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Bankruptcy Legislation Amendment Bill 2010

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2008-2009-2010

 

 

 

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

 

 

SENATE

 

 

 

 

BANKRUPTCY LEGISLATION AMENDMENT BILL 2009

 

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

 

Amendments to be Moved on Behalf of the Government

 

 

 

(Circulated by authority of the Attorney-General,

the Honourable Robert McClelland MP)

 

 

 

 

 

 

 

 

GENERAL OUTLINE

 

The Bankruptcy Legislation Amendment Bill 2009 (the Bill) was passed in the House of Representatives on 30 November 2009.  The principal purpose of the amendments contained in the Bill is to modernise the national personal insolvency system and to make it more efficient. 

 

The proposed Government amendments to the Bill would:

·          provide for an increase in the minimum amounts for creditor petitions and bankruptcy notices from $2,000 to $5,000 ( the Bill currently provides for the minimum amounts to increase to $10,000);

·          remove the proposed increases in the after-tax income, assets and debt thresholds for debt agreements that are currently contained in the Bill; and

·          provide for an increase in the stay period for a declaration of intent to file from seven days to 21 days (the Bill currently provides for an increase in the stay period to 28 days). 

 

Thresholds for creditor petitions and bankruptcy notices

 

The Bill provides for an increase in the minimum amounts for bankruptcy notices and creditor petitions from $2,000 to $10,000.  If a debtor is unable to pay a creditor, or has refused to pay, the creditor may choose to initiate proceedings to bankrupt the debtor.  The creditor’s petition will seek the “sequestration” of the debtor’s estate, which will cause bankruptcy to commence if the court makes a sequestration order.  In practice the first step is usually the issuing of a bankruptcy notice which provides the debtor with a final chance to pay.  Failure to comply is an act of bankruptcy which a creditor can use to file a creditor’s petition. 

 

During consultation on the Bill, some stakeholders expressed concern that the proposed increase in the minimum amount for creditor petitions would allow unscrupulous debtors to run up debts of less than $10,000 with multiple creditors.  However, there was general agreement among stakeholders that an increase in the minimum amount was warranted, as it was last increased in 1996 and had not kept pace with the increase in the value of money.  In order to address stakeholder concerns, the Government amendments would provide for an increase in the minimum amounts for creditor petitions and bankruptcy notices to $5,000 (rather than $10,000). 

 

Thresholds for income, assets and debt thresholds for debt agreements

 

The Bill provides for an increase in the after-tax income, assets and debt thresholds for debt agreements.  Debt agreements are a type of voluntary arrangement between a debtor and his or her creditors.  In order to be eligible to propose a debt agreement, a debtor has to have after-tax income, assets and debt below the statutory thresholds.  Following consultations with stakeholders the Government has decided to put aside any increases in the thresholds for debt agreements until the 2010 review of debt agreements is completed.  Hence the Government amendments delete the proposed increases in the after-tax income, assets and debt thresholds for debt agreements.

 



Increase in the stay period for declarations of intent to file

 

The Bill provides for an increase in the stay period for declarations of intent to file from seven days to 28 days.  When a debtor files a declaration of intent to file, creditors are barred from taking any action to collect debts during the stay period.  The stay period gives debtors an opportunity to consider their options and to negotiate with their creditors.  Increasing the stay period would provide debtors with a more realistic opportunity to properly assess their options.  Some stakeholders have expressed concern that an increase in the stay period to 28 days would be excessive and that such an increase may prejudice the rights and interests of creditors.  In order to address these concerns, the Government amendments would provide for an increase in the stay period to 21 days for declarations of intent to file (as opposed to 28 days). 

 

FINANCIAL IMPACT

 

There is no direct financial impact on Government revenue arising from these amendments. 



NOTES ON AMENDMENTS

 

Amendment 1

1.                   This amendment would amend item 1 of Schedule 4 of the Bill to provide for an increase in the minimum amount for bankruptcy notices to $5,000. 

Amendment 2

2.                   This amendment would amend item 2 of Schedule 4 of the Bill to provide for an increase in the minimum amount for creditor petitions to $5,000. 

Amendment 3

3.                   This amendment would amend item 3 of Schedule 4 of the Bill to provide for an increase in the minimum amount for creditor petitions filed against deceased estates to $5,000. 

Amendment 4

4.                   This amendment would amend item 5 of Schedule 4 of the Bill to provide for an increase in the stay period to 21 days for declarations of intent to file. 

Amendment 5

5.                   This amendment would delete item 11 of Schedule 4 of the Bill.  Item 11 of Schedule 4 of the Bill provides for a 20% increase in the after-tax income, assets and debt thresholds for debt agreements. 

Amendment 6

6.                   This amendment would delete “(1)” from line 2 of Schedule 4, item 13, as item 13 will no longer have multiple subitems due to the effect of amendment 7 below.

Amendment 7

7.                   This amendment would delete subitem 2 of item 13 of Schedule 4 of the Bill, as it is an application provision for item 11 of Schedule 4 of the Bill (amendment 5 above would delete item 11 of Schedule 4 of the Bill).