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Thursday, 14 November 2002
Page: 6436

Senator MURRAY (6:12 PM) —With regard to the Bankruptcy Legislation Amendment Bill 2002, the Democrats are generally supportive of the government's program to reform bankruptcy law. In recent years there has been a substantial increase in the number of bankruptcies, particularly of individuals, and the government is attempting to encourage people to consider alternatives to bankruptcy and to clamp down on those who abuse the bankruptcy system.

Particularly offensive was the revelation that senior Sydney barristers have been using bankruptcy as a means of tax evasion. Their poncing, if you like, in the courts of this land and their assumption of morality impugn the reputation, credibility and good faith of the vast bulk of barristers and lawyers, who conduct their tax affairs appropriately. That revelation has highlighted the need to ensure the integrity of the bankruptcy system. I note that some provisions in these bills increase the powers of regulatory bodies to deal with those high-income earners who do use bankruptcy for debt avoidance purposes.

Unfortunately—perhaps it is a reflection of human nature—the government's legislation is unlikely to put an end to some of the more outrageous abuses of the bankruptcy system by a few high-income earners. Australians are rightly angry to see some corporate or former corporate high-flyers claiming bankruptcy and avoiding creditors despite having obvious wealth at their disposal through some third-party entity or third-party family member. I have heard the government's words of condemnation of those practices and I hope that they continue to bring forward legislation which tightens the screws on such people.

Such people should not be able to avoid creditors through artificial arrangements that secure their own financial wellbeing but result in great hardship to others who have entered into business arrangements with them in good faith. While it is true that the bankruptcy system must guard against abuse, care in addressing the abuses must not result in preventing access to bankruptcy by those with a genuine need to do so. We should always understand that bankruptcy laws were designed right from the very beginning as a safety net for those experiencing unfortunate circumstances in life.

Most bankrupts today—as always, probably—are low-income earners who owe relatively small amounts of money. Those who genuinely require recourse to bankruptcy should not face unnecessary or artificial barriers or be subject to unduly punitive measures. These are matters, obviously, which will be discussed further, given the amendments before us.

I note that this bill proposes to address bankruptcy law but, regrettably, it certainly does not address sufficiently the root causes of bankruptcy. Terry Gallagher, the Inspector-General in Bankruptcy, has commented:

While it is no easier to go bankrupt now than it has been for many years it is likely that excessive borrowing prompted by ready credit availability, perceptions of attainable living standards and a lessening of the stigma of bankruptcy have contributed to this increase.

Another cause of bankruptcy and financial difficulty is gambling. I will read some correspondence regarding this legislation that I have received from the Interchurch Gambling Task Force. It reads:

The Inter Church Gambling Task Force has for a number of years been concerned about the impact of bankruptcy provisions on the seeking of assistance by people who have developed a problem with gambling. This has become particularly evident since the mass availability of gaming machines in Victoria since 1992. Numbers of people presenting to services for assistance have gambling problems and should be encouraged to consider bankruptcy as a means of financial stabilization. This stabilization is often necessary before the gambler can consider other personal and family support services to deal with other long-standing difficulties, which may have contributed to the gambling behaviour.

The current provisions of the act serve to discourage people from seeking assistance and certainly from disclosing their gambling difficulties if they are considering bankruptcy. Section 271 of the act, as we understand it, provides that a person commits an offence if, in the two years prior to the presentation in which the person's bankruptcy occurred, they gambled or speculated rashly or hazardously, other than in connection with a trade or business.

While few people are recorded as reporting gambling as contributing to their financial distress, the reports from services with which the Interchurch Gambling Task Force is associated indicate that gambling is a factor in many bankruptcies of individuals where there are relatively small amounts owing. The act as it currently stands appears to be doubly punitive to people with gambling addictions who have got themselves into financial trouble. It fails to give recognition to the vast changes in public policy, which have not only legalised mass gambling and ensured mass exposure but also legitimised it in the minds of some of the public as a means of getting money when times are desperate.

In the absence of mandated adequate information on gaming machines about the chances of winning and the losses accumulating, it almost seems entrapment—

although that is obviously not its intention—

on the part of the government to keep in place provisions which preclude gamblers from seeking relief through bankruptcy under the legislation. The Interchurch Gambling Task Force believes that, even though section 271 is little used for prosecution, the act should be amended to remove reference to gambling, thus allowing transparency for individuals with problems and for the services which support them.

The Democrats are concerned about the existence of section 271 of the act, which provides for a maximum one-year prison term for people who become bankrupt partly as a result of gambling. The provision dates back at least to the early 20th century and reflects attitudes towards gambling that are not consistent with contemporary views. Bankruptcy is not a crime. It is a legitimate option for some people and an important way of allowing people in dire financial difficulty to make a fresh start. In the process of going bankrupt, unfortunately some people commit crimes. They will steal or commit fraud in attempts to pay their debts. They are quite properly subject to punishment for those crimes, but not for the fact that they have gambled or have gone bankrupt; it is the fraud or the stealing which is the crime. Inconsistently, gamblers can be punished, possibly with a jail term, simply for going bankrupt. It is inconsistent to punish bankrupts who have gambling addictions but not to punish people with other addictions, such as alcohol or drugs, or, for that matter, anyone else who goes bankrupt.

My office has been contacted—as, no doubt, other senators have—by a number of groups who counsel gamblers. The view that has been strongly presented to us is that this punitive approach to gambling does not assist the process of helping gamblers to deal with their problems. For many gamblers, petitioning for bankruptcy provides the opportunity to stabilise and make a fresh start as part of the recovery process. If gamblers cannot take advantage of the bankruptcy system for fear of imprisonment, their progress can be significantly hampered. Frankly, if you want to help gamblers who have got themselves into difficulty in large numbers, you need to savagely reduce the gambling opportunities available, particularly in the pokies halls. Those of us in the chamber today who are from Western Australia know that the Western Australian restriction on pokies has had very positive social benefits.

The Democrats will be moving an amendment to remove section 271 from the act so that gamblers are no longer liable to imprisonment for bankruptcy. We will also be moving an amendment to make related companies liable for the debts of an insolvent company in certain circumstances. That amendment is in accordance with the 1988 Harmer report of the Law Reform Commission into insolvency. We have moved that amendment on four occasions in the past. I recall three occasions, at least, when Labor supported it—maybe all four, but certainly three of them. We are looking, frankly, to avoid a repeat of occasions such as the Ansett-Air New Zealand situation, where one company manages another company and can simply walk away from employees and creditors.

In relation to these last amendments, I acknowledge to the government that these bills are a slightly unusual vehicle for the moving of these amendments. The situation I face is that the government has made a commitment to address the matters that form the substance of the amendments but has failed to do so. In my view, this is my only opportunity to put these essential amendments to the chamber in legislative form. I remind the chamber that these are recommendations based on the 1988 report of the Law Reform Commission, so they have been around a long time.

The government made a commitment on this issue months ago. My view is that, if they can produce a border protection bill in 24 hours—with all the complexities that go with that—they can certainly address this issue within the much longer time frame that has been available to them. Let me make it clear that, if the amendment is passed, I will be happy to accept changes the government may make in the House of Representatives to those amendments that preserve its substance. It is important that the substance and the principle get through, not that the particular words that I have put are passed.

I will be moving a second reading amendment that is designed to ask that, as part of the way in which the act is administered, a substantial review be undertaken of the causes of bankruptcy and of the operation of the changes to the act. It would explore ways of providing a solution at the point of causation to eliminate the need for later actions which result when people go bankrupt.

I know that the government will argue that there is already in place a review system— and this is correct. It is a useful review system, except that the existing review seems to us to be basically a desktop process undertaken annually by the inspector-general. While this covers some of the essential areas that need to be covered, it does not include a comprehensive, stakeholder-engaging review component. This results in the present review not actually cutting down into the core problem areas that are the causation of bankruptcy and not providing tangible solutions at the root beginnings of bankruptcy.

Most importantly, the review for which we are seeking support from the government and the opposition is designed to look far more deeply into the foundation causes of bankruptcy and methods for addressing this increasing problem. Being a second reading amendment, the government will be able to react to it and address it in a manner which achieves the outcome we want but with some freedom as to its design. We are seeking from the government a genuine commitment to investigate the causes of bankruptcy and a commitment to have a cross-representative group when that review is under way.

Bankruptcy amongst non-business people is becoming a significant problem. Wearing one of my other hats, which include the hard-headed ones of finance, I say that we are all aware that credit availability has soared and that the amount of household debt has increased. In an economic sense, the Reserve Bank has not exhibited any real alarm at this stage. But the fact remains that there are signs that some Australians in some circumstances are experiencing great financial difficulties because they have gone over the top with regard to credit availability.

Credit availability has increased exponentially. As we know, you can use the equity of your home to take out a mortgage and expand it. That mortgage can even be used for current and discretionary expenditure, which can lead people to take risks with moneys which otherwise should be locked up in their homes. It is worth noting that credit availability is now the third-highest reason given for bankruptcy, behind unemployment and domestic discord. We simply must start focusing on preventing things from getting to the stage of people using the option of bankruptcy to get their affairs in order.

Having said all that, it is obvious that we welcome the government's bill. We are pleased that they have brought it forward and are addressing the issues at hand. The numbers of amendments assist the bill, in my view; they do not gut it or alter its intent significantly. I will conclude by moving my second reading amendment, which has been circulated on sheet 2677. I move:

At the end of the motion, add “but the Senate, noting in particular the growth in non-business bankruptcies since the late 1980s, urges the Government to undertake reviews every 5 years of the fundamental causes of business and non-business bankruptcy in Australia and to report to the Senate on the outcome of these reviews, together with suggestions for such legislative reform as may be necessary to address these causes of bankruptcy”.

I would envisage, Minister, that if that amendment were to be passed and if the government were to act on it you would obviously see means by which you could combine the existing reporting process with this proposed process so that it would be in one document. That would be the easiest way to do it.