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Bankruptcy and Family Law Legislation Amendment Bill 2005

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2004

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

SENATE

 

 

 

 

 

BANKRUPTCY AND FAMILY LAW LEGISLATION AMENDMENT BILL 2004

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

(Circulated by authority of the Attorney-General,

the Honourable Philip Ruddock MP)

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Readers’ Guide

 

This Explanatory Memorandum is divided into three main sections: a general outline of the main provisions of the Bankruptcy and Family Law Legislation Amendment Bill 2004 (the Bill) (Section 1); a discussion of the main policy objectives the Bill seeks to achieve (Section 2, commencing at page 3); and a detailed discussion of each provision, item by item (Section 3, commencing at page 5).

 

Section 1 - General Outline

 

1.1.          The Bill will make a number of significant changes to the Bankruptcy Act 1966 (the Act) and the Family Law Act 1975 (the Family Law Act).  These changes will implement a number of key recommendations made in the Joint Taskforce Report on the Use of Bankruptcy and Family Law Schemes to Avoid Payment of Tax .

 

2.2.          The objects of this Bill are to:

 

(a)          address longstanding issues concerning the interaction between family law and bankruptcy;

(b)          prevent the misuse of financial agreements as a means of avoiding payment to creditors; and

(c)          provide a more effective means of collecting income contributions from bankrupts who do not receive their income as a salary or wage.

 

3.3.          Schedule 1 contains amendments designed to clarify the interaction between family law and bankruptcy.

 

4.4.          Schedule 2 introduces a new supervised account regime to improve the bankruptcy trustee’s ability to collect assessed income contributions.

 

5.5.          Schedules 3 and 4 contain amendments designed to prevent people using financial agreements under Part VIIIA of the Family Law Act to defeat the claims of creditors.

 

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Financial Impact Statement

 

6.6.          The amendments proposed by this Bill will have no significant financial impact.    

 

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Section 2 - Policy objectives

 

7. 7.         The amendments will address longstanding issues concerning the interaction between bankruptcy and family law which have created uncertainty as to the competing rights of creditors and the non-bankrupt spouse.  The amendments will also improve the ability of bankruptcy trustees to collect income contributions and prevent the use of family law financial agreements as a means of avoiding payment to creditors.

 

8. 8.         The amendments have been developed following the Joint Taskforce Report on the Use of Bankruptcy and Family Law Schemes to Avoid Payment of Tax.  The Taskforce consisted of officers from the Attorney-General’s Department, Insolvency and Trustee Service Australia, the Australian Taxation Office and Treasury.

 

Interaction between family law and bankruptcy

 

9. 9.         There are a number of difficulties which can arise when bankruptcy and family law issues and/or proceedings exist at the same time.  There are inconsistencies between family law and bankruptcy law which create uncertainty for all involved and can cause hardship for either or both creditors and non-bankrupt spouses.

 

10. 10.       From a bankruptcy perspective, trustees can find themselves in an uncertain position when having to resolve or reconcile competing claims.  Creditors unaware of the potential property interest of a non-bankrupt spouse also suffer from a lack of certainty.

 

11. 11.       From a family law perspective, the legal ownership of property does not always reflect the non-financial contribution of the parties to the marriage.  The special interest of the non-bankrupt spouse in the marital property created through both financial and non-financial contributions, which may be recognised by the Family Court in exercising its discretion to alter property interests, is not expressly recognised under the Act.

 

12. 12.       Different outcomes result depending upon the order in which events occur (those events including separation, bankruptcy and distribution of property by the trustee in bankruptcy).

 

13. 13.       The amendments proposed in this Bill will address these issues by clarifying the rights of the bankruptcy trustee and the non-bankrupt spouse.  Generally, the amendments will enable concurrent bankruptcy and family law proceedings to be brought together to ensure all the issues are dealt with at the same time.

 

Collection of income contributions

 

14. 14.       Where a bankrupt is employed and has been assessed as liable to pay contributions from his or her income, the Official Receiver can issue a notice to the employer garnisheeing the bankrupt’s wages to collect the amount assessed.  The Official Receiver can also issue a garnishee notice to a bank or other financial institution to collect contributions.

 

15. 15.       Some bankrupts (including some high-income professionals) are not ‘employed’ as such and do not operate bank accounts in their own names.  The existing contribution collection scheme is not effective in these cases, where the bankrupt chooses not to comply.

 

16. 16.       These deficiencies will be addressed by the supervised account regime to be introduced by this Bill.  The amendments will allow the trustee to have access to all of the bankrupt’s income before it reaches the bankrupt.  This will enable the trustee to use the existing methods for collecting income contributions by ensuring that the bankrupt operates a bank account (into which all income must be deposited) under the trustee’s supervision.

 

Family law financial agreements

 

17. 17.       The Bill also proposes amendments to ensure that a bankrupt cannot use financial agreements under Part VIIIA of the Family Law Act to defeat the claims of creditors.  One amendment will exclude financial agreements from the definition of ‘maintenance agreement’ in the Bankruptcy Act to ensure that trustees can use that Act’s ‘clawback’ provisions to recover property transferred prior to bankruptcy under such an agreement.  A further amendment will introduce a new act of bankruptcy which will occur when a person is rendered insolvent as a result of assets being transferred under a financial agreement. This will mean that the person’s bankruptcy will be taken to have commenced at the time of that transfer which will extend the ‘relation back’ period.  This will allow the trustee to claim property transferred under the agreement as divisible property in the bankrupt’s estate.

 

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Section 3 - Notes on sections and Schedule items

 

Section 1 - Short Title

 

18.18.        The Bankruptcy and Family Law Legislation Amendment Bill 2004 (the Bill) proposes amendments to the Bankruptcy Act 1966 (the Act).  By proposed section 1, when the Bill has been enacted, it will be known as the Bankruptcy and Family Law Legislation Amendment Act 2004

 

Section 2 - Commencement

 

19.19.        In accordance with the table in proposed section 2, proposed sections 1 to 3 and anything in the Bill not elsewhere covered in that table will commence on the day which the Bill receives the Royal Assent.  Proposed Schedule 1 will commence on a single day to be fixed by proclamation.  However, if any of the provisions in Schedule 1 do not commence within the period of 6 months beginning on the day on which the Bill receives the Royal Assent, they commence on the first day after the end of that period.  This delay in commencement will allow for such things as Rules of Court to be developed that are necessary for the operation of a number of provisions of this Schedule.  Proposed Schedule 2 will commence on the day which the Bill receives the Royal Assent.   Proposed Schedules 3 and 4 will commence the 28 th day after the day on which the Bill receives the Royal Assent.   This is to allow time for relevant stakeholders to become aware of the new provisions prior to their commencement.

 

Section 3 - Schedules

 

20.20.        Proposed section 3 is a drafting device to allow all the amendments proposed to be made to be set out in Schedules (each dealing with a different subject area).  The items in the Schedules will amend the Acts referred to and will have effect according to their terms.  Notes on the Schedule items follow.

 



Schedule 1—Amendments relating to the interaction between family law and bankruptcy law

 

Part 1 - Amendments

 

21.21.        Schedule 1 proposes amendments to both the Bankruptcy Act 1966 (the Bankruptcy Act) and the Family Law Act 1975 (the Family Law Act).

 

Bankruptcy Act 1966

 

Item 1: Section 27

 

22.22.        The amendments proposed in this Schedule will give the Family Court additional jurisdiction to deal with bankruptcy matters where those matters run concurrently with matters under the Family Law Act.  Item 1 proposes to amend section 27 to make it clear that the Federal Court and Federal Magistrates Court do not have exclusive jurisdiction in relation to bankruptcy in such cases. 

 

Item 2: After section 34A

 

23.23.        Item 2 proposes to facilitate the trustee’s involvement in Family Court proceedings.  This is to ensure that where bankruptcy and family law matters are running concurrently, they can be dealt with together.  By virtue of proposed new section 35, the Family Court has jurisdiction in bankruptcy in relation to any matter connected with, or arising out of, the bankruptcy of the bankrupt where a party to a marriage is a bankrupt, and the trustee of the bankrupt’s estate is:

(a)     a party to property settlement proceedings in relation to either or both of the parties to the marriage; or

(b)     an applicant under section 79A of the Family Law Act  for the variation or setting aside of an order made under section 79 of that Act in property settlement proceedings in relation to either or both of the parties to the marriage; or

(c)     a party to spousal maintenance proceedings in relation to the maintenance of a party to the marriage.

 

24.24.        Proposed subsection 35(2) provides that subsection 35(1) does not limit the Family Court’s jurisdiction under section 35A.  That section provides for the transfer of bankruptcy proceedings from the Federal Court to the Family Court in certain circumstances.



25.25.        Proposed subsection 35(3) provides that ‘property settlement proceedings’ has the same meaning as in the Family Law Act and that ‘spousal maintenance proceedings’ means proceedings under the Family Law Act with respect to the maintenance of a party to a marriage.

 

Item 3: After section 59

 

26.26.        Item 3 proposes to insert new section 59A.  This proposed new section provides that sections 58 and 59, dealing with the vesting of property upon bankruptcy and in a second or subsequent bankruptcy respectively, have effect subject to an order under Part VIII of the Family Law Act (which deals with property, spousal maintenance and maintenance agreements). 

 

Item 4: Paragraph 116(2)(n) and Item 5: Paragraph 116(2)(p)

 

27.27.        Items 4 and 5 are proposed technical amendments relating to Item 6. 

 

Item 6: At the end of subsection 116(2)

 

28.28.        Item 6 proposes to insert new paragraph 116(2)(q).  The effect of this proposed amendment is that property will not be divisible amongst creditors of the bankrupt where the trustee is required to transfer such property to the spouse of the bankrupt under an order under Part VIII of the Family Law Act. 

 

Item 7: At the end of section 140

 

29.29.        Item 7 proposes to insert new subsection 140(11).  By virtue of this proposed amendment, the declaration and distribution of dividends will be subject to any interlocutory injunction under section 114 of the Family Law Act (refer item 59).

 

Item 8: At the end of section 161

 

30.30.        Item 8 inserts new subsections (3) and (4) in section 161, to deal with the impact on proceedings under the Family Law Act where a trustee who is party to those proceedings ceases to be the trustee and is replaced by another person.  Proposed new subsection 161(3) provides that section 161 of the Bankruptcy Act (dealing with the circumstances where a trustee may act in the official name of trustee), applies to proceedings under the Family Law Act in a corresponding way to the way it applies to a suit.  Proposed new subsection 161(4) provides that where a trustee (the first trustee) who is a party to proceedings under the Family Law Act ceases to be the trustee of the bankrupt’s estate and another person becomes the first trustee’s successor in office (the second trustee), the second trustee will be substituted for the first trustee in the relevant proceedings.  This is to ensure that proceedings are not interrupted where there is a change of trustee.

 

Family Law Act 1975

 

Item 9: Subsection 4(1)

 

31.31.        Item 9 would introduce a new definition in subsection 4(1) of what is a bankruptcy trustee.  The bankruptcy trustee, in relation to a bankrupt, means the trustee of the bankrupt’s estate.

 

Item 10: Subsection 4(1)

 

32.32.        Item 10 proposes to insert a definition in subsection 4(1) of what is meant by a debtor subject to a personal insolvency agreement.  This definition refers to the new section 5 of the Family Law Act which is inserted by item 18.

 

Item 11: Subsection 4(1) (after paragraph (c) of the definition of matrimonial cause )

 

33.33.        Item 11 proposes to insert a new paragraph (caa) in the definition of matrimonial cause.  The new paragraph expands the definition, the effect of which is that a court can deal with a matrimonial cause which is proceedings between a party to a marriage and the bankruptcy trustee with respect to the maintenance of that party.

 

Item 12: Subsection 4(1) (after paragraph (ca) of the definition of matrimonial cause )

 

34.34.        Item 12 would insert a new paragraph (cb) in the definition of matrimonial cause to include proceedings between a party to a marriage and the bankruptcy trustee with respect to the vested bankruptcy property (defined in item 17) of the bankrupt spouse.

 

Item 13: Subsection 4(1)

 

35.35.        Item 13 proposes to insert a new definition of personal insolvency agreement.  This definition provides a cross-reference to the Bankruptcy Act which contains the relevant operative provisions.  Such agreements would be recognised for the first time in the Family Law Act as a result of these proposed amendments.  Personal insolvency agreements are agreements entered into by a debtor and creditors.  This is different from when the debtor becomes a bankrupt.  These agreements are dealt with under Part X of the Bankruptcy Act.

 

Item 14: Subsection 4(1)

 

36.36.        Item 14 proposes to insert a definition in subsection 4(1) of property settlement proceedings.  Under the proposed amendment it is defined as proceedings with respect to the property of the parties to the marriage or with respect to vested bankruptcy property (this is defined in item 17 as ‘property of the bankrupt that has vested in the bankruptcy trustee under the Bankruptcy Act’) in relation to a bankrupt party to a marriage.

 

Item 15: Subsection 4(1) (after paragraph (a) of the definition of property settlement or spousal maintenance proceedings )

 

37.37.        Item 15 would insert a new paragraph (aa) in the definition of property settlement and spousal maintenance proceedings to include vested bankruptcy property in relation to a bankrupt party to a marriage.

 

Item 16: Subsection 4(1)

 

38.38.        Item 16 proposes to insert a definition of trustee, in relation to a personal insolvency agreement, which provides that it has the same meaning as in the Bankruptcy Act.

 

Item 17: Subsection 4(1)

 

39.39.        Item 17 proposes to insert a new definition of vested bankruptcy property.  This concept means property of the bankrupt that has vested in the bankruptcy trustee under the Bankruptcy Act.  The definition also provides that, when determining whether the bankrupt spouse’s property has vested in the bankruptcy trustee, property has the same meaning as in the Bankruptcy Act.

 

Item 18: After section 4A

 

40.40.        Item 18 would insert a new section 5 after section 4A which defines what a debtor subject to a personal insolvency agreement is.  The proposed section provides that a person is a debtor subject to a personal insolvency agreement under the Family Law Act if a debtor executes a personal insolvency agreement and that agreement has not ended.  Personal insolvency agreements are dealt with in Part X of the Bankruptcy Act.

 

Item 19: Subsections 44(3), (3A) and (3B)

 

41.41.        Item 19 would amend subsections 44(3), (3A) and (3B) to substitute reference to “(ca)” with “(caa), (ca) or (cb)”.  Paragraphs 4(1)(caa) (refer item 11) and (cb) (refer item 12) are new paragraphs in the definition of matrimonial cause which are inserted by this Bill.

 

Item 20: After subsection 45(1)

 

42.42.        Item 20 proposes to insert a new subsection (1A) in section 45 which is intended to extend a court’s power to stay or transfer proceedings where a bankruptcy trustee applies for an order under section 139A of the Bankruptcy Act.  Proceedings relating to that application are taken to be proceedings in relation to the marriage. 

 

Item 21: At the end of section 71A

 

43.43.        Item 21 proposes to add a new subsection (2) to section 71A to make clear that the amendments contained in this Bill to various sections in Part VIII of the Family Law Act are to apply to proceedings under the new proposed paragraphs 4(1)(caa) and (cb) in the definition of matrimonial cause, notwithstanding the provisions of Part VIIIA of the Family Law Act dealing with financial agreements. This means that it is not possible for parties to use a binding financial agreement relating to property or financial resources that is the subject of those proceedings to prevent a court dealing with that property or financial resource in accordance with these amendments.

 

Item 22: At the end of section 72

 

44.44.        Item 22 would add a new subsection (2) to section 72 providing that the liability of a bankrupt party to a marriage to maintain the other party may be satisfied, in whole or in part, by way of transfer of vested bankruptcy property in relation to the bankrupt party if the court makes an order under Part VIII of the Family Law Act.

 

Item 23: At the end of section 74

 

45.45.        Item 23 proposes to amend section 74 which provides a court with the power to make spousal maintenance orders.  Proposed new subsection (2) provides that the bankruptcy trustee must be joined as a party to the proceeding where the court is satisfied that the interests of the bankrupt’s creditors may be affected by an order and the application for spousal maintenance was made whilst the party was a bankrupt or the party became a bankrupt after the application was made but before the proceedings were finally determined.  The bankruptcy trustee must apply to become a party before the court can join the trustee as a party.

 

46.46.        Proposed new subsection 74(3) provides that if the bankruptcy trustee is joined as a party under subsection (2) then the bankrupt is not entitled to make submissions to the court in the course of the spousal maintenance proceedings in connection with any of the vested bankruptcy property, except with the leave of the court. The reason for this is that the property that used to belong to the bankrupt has vested in the bankruptcy trustee in accordance with the Bankruptcy Act.  It is therefore appropriate that the bankruptcy trustee make submissions to the court rather than the bankrupt.   Proposed subsection (4) provides that the court may only grant leave to the bankrupt under subsection (3) to make submissions where there are exceptional circumstances, which would typically arise when the bankrupt has exclusive knowledge of facts or matters that are relevant to the proceedings.

 

47.47.        Proposed new subsection (5) deals with a situation in which one of the parties to spousal maintenance proceedings is a debtor subject to a personal insolvency agreement.  This subsection provides that a court must join the trustee of the agreement as a party to the proceedings where the trustee applies to be joined and where the court is satisfied that the interests of the debtor’s creditors may be affected and: (a) when the application was made for an order under section 74, the party was a debtor subject to a personal insolvency agreement or (b) the party became a debtor after application was made but before it was finally determined.  The new subsections (6) and (7) mirror the effect of subsections (3) and (4) in relation to debtors who are subject to personal insolvency agreements.

 

48.48.        Proposed new subsection (8) states that an application for an order for spousal maintenance is taken to be finally determined for the purposes of subsections (2) and (5) when: (a) the application is withdrawn or dismissed or (b) an order (other than an interim order) is made as a result of the application.

 

Item 24: After paragraph 75(2)(h)

 

49.49.        Item 24 would insert a new paragraph (ha) after paragraph 75(2)(h).  This provides that a court making an order under section 74 (relating to spousal maintenance) must consider the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debts.  This is intended to require the court specifically to consider any monies owed by a party to a creditor that the party has disclosed to the court in the proceedings, and the impact of any proposed spousal maintenance order on the ability of the creditor to recover any such debt.   

 

50.50.        By virtue of paragraph 79(4)(e), the matters referred to in subsection 75(2) are also matters that the court is required to take into account, so far as they are relevant, in considering what property adjustment order should be made under section 79.   New paragraph 75(2)(ha) will therefore become a matter to be taken into account in family property proceedings, so far as that matter is relevant to those proceedings.

 

Item 25: At the end of paragraph 75(2)(n)

 

51.51.        Item 25 proposes to amend paragraph 75(2)(n) to require a court to consider, before making orders for spousal maintenance as well as any order made or proposed to be made under section 79 in relation to the property of the parties as is currently the case, to also consider any order made in relation to vested bankruptcy property of the bankrupt spouse.

 

Item 26: At the end of section 75

 

52.52.        Item 26 proposes to insert a new subsection (4) in section 75 to clarify that reference to a party for the purposes of the section means a party to the marriage concerned and does not include a bankruptcy trustee or trustee of a personal insolvency agreement.

 

Item 27: Subsection 79(1)

 

53.53.        Item 27 proposes to amend subsection 79(1).  Paragraph (a) replicates the existing law.  Paragraph (b) provides that a court can alter the interests of the bankruptcy trustee in the vested bankruptcy property.  Paragraphs (c) and (d) largely replicate the existing law, although a new paragraph (d)(ii) provides that a court can make an order against the relevant bankruptcy trustee (if any) to make such settlement or transfer of property as the court determines for the benefit of either party to the marriage, or child of the marriage.

 

Item 28: Subsection 79(1A)

 

54.54.        Item 28 would amend subsection 79(1A) to refer to the new definition of property settlement proceedings (refer item 14) which includes proceedings with respect to vested bankruptcy property.

 

Item 29: Subsection 79(1A)

 

55.55.        Item 29 proposes to amend subsection 79(1A) to make clear that an order made under subsection (1) may be enforced after the death of a party to the marriage.  It is appropriate to omit ‘party to the proceedings’ because, under these amendments, a bankruptcy trustee could be a party.  The Bankruptcy Act deals with the position of a bankruptcy trustee who dies.

 

Item 30: Subsection 79(1B)

 

56.56.        Item 30 would amend subsection 79(1B) to refer to the expanded definition of property settlement proceedings (refer item 14) which includes proceedings with respect to vested bankruptcy property.

 

Item 31: Subsection 79(1B)

 

57.57.        Item 31 proposes to amend subsection 79(1B) to omit ‘parties to the proceedings’ and replace (wherever occurring) with ‘parties to the marriage’ because under these amendments, a bankruptcy trustee could be a party and the proceedings referred to in paragraphs (a), (b) and (c) of the subsection are intended to apply only to parties to a marriage.

 

Item 32: Subsection 79(1C)

 

58.58.        Item 32 proposes to amend subsection 79(1C) to refer to the expanded definition of property settlement proceedings (refer item 14) which includes proceedings with respect to vested bankruptcy property.

 

Item 33: Paragraph 79(1C)(a)

 

59.59.        Item 33 would narrow the reference in paragraph 79(1C)(a) to ‘the parties to the marriage’ because a bankruptcy trustee would not be a party to proceedings for principal relief (or divorce and validity of marriage proceedings).

 

Item 34: Paragraph 79(1C)(c)

 

60.60.        Item 34 proposes to narrow the reference in paragraph 79(1C)(c) to the parties ‘to the marriage’ because a bankruptcy trustee would not be a party to proceedings for a legal separation under a law of an overseas country.

 

Item 35: Subsection 79(1C)

 

61.61.        Item 35 would expand the reference in subsection 79(1C) to ‘a party’ to provide a neutral reference to a party to proceedings.  This is to allow for the possibility that a bankruptcy trustee maybe a party to proceedings.

 

Item 36: Subsection 79(4)

 

62.62.        Item 36 would amend subsection 79(4) so that it refers to the concept of property settlement proceedings, which is defined at item 14.

 

Item 37: At the end of paragraphs 79(4)(a), (b), (c), (d) and (e)

 

63.63.        Item 37 proposes to add ‘and’ at the end of paragraphs 79(4)(a), (b), (c), (d) and (e) to make clear that these paragraphs are to be considered conjunctively.

 

Item 38: Subsection 79(5)

 

64.64.        Item 38 proposes to amend subsection 79(5) so that it refers to the concept of property settlement proceedings, which is defined at item 14.

 

Item 39: Paragraph 79(5)(b)

 

65.65.        Item 39 proposes to insert a new paragraph 79(5)(b).  The new paragraph is a restructured version of the old paragraph, but contains new references in subparagraphs (ii) and (iv) to the vested bankruptcy property in relation to a bankrupt party to the marriage.

 

Item 40: Subsection 79(5)

 

66.66.        Item 40 would insert a reference to the relevant bankruptcy trustee (if any) in subsection 79(5) to make clear that he or she may be a party to an application under section 79 and thus have standing, alongside either party to the marriage, to seek an adjournment.

 

Item 41: Subsection 79(5)

 

67.67.        Item 41 would insert a reference to the relevant bankruptcy trustee in subsection 79(5) to make clear that he or she may be a party to an application under section 79 and thus have standing, alongside either party to the marriage, to seek an adjournment.

 

Item 42: Subsection 79(6)

 

68.68.        Item 42 proposes to add the concept of vested bankruptcy property as being a category of property about which a court may make interim orders under subsection 79(6).

 

Item 43: Subsection 79(8)

 

69.69.        Item 43 would amend subsection 79(8) so that it refers to the concept of property settlement proceedings, which is defined at item 14.

 

Item 44: Subsection 79(8)

 

70.70.        Item 44 proposes to amend subsection 79(8) to make clear that it applies to a party to a marriage, and not more generally to a party to the proceedings which could include a bankruptcy trustee.

 

Item 45: Paragraph 79(8)(b)

 

71.71.        Item 45 proposes to add the concept of vested bankruptcy property to subsection 79(8) as being a category of property about which a court may make orders where one of the parties to a marriage dies before property settlement proceedings are completed.

 

Item 46: Subsection 79(9)

 

72.72.        Item 46 would amend subsection 79(9) so that it refers to the concept of property settlement proceedings, which is defined at item 14.

 

Item 47: At the end of section 79

 

73.73.        Item 47 proposes to insert new subsections (11) to (17) after section 79.  These amendments provide the circumstances for the bankruptcy trustee or the trustee of a personal insolvency agreement to be made a party to proceedings to alter property interests under the Family Law Act where a party to the marriage is bankrupt.  The effect of this is that the bankruptcy trustee or trustee of a personal insolvency agreement steps into the shoes of the bankrupt spouse in making submissions to the court about vested bankruptcy property.  Where the bankrupt trustee has become a party the bankrupt spouse can only make submissions in relation to this property in exceptional circumstances.   This reflects the reality that the bankrupt spouse no longer has ownership of property that has vested in  the bankruptcy  trustee or trustee of a personal insolvency agreement.

 

74.74.        The proposed new subsection 79(11) provides that the bankruptcy trustee must be joined as a party to the proceeding upon application by the bankruptcy trustee where the court is satisfied that the interests of the bankrupt’s creditors may be affected by an order and the application was made whilst the party was a bankrupt or the party became a bankrupt after the application was made but before the proceedings were finally determined.

 

75.75.        Proposed subsection 79(12) provides that if the bankruptcy trustee is joined as a party under subsection (11) then the bankrupt is not entitled to make submissions to the court in the course of the property proceedings in connection with any of the vested bankruptcy property, except with the leave of the court.    The reason for this is that the property that used to belong to the bankrupt has vested in the bankruptcy trustee in accordance with the Bankruptcy Act.  It is therefore appropriate that the bankruptcy trustee make submissions to the court rather than the bankrupt.  Proposed subsection 79(13) provides that the court may only grant leave under subsection (12) where there are exceptional circumstances, which would typically arise when the bankrupt has exclusive knowledge of facts or matters that are relevant to the proceedings.

 

76.76.        The proposed new subsections 79(14) to (16) mirror the provisions described above in relation to debtors who are subject to personal insolvency agreements.

 

77.77.        Proposed subsection 79(17) provides a meaning of what is an application which is finally determined for the purposes of the new subsections (11) and (14), which is the same meaning as item 23.

 

Item 48: Subsections 79A(1) and (1A)

 

78.78.        Item 48 would amend subsections 79A(1) and (1A) so that they refer to the concept of property settlement proceedings, which is defined at item 14.

 

Item 49: Subsection 79A(1B)

 

79.79.        Item 49 proposes to amend subsection 79A(1B) to make clear that the reference to the death of a party to the proceedings is a reference only to the parties to the marriage and does not include a reference to the bankruptcy trustee.

 

Item 50: Subsection 79A(1B)

 

80.80.        Item 50 proposes to amend subsection 79A(1C) to make clear that the reference to the death of a party to the proceedings is a reference only to the parties to the marriage and does not include a reference to the bankruptcy trustee.

 

Item 51: At the end of section 79A

 

81.81.        Item 51 proposes to insert new subsections (5) to (7) in section 79A.  Proposed subsection (5) makes clear that a bankruptcy trustee is a person whose interests are affected by an order under section 79 where either a party to the marriage was a bankrupt at the time the order was made, or the party became a bankrupt after the order was made.  On establishing this, the bankruptcy trustee will have standing under section 79A to make an application to the court to vary the order, set aside the order or make another order.

 

82.82.        Proposed subsection (6) makes clear that the bankruptcy trustee is a person whose interests are affected by an order under section 79 where (a) a party is bankrupt and (b) the order was made with respect to vested bankruptcy property.  On establishing this, the bankruptcy trustee will have standing under section 79A to make an application to the court to vary the order, set aside the order or make another order.

 

83.83.        Proposed subsection (7) replicates the effect of subsections (5) and (6) in relation to debtors subject to a personal insolvency agreement.  This subsection gives the trustee standing to make an application to the court to vary the order, set aside the order or make another order.

 

Item 52: Before section 80

 

84.84.        Item 52 proposes to insert 3 new notification sections: section 79G, section 79H and section 79J.

 

85.85.        Proposed subsection 79G(1) provides that the Rules of Court for courts exercising jurisdiction under these provisions (called the ‘applicable Rules of Court’ and defined in section 4 of the Family Law Act) may make provision for a bankrupt who becomes a party to a proceeding for an application under section 74 (power of court in spousal maintenance proceedings), section 78 (declaration of interests in property), section 79 (alternation of property interests) or section 79A (setting aside of orders altering property interests) to give notice of the application to the bankruptcy trustee.

 

86.86.        Similarly, proposed subsection (2) provides that the applicable Rules of Court may also make provision for a debtor subject to a personal insolvency agreement who becomes party to a proceeding for an application under section 74, 78, 79 or 79A to give notice of the application to the trustee of the agreement.

 

87.87.        Proposed section 79H provides that the applicable Rules of Court may make provision to notify a court exercising jurisdiction under the Family Law Act that a person has become a bankrupt (subsection (1)) or where a person has become a debtor subject to a personal insolvency agreement (subsection (2)). 

 

88.88.        The circumstances in which the bankrupt or debtor subject to the personal insolvency agreement may be required by the applicable Rules of Court to notify the court is where that person:

(a)     is a party to a marriage, and

(b)      is a party to a proceeding for an application under section 74, 78, 79 or 79A, and

(c)     becomes a bankrupt or debtor subject to a personal insolvency agreement before that application is finally determined.

 

89.89.        Proposed subsection (3) provides that the applicable Rules of Court may make provision for notification where a person who is a party to a marriage and is a party to proceedings for an application under section 74, 78, 79 or 79A and before the application is finally determined, becomes a party to a proceeding before the Federal Court or the Federal Magistrates Court under the Bankruptcy Act that relates to the bankruptcy of the person or the person’s capacity as a debtor subject to a personal insolvency agreement.  The applicable Rules of Court may provide that person must notify a court exercising jurisdiction under the Family Law Act of those proceedings.

 

90.90.        Proposed subsection (4) provides that the applicable Rules of Court may make provision for the bankruptcy trustee of a bankrupt party to a marriage to notify a court exercising jurisdiction under the Family Law Act of the making of an application under section 139A of the Bankruptcy Act.

 

91.91.        Proposed subsection (5) defines ‘finally determined’ for the purposes of this section as being when the application is withdrawn or dismissed, or an order (but not an interim order) is made as a result of the application.

 

92.92.        Proposed subsection (6) defines ‘finally determined’ for the purposes of this section in relation to an application for a declaration under section 78, as when the application for a declaration under section 78 is withdrawn or dismissed, or a declaration is made as a result of the application.

 

93.93.        Proposed section 79J provides that the applicable Rules of Court may provide for a bankruptcy trustee to notify the non-bankrupt spouse about an application under section 139A of the Bankruptcy Act.

 

Item 53: At the end of section 80

 

94.94.        Item 53 proposes to add in new subsections (4) - (6) to section 80.  Section 80 sets out the general powers of courts exercising jurisdiction under the Family Law Act when exercising its powers under Part VIII of the Act.  Paragraph 80(1)(d) provides that the court may make an order to execute any necessary deed or instrument that is necessary to carry out an order made by the court under this Part. 

 

95.95.        Proposed subsection (4) provides that if the bankruptcy trustee is a party to a proceeding before a court, a court may make an order under paragraph 80(1)(d) directed to the bankrupt.

 

96.96.        Proposed subsection (5) provides that if the trustee of a personal insolvency agreement is a party to a proceeding before the court, the court may make an order under paragraph 80(1)(d) directed to the debtor subject to the agreement.

 

97.97.        For the avoidance of doubt, proposed subsection (6) provides that proposed subsection (4) and (5) do not limit paragraph 80(1)(d).

 

Item 54: Subsection 83(1)

 

98.98.        Item 54 would amend subsection 83(1). Section 83 provides for the modification of spousal maintenance orders.  The wording of subsection (1) is amended to reflect that this Bill provides for the bankruptcy trustee to be a party to spousal maintenance proceedings and that the proceedings may not just be between the parties to the marriage.

 

Item 55: After subsection 83(1)

 

99.99.        Item 55 would insert proposed subsection 83(1A).  This proposed provision sets out the circumstances in which the court’s jurisdiction to modify spousal maintenance orders under subsection 83(1) may be exercised, that is:

(a)     in any case where there are proceedings with respect to the maintenance of a party to the marriage, or

(b)     on the application of the bankruptcy trustee where there is a bankrupt party to the marriage, or

(c)     where a party to the marriage is a debtor subject to a personal insolvency agreement - on the application of the trustee of the agreement.

 

Item 56: Subsection 83(5A)

 

100.100.      Item 56 proposes to make a minor amendment to subsection 83(5A) to include the bankruptcy trustee of a party to the marriage.

 

Item 57: After subsection 106B(1)

 

101.101.      Item 57 proposes to insert new subsections 106B(1A) and (1B).  Section 106B currently deals with the power of the court to make orders to prevent transactions to defeat an existing or anticipated order.

 

102.102.      Proposed subsection 106B(1A) extends the court’s power where one party to the marriage is a bankrupt.  It provides that where a party to a marriage is a bankrupt and the bankruptcy trustee is a party to proceedings, the court may set aside or restrain the making of an instrument or a disposition designed to defeat an existing or anticipated order (whether intentionally or not) which is made or proposed to be made by or on behalf of, or by direction or in the interest, of the bankrupt. 

 

103.103.      Similarly, proposed subsection 106B(1B) extends the court’s power where one party to a marriage is a debtor subject to a personal insolvency agreement.  It provides that where a party to a marriage is a debtor subject to a personal insolvency agreement and the trustee of the agreement is a party to proceedings, the court may set aside or restrain the making of an instrument or disposition to defeat an existing or anticipated order (whether intentionally or not) which is made by or on behalf of, or by direction or in the interest of, the debtor. 

 

Item 58: Subsection 106B(2)

 

104.104.      Item 58 is a technical amendment to subsection 106B(2) consequent on the inclusion of new subsections 106B(1A) and 106B(1B) by item 57.

 

Item 59: At the end of section 114

 

105.105.      Item 59 would insert new subsections 114(4) to (7).  Section 114 deals with injunctions.  These provisions deal with the court’s power to grant injunctions to prevent the distribution of dividends amongst a bankrupt’s creditors and to restrain the trustee of a personal insolvency agreement disposing of property subject to that agreement.

 

106.106.      Proposed subsection (4) provides that where a party to a marriage is a bankrupt, a court may, on the application of the other party to the marriage, grant an injunction under subsection (3) restraining the bankruptcy trustee from declaring and distributing dividends amongst the bankrupt’s creditors.

 

107.107.      For the avoidance of doubt, proposed subsection (5) provides that new subsection (4) does not limit subsection (3).

 

108.108.      Proposed subsection (6) provides that where a party to a marriage is a debtor subject to a personal insolvency agreement, a court may on the application of the other party to the marriage grant an injunction restraining the trustee of the agreement from disposing of property subject to the agreement.

 

109.109.      For the avoidance of doubt, proposed subsection (7) provides that new subsection (6) does not limit subsection (3).

 

Part 2 - Application provisions

 

Item 60: Application of amendments

 

110.110.      Item 60 sets out when the proposed amendments made by this Schedule apply.

 

111.111.      Generally, the proposed amendments apply to bankruptcies for which the date of the bankruptcy is after the commencement of the item.   The exceptions to this rule are set out in sub items (2) and (3).   The proposed amendments apply to personal insolvency agreements executed before, at or after the commencement of the Bill.   But as is the case with sub items (2) and (3) in relation to bankruptcies the amendments will only apply where the family law proceedings are commenced after the commencement of the Bill. This will allow the bankruptcy and family law proceedings to be brought together which is the intention of the Bill.    

 

112.112.      Sub item (2) provides that for the provisions set out in the sub item (which relate to spousal maintenance), they apply to family law proceedings instituted after the commencement of the item, whether the date of the bankruptcy is before, on or after the date of commencement of the item.  This is appropriate given the intention of the provision is to allow bankruptcy and family law proceedings to be brought together so that all issues can be dealt with at the same time.  

 

 

113.113.      Sub item (3) provides that for the provisions set out in the sub item (which relate to joining the bankruptcy trustee as a party to proceedings for alteration of property interests under section 79), they apply to family law proceedings instituted after the commencement of the item, whether the date of the bankruptcy is before, on or after the date of the commencement of the item.  This is appropriate given the intention of the provision is to allow bankruptcy and family law proceedings to be brought together so that all issues can be dealt with at the same time.

 

Schedule 2—Amendments relating to income contributions

 

Bankruptcy Act 1966

 

114.114.      The amendments contained in this Schedule will introduce the supervised account regime for bankrupts liable to pay income contributions.  These amendments are designed to ensure that the trustee has access to the bankrupt’s income to the extent necessary to collect assessed income contributions.  Generally, this will be achieved by allowing the trustee, where necessary, to require the bankrupt to deposit all of his or her income into a new account to be supervised by the trustee.

 

Item 1: After subsection 125(2) and Item 2: Subsection 125(3)

 

115.115.      Items 1 and 2 propose to amend section 125 of the Bankruptcy Act 1966 (the Act) to ensure it does not apply to accounts opened by a bankrupt who becomes subject to the new regime.  Section 125 provides that, where a prescribed organisation (a bank, co-operative society or other financial institution of a kind prescribed by the regulations for the purposes of this definition) which becomes aware that an undischarged bankrupt has an account with it, the organisation must notify the trustee of the account’s existence and must not make further payments out of the account without a Court order or instructions from the trustee.  It would be inappropriate for this requirement to apply to a new account opened for the purposes of the supervised account regime.

 

Item 3: At the end of section 139L

 

116.116.      Item 3 proposes to amend the meaning of ‘bankrupt’ for the purposes of the definition of ‘income’ in section 139L so that it includes a discharged bankrupt who remains subject to the supervised account regime.

 

Supervised account regime

 

Item 4: After section 139ZI

 

117.117.      Item 4 proposes to insert new Subdivision HA in Division 4B of Part VI of the Act.  The new Subdivision will establish the supervised account regime for collection of income contributions.

 

118.118.      The objects of the Subdivision are set out in proposed section 139ZIA

 

119.119.      Proposed section 139ZIB provides definitions of a number of terms for the purposes of the new Subdivision.

 

120.120.      Proposed subsection 139ZIC(1) will provide that a trustee may determine that the supervised account regime applies to a bankrupt.  Where the trustee makes that determination, the trustee must give written notice to the bankrupt.

 

121.121.      Proposed subsection 139ZIC(2) will provide that the trustee must not make a determination unless, at the time of making the determination, the bankrupt is liable to pay an income contribution and either:

 

-           if the contribution is payable by installments, the bankrupt has not paid the whole of an instalment when it became payable, or

-           if the contribution is payable at a specified time, the bankrupt has not paid the whole of the contribution at that time.

 

122.122.      It is intended that the bankrupt should have an opportunity to comply voluntarily with the obligation to pay contributions on time and that the trustee should apply the supervised account regime in cases in which it would appear to be the most effective method of ensuring that contributions are paid.

 

123.123.      The notice given under subsection (1) must be in the approved form (defined in subsection 5(1) to be a form approved by the Inspector-General) - proposed subsection 139ZIC(3).  Proposed subsection 139ZIC(4) will provide that the notice must also be accompanied by:

 

-           a supervised account notice relating to the bankrupt (defined in subsection 139ZIE(1)), and

-           a statement setting out the effect of sections 139ZIE to 139ZIT and any other information specified in the regulations.

 

124.124.      Proposed subsection 139ZID(1) will allow the trustee to revoke a determination made under section 139ZIC.  The trustee must not revoke the determination unless satisfied that the bankrupt will pay current and future contributions on time.  In forming that view, the trustee, under proposed subsection 139ZID(2), is to have regard to the bankrupt’s past payment record and any other relevant matters (which may include the bankrupt’s explanation for failing to make payments on time, changes in the bankrupt’s employment situation and other factors affecting the bankrupt’s ability and willingness to make payments on time).

 

125.125.      The trustee may revoke a determination on his or her own initiative or on application by the bankrupt - proposed subsection 139ZID(3).  Where the bankrupt applies for revocation and the trustee refuses, the trustee must give the bankrupt written notice of the refusal - proposed subsection 139ZID(4).  A notice of revocation must be in the approved form - proposed subsection 139ZID(5).  A trustee’s refusal to revoke a determination will be a decision reviewable by the Inspector-General (‘reviewable decision’ is defined in proposed section 139ZIB).

 

126.126.      Proposed section 139ZIDA describes the circumstances in which the trustee’s determination ceases to be in force.  These circumstances are the annulment of the bankruptcy and discharge from bankruptcy where there is no further liability to pay a contribution.  Where the bankrupt is discharged from bankruptcy and has an outstanding contributions liability, the determination will cease to be in force only when the bankrupt is no longer liable to pay a contribution.

 

Supervised account notice

 

127.127.      Proposed section 139ZIE describes the requirements of a supervised account notice and the bankrupt’s obligations upon receiving such a notice.  The notice must be in the approved form and will require the bankrupt to open an account that complies with the features listed in proposed subsection 139ZIE(1).  These features are designed to ensure that the trustee has access to the account (including for the purposes of issuing a notice under section 139ZL requiring payment of contributions from the account) - for example, the account must be kept with an ADI (authorized deposit-taking institution as defined in subsection 5(1)) and be kept in Australia.  The features are also designed to maximize the balance in the account - for example, the account must be designed not to have a debit balance (so that it cannot include an overdraft or similar facility). 

 

128.128.      The notice will require the bankrupt to open the account within 10 working days after the notice is given.  The trustee may specify a longer period in the notice - that may be appropriate where, for example, the bankrupt’s affairs are particularly complex and it will take longer than 10 working days to rearrange those affairs and comply with the notice.

 

129.129.      Proposed subsection 139ZIE(3) will require the bankrupt to comply with a supervised account notice.  Proposed subsection 139ZIE(5) will require the bankrupt, where the supervised account regime applies, to notify the trustee in writing of details of the account - that notice must be given within 2 working days after opening the account.  Pursuant to proposed subsection 139ZIE(6), failure to comply with either subsection (3) or (5) will be an offence.

 

New supervised account

 

130.130.      Proposed section 139ZIEA will allow the trustee to revoke a supervised account notice, issue a fresh supervised account notice and require the bankrupt to transfer the balance of an existing supervised account to the account opened in accordance with the fresh notice.  The earlier notice will remain in force until the bankrupt complies with the fresh notice by opening a new supervised account.  This power is to cover circumstances in which the financial institution with which the original account is held changes the rules relating to that account so that the trustee considers that account is no longer suitable for the purposes of this regime - for example, the institution may increase the fees payable for operating or making withdrawals from that account which will have the effect of reducing the amount available to collect the bankrupt’s contributions liability.

 

131.131.      A decision to issue a revocation notice and issue a fresh notice may be made by the trustee on his or her own initiative or on application by the bankrupt.  If the bankrupt applies to the trustee to exercise this power and the trustee refuses, the trustee must give written notice of that refusal to the bankrupt.  A decision by the trustee to refuse to exercise this power upon application by the bankrupt will be reviewable by the Inspector-General.

 

132.132.      Failure to comply with the requirements of a notice issued under this section will be an offence.

 

Bankrupt’s monetary income to be deposited to supervised account

 

133.133.      Proposed section 139ZIF will require a bankrupt to whom the supervised account regime applies to ensure that all monetary income actually received by the bankrupt after the account is opened in deposited into the account.  Income received in the form of cash or cheque must be deposited to the account within 5 working days of its receipt.  In any other case, the income must be deposited upon its receipt.  Income received as cash which is used to make a refund is not required to be deposited to the account.

 

134.134.      A person who fails to comply with these requirements will be guilty of an offence.

 

Trustee to supervise withdrawals from supervised account

 

135.135.      Proposed section 139ZIG deals with withdrawals from the supervised account.  Subsection (1) will impose a general prohibition on withdrawals by the bankrupt.  Subsection (2) will provide exceptions to this general prohibition.

 

136.136.      The first of these exceptions relates to withdrawals made with the consent of the trustee.  Subsection (3) will allow the trustee to consent to withdrawals.  The trustee will be required to give written notice of this consent to the bankrupt.  That consent can be given to any of the following withdrawals:

 

-           a specified withdrawal;

-           withdrawals included in a specified class of withdrawals;

-           withdrawals up to a daily, weekly, fortnightly or monthly limit ascertained in accordance with the notice.

 

137.137.      The purpose of these provisions is to allow the trustee to come to an arrangement with the bankrupt allowing for regular withdrawals from the account to meet the bankrupt’s living expenses while ensuring that the balance of the account remains sufficient to meet the bankrupt’s liability to pay contributions.  Generally, it is intended that the trustee would consent to regular or periodic withdrawals from the account and that the trustee would consent to the bankrupt withdrawing amounts in excess of that required to meet the contributions liability.  In addition to this ongoing consent to meet living expenses, the trustee may also consent to additional withdrawals to meet unexpected liabilities or where a balance has accumulated in the account which exceeds the amount required to meet the bankrupt’s contributions liability.

 

138.138.      The trustee will be able to vary or revoke a consent as the circumstances require.  The power to issue a consent notice or to vary or revoke that consent may be exercised by the trustee on his or her own initiative or upon application of the bankrupt.  If the bankrupt applies to the trustee to exercise this power and the trustee refuses, the trustee must give written notice of that refusal to the bankrupt.  A decision by the trustee to refuse to exercise this power upon application by the bankrupt will be reviewable by the Inspector-General.

 

139.139.      In addition to withdrawals made with the consent of the trustee, subsection (2) will also provide a range of other exceptions to the general prohibition on withdrawals by the bankrupt.  These will include withdrawals to meet the bankrupt’s tax obligations and to make payments of fees and charges imposed by the financial institution in connection with the operation of the account.

 

140.140.      A bankrupt who makes unauthorized withdrawals from the account will be guilty of an offence.

 

141.141.      This provision will not affect the operation of other garnishee powers (such as those available to trustees under section 139ZL and to the Commissioner of Taxation under the Taxation Administration Act 1953 ).

 

Constructive income receipt arrangements

 

142.142.      Proposed section 139ZIH will restrict the bankrupt’s ability to enter into, or continue participating in, constructive receipt arrangements.  A constructive receipt arrangement, as defined in proposed section 139ZIB, is an arrangement the effect of which is that income derived by a bankrupt is not actually received by the bankrupt because it is:

 

(a)        reinvested, accumulated or capitalized; or

(b)        dealt with on behalf of the bankrupt or as the bankrupt directs.

 

143.143.      This provision is designed to ensure that income derived by the bankrupt is actually received by the bankrupt in monetary form so that the supervised account regime can apply effectively and the amount available for payment of the bankrupt’s contributions liability is maximized.

 

144.144.      Where the supervised account regime applies, the bankrupt will be prohibited from entering into any new constructive receipt arrangement without the consent of the trustee.  If the bankrupt was participating in such an arrangement immediately before becoming subject to the supervised account regime, the bankrupt will be required to cease participating in that arrangement as soon as practicable after becoming subject to the regime.  The bankrupt will be able to enter into such arrangements, or continue to participate in such arrangements, with the consent of the trustee.  The trustee will be required to give written notice of any such consent to the bankrupt and may, by further written notice, vary or revoke that consent.

 

145.145.      The power to issue a consent notice or to vary or revoke that consent may be exercised by the trustee on his or her own initiative or upon application of the bankrupt.  If the bankrupt applies to the trustee to exercise this power and the trustee refuses, the trustee must give written notice of that refusal to the bankrupt.  A decision by the trustee to refuse to exercise this power upon application by the bankrupt will be reviewable by the Inspector-General.

 

146.146.      A bankrupt who fails to comply with the requirements of this provision will be guilty of an offence.

 

Non-monetary income receipt arrangements

 

147.147.      Proposed section 139ZIHA will restrict the bankrupt’s ability to enter into, or continue participating in, non-monetary income receipt arrangements.  A non-monetary income receipt arrangement, as defined in proposed section 139ZIB, is an arrangement the effect of which is that income derived by a bankrupt is not actually received by the bankrupt in monetary form because it is derived in a non-monetary form.

 

148.148.      This provision is designed to ensure that income derived by the bankrupt is actually received by the bankrupt in monetary form so that the supervised account regime can apply effectively and the amount available for payment of the bankrupt’s contributions liability is maximized.

 

149.149.      Where the supervised account regime applies, the bankrupt will be prohibited from entering into any new non-monetary income receipt arrangement without the consent of the trustee.  If the bankrupt was participating in such an arrangement immediately before becoming subject to the supervised account regime, the bankrupt will be required to cease participating in that arrangement as soon as practicable after becoming subject to the regime.  The bankrupt will be able to enter into such arrangements, or continue to participate in such arrangements, with the consent of the trustee.  The trustee will be required to give written notice of any such consent to the bankrupt and may, by further written notice, vary or revoke that consent.

 

150.150.      The power to issue a consent notice or to vary or revoke that consent may be exercised by the trustee on his or her own initiative or upon application of the bankrupt.  If the bankrupt applies to the trustee to exercise this power and the trustee refuses, the trustee must give written notice of that refusal to the bankrupt.  A decision by the trustee to refuse to exercise this power upon application by the bankrupt will be reviewable by the Inspector-General.

 

151.151.      A bankrupt who fails to comply with the requirements of this provision will be guilty of an offence.

 

Cash income

 

152.152.      Proposed section 139ZII will restrict the bankrupt’s ability to receive income in the form of cash.  This provision is designed to ensure that income received by the bankrupt is able to be identified by the trustee and deposited into the supervised account.

 

153.153.      The bankrupt will be able to receive income in the form of cash with the consent of the trustee.  The trustee will be required to give written notice of any such consent to the bankrupt and may, by further written notice, vary or revoke that consent.

 

154.154.      The power to issue a consent notice or to vary or revoke that consent may be exercised by the trustee on his or her own initiative or upon application of the bankrupt.  If the bankrupt applies to the trustee to exercise this power and the trustee refuses, the trustee must give written notice of that refusal to the bankrupt.  A decision by the trustee to refuse to exercise this power upon application by the bankrupt will be reviewable by the Inspector-General.

 

155.155.      A bankrupt who fails to comply with the requirements of this provision will be guilty of an offence.

 

Keeping of books

 

156.156.      Proposed section 139ZIIA modifies the offence contained in section 277A (keeping of books in respect of period of bankruptcy) in relation to a discharged bankrupt who is subject to the supervised account regime.  Under section 277A, a bankrupt is required to keep books until discharged from bankruptcy.  The supervised account regime may continue to apply after discharge (until the bankrupt no longer has a liability to pay contributions).  Therefore, where a bankrupt is subject to the supervised account regime, the obligation imposed by section 277A will continue until that regime ceases to apply to the bankrupt.

 

Injunctions

 

157.157.      Proposed sections 139ZIJ to 139ZIN give the trustee power to apply for a range of injunctions to ensure that a bankrupt who is subject to the supervised account regime complies with his or her obligations under that regime.

 

Review of trustees’ decisions

 

158.158.      Proposed sections 139ZIO to 139ZIT deal with review of trustees’ decisions.  ‘Reviewable decision’ will be defined in section 139ZIB and covers all decisions made by trustees under the provisions relating to the supervised account regime.  These decisions are subject to review by the Inspector-General and the review process and requirements for requesting a review are based on those already in the Act which relate to other decisions reviewable by the Inspector-General.

 

159.159.      A bankrupt or trustee who is dissatisfied with the Inspector-General’s decision may apply to the Administrative Appeals Tribunal for a review of that decision.

 

Item 5: Application

 

160.160.      Item 5 provides that the proposed amendments made in this Schedule will apply in relation to a bankrupt who is liable to pay a contribution whether the liability arose before, at or after the commencement of this Item.  This means the amendments will apply to existing and future bankruptcies as long as the bankrupt is liable to pay an income contribution when the amendments commence.

 



Schedule 3—Amendment relating to maintenance agreements

 

Bankruptcy Act 1966

 

Item 1: Subsection 5(1) (definition of maintenance agreement )

 

161.161.      Item 1 proposes to amend the definition of ‘maintenance agreement’ at subsection 5(1) of the Bankruptcy Act 1966 (the Act) to exclude financial agreements entered into under Part VIIIA of the Family Law Act 1975 (the Family Law Act).  This will allow trustees to use the provisions in Division 3 of Part VI of the Act to recover property transferred by the bankrupt prior to the commencement of bankruptcy.

 

162. 162.     Division 3 of Part VI includes provisions which allow trustees to recover certain property transferred by the bankrupt prior to the commencement of his or her bankruptcy.  These provisions do not apply to transactions arising from the bankrupt’s liability under a ‘maintenance agreement’ or ‘maintenance order’.  A financial agreement made under Part VIIIA of the Family Law Act is a ‘maintenance agreement’ for the purposes of the Act.

 

163. 163.     A financial agreement can be made before or during the marriage or following separation.  It is a binding agreement dealing with the distribution of property in the event of the marriage breaking down.  It may also provide for the maintenance of either party to the marriage or their children.  Financial agreements do not require approval by a court.  Nor do they have to be registered with the court.  They can only be set aside by the court in circumstances similar to those applying in contract law (such a fraud and undue influence).  For these reasons, it is not appropriate that property transferred pursuant to such an agreement is excluded from the property available to pay creditors.

 

Item 2: Application of amendment

 

164. 164.     Item 2 provides that the amendment made by Item 1 will apply to all bankruptcies current on or after the commencement of the amendment.



Schedule 4—Amendments relating to financial agreements under the Family Law Act 1975

 

Bankruptcy Act 1966

 

Item 1: At the end of subsection 40(1)

 

165. 165.     Item 1 proposes to insert a new act of bankruptcy, in paragraph 40(1)(o) of the Bankruptcy Act 1966 (the Act), to apply where a person is rendered insolvent as a result of assets being transferred pursuant to a financial agreement under Part VIIIA of the Family Law Act 1975 (the Family Law Act).

 

166. 166.     The new act of bankruptcy will apply only where the transfer under the financial agreement has the effect of rendering the person insolvent.  This would apply only to transfers pursuant to financial agreements and not to other property distributions (for example, property settlements under section 79 of the Family Law Act).

 

167. 167.     Subsection 115(1) of the Act provides that the bankruptcy of a person shall relate back to, and be deemed to have commenced at, the time of the commission of the earliest act of bankruptcy within a period of six months before the presentation of the petition leading to the person’s bankruptcy.  This amendment will allow the trustee to claim the property transferred pursuant to the financial agreement as divisible property in the estate.

 

Item 2: After subsection 40(7)

 

168. 168.     Item 2 proposes to insert new subsection 40(7A) which makes it clear that, for the purposes of paragraph 40(1)(o), a transfer of property includes a payment of money and that a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to that other person.

 

Item 3: Application of amendments

 

169. 169.     Item 3 provides that the amendments made by this Schedule apply in relation to financial agreements entered into after the commencement of this amendment.

 

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