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Wednesday, 7 December 2005
Page: 5

Mr RUDDOCK (Attorney-General) (9:22 AM) —I move:

That this bill be now read a second time.

The Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2005 is the latest in a series of amendments introduced by this government to address practices which undermine the integrity of the bankruptcy system.

This bill contains amendments designed to strengthen existing anti-avoidance provisions in the Bankruptcy Act 1966. Those provisions allow the trustee to recover property disposed of prior to bankruptcy or owned by a third person but acquired by that person using the bankrupt’s resources. It is possible for bankrupts to deliberately avoid these provisions by, for instance, transferring assets to family members or close associates when insolvency is looming and then purposely delaying the commencement of the bankruptcy. It is also possible for people approaching insolvency to build up wealth in the lead-up to bankruptcy in the name of a person who allows the bankrupt to enjoy assets acquired with that wealth.

This bill will amend the claw-back provisions in the Bankruptcy Act by:

(a)   increasing the claw-back period in section 120 from two to four years for transfers of property by a bankrupt to a related entity for less than market value;

(b)   introducing a rebuttable presumption of insolvency for the purposes of sections 120 and 121 where a bankrupt has failed to keep proper books, accounts and records; and

(c)   providing that a transfer made to defeat creditors is void against the bankruptcy trustee under section 121 if it was reasonable for the transferee to infer that the bankrupt’s main purpose in transferring the property was to defeat creditors.

The bill also includes some minor amendments to remove possible doubts about the operation of the claw-back provisions.

Significant amendments will also be made to division 4A of part VI of the act. These will remove current difficulties in applying these provisions to property held by a natural person. The amendments will allow the court to make orders in relation to property or money of a natural person where during the period of up to five years prior to bankruptcy:

  • the person acquired an estate in property as a direct or indirect result of financial contributions made by the bankrupt during that period; or the value of the person’s interest in particular property increased as a direct or indirect result of financial contributions made by the bankrupt during the period; and
  • the bankrupt used or derived (whether directly or indirectly) a benefit from the property during the relevant period.

The time periods in division 4A of part VI will be aligned with the amendments to section 120. That is, the trustee will be able to recover property acquired by the person or the increase in the value of property held by the person in the two-year period prior to bankruptcy or four years if the person is related to the bankrupt. In both cases, the period can be extended to up to five years if the bankrupt was insolvent at the relevant time. There will also be rebuttable presumption that the bankruptcy was insolvent if, at the time, they had not kept proper books and records.

A further amendment contained in the bill will allow transcripts and notes from examinations under sections 77C and 81 of the act to be used in proceedings under the act, regardless of whether the person examined is a party to the proceedings. The proposed amendment is consistent with the modern trend to allow relevant and probative material to be considered in proceedings, rather than having artificial limits on the evidence that may be adduced. In many cases, use of the transcript will be an efficient way to get straight to the major issues and evidence in the proceedings. These amendments will assist trustees particularly in relation to proceedings to recover property for the benefit of creditors.

The amendments to be made by this bill have been developed following extensive public consultation. They will provide an appropriate balance between the rights of individuals to organise their affairs as they see fit and the rights of creditors to be paid. The amendments will also ensure that our bankruptcy system is protected from abuse.

I commend the bill to the House and present the explanatory memorandum.

Debate (on motion by Mr Gavan O’Connor) adjourned.