duties are discharged by the person themselves. We are trying to ensure the interests of creditors—those people who have put money into the business in some way—and those who owe the business money, to ensure that the market works in an appropriate way. It is important to ensure that the process is transparent and open and that parties cannot hide behind legislation in efforts to avoid proper process. The amendment tackles the operational problems in recovering assets from third parties under sections 120 and 121 of the Bankruptcy Act. As I have said, Labor’s amendment is consistent with what was suggested in several submissions to the House. It is a basic principle of law that the evidentiary processes are dealt with fairly. Rebuttable presumption is not a new concept. It certainly appears in the law in other areas. It is not breaking new ground. I would like the government to indicate that they are in a position to support this amendment, which goes to assisting the process and to ensuring proper scrutiny, and accept that it is an important additional step that could and should be taken in addressing the problems that it seeks to resolve.

We know that these proposals will tighten some of the loopholes. One of the disappointing things in this is that some years ago when I first started the process of trying to identify the high-flying barristers involved with this—and I think that Senator Murray also was part of that process—I recognised that it is ultimately the taxman who was missing out. But when you spread the load, there were also creditors and others getting caught in the overall process where people were coming up with quite inventive shams and schemes to try to avoid paying creditors and the taxman what was due. As far as we could determine there were only small elements, although you do not know how broadly it sometimes stretches, but they were certainly expensive small elements who were not missing out on their share of the pie. That then creates equity problems between those people who could not share in such schemes and those who were benefiting quite unfairly from them.

This is one scheme, unlike some others which are very difficult to deal with, where if the government had been decisive many years ago and had sought to attack the problem once it was recognised it would not have continued to where we are now. Four years later we are looking at still more reviews to address the problem, even after this package of legislation. I think there have been two or three packages of legislation to try to address the problems that surround bankruptcy more generally but, in particular, the problems that were really exposed in the report.

Of course, a lot of the information about that has not been made public and we have not been able to assess fully the breadth and strength of it. Hopefully the next report will go some way to identifying some of these practices and will be public, or at least the submissions could be made public. I can advise the department that it should be aware that during the estimates process I will be seeking that those submissions and the findings of any review that is currently dealt with be made public when the report is completed, in an effort to try and put a bow around this and, in the end, try to find a point where we can at least say we have been able to identify all those practices that are now going on, address them, fix the problem and move on, because it seems to me we have not be able to do that at this point.