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Thursday, 20 September 2001
Page: 27561

Senator BOSWELL (Leader of the National Party of Australia in the Senate and Parliamentary Secretary to the Minister for Transport and Regional Services) (4:12 PM) —I table a revised explanatory memorandum relating to the Bankruptcy Legislation Amendment Bill 2001 and move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows


Bankruptcy was devised as a shield that might be used, in the last resort, by an impecunious debtor to seek relief from his or her overwhelming debts.

Over the years, some unscrupulous debtors have learned to use bankruptcy as a sword to defeat the legitimate claims of their creditors.

This Bill will clamp down on those who use bankruptcy in a mischievous or improper way.

By doing so, we will protect those in the community who must become bankrupt, from the odium and stigma caused by a few who abuse the process.

By restoring the integrity of the system we will promote confidence in it.

This aim will be achieved by a series of linked measures.

There will be a new discretion to reject a debtor's petition where it is apparent that the petition is an abuse of the bankruptcy system.

The early discharge provisions, which have permitted some bankrupts to emerge from bankruptcy after only 6 months, will be abolished.

The trustee will be given stronger powers to object to the discharge from bankruptcy of unco-operative bankrupts, thus extending their bankruptcy for 2 or 5 years.

A new `cooling off' period of 30 days will be introduced so that most debtors will not become bankrupt until 30 days after presenting their petition.

This will allow creditors an opportunity to negotiate with the debtor about alternative strategies.

Finally, the Courts' power to annul a petition which is an abuse of process will be specifically confirmed as available even if the debtor is insolvent.

Bankruptcy will still be available to people in severe financial difficulty who simply need a fresh start.

However, these new measures will encourage people who can and should avoid bankruptcy to consider carefully other options, such as a debt agreement, and will make bankruptcy tougher for those bankrupts who do not co-operate with their trustee.


The amendments proposed in the Bill reflect the outcome of more than two years of consultation with various stakeholders in the personal insolvency field.

In particular, there has been consultation with members of the Bankruptcy Reform Consultative Forum, a peak consultative body that the Attorney-General established in 1996 to facilitate better consultation between the Insolvency and Trustee Service Australia (ITSA) and key groups with a stake in the bankruptcy laws.

An Official Receiver's Discretion To Reject A Debtor's Petition

Official Receivers will be given a limited discretion to reject a debtor's petition where it appears that, within a reasonable time, the debtor could pay all the debts listed in the debtor's statement of affairs and it is apparent that the debtor's petition is an abuse of the bankruptcy system, such as when the debtor has singled out one creditor for non-payment, or is a multiple bankrupt.

This measure is directed at blatant abuses of the system.

It is not envisaged that any petition will be rejected under this proposal without personal or telephone contact first being made with the debtor by experienced ITSA staff.

The exercise of the Official Receiver's discretion to reject a petition will be subject to external administrative review.

Early Discharge Provisions To Be Abolished

The minimum standard period of bankruptcy is 3 years.

However, about 60% of bankrupts are eligible for early discharge after 6 months, although only about half of those actually apply.

The Bill proposes the abolition of the early discharge provisions of the Act.

They are most often cited as the cause of concern that bankruptcy is too easy.

The reduced period of bankruptcy is seen to discourage debtors from trying to enter formal or informal arrangements with their creditors to settle debts, and provides little opportunity for debtors to become better financial managers.

Early discharge can also be quite discriminatory.

A debtor who has an income sufficient to make contributions to the estate, or whose estate has assets available for distribution to creditors (factors which disqualify them from early discharge) is by no means necessarily less worthy of early discharge than a debtor whose estate has no money.

In addition, allowing only those whose debts do not exceed 150% of income to apply, discriminates against women who have joint debts with, and generally a lower income than, their spouse.

Abolishing early discharge will overcome these anomalies.

Strengthening Of Objections To Discharge

For the unco-operative bankrupt, stronger objection-to-discharge provisions will mean that the bankruptcy can more readily be extended by a trustee filing an objection to discharge.

The objection-to-discharge provisions allow bankruptcy trustees to file an objection to the bankrupt's automatic discharge before the end of the 3 year standard period of bankruptcy. Depending on the grounds of objection, the bankruptcy period can be extended by 2 years or, in a serious case, by 5 years.

The Bill proposes that certain grounds of objection be classified as `special ground' cases, where only the facts will be needed to found the objection.

This will make it much easier to sustain the objection than is currently the case.

The special grounds will apply to deliberate actions by bankrupts which frustrate trustees, and add unnecessarily to the costs of administrations.

A reviewer will not be able to cancel an objection by taking into account any conduct of the bankrupt after the time when the ground first commenced to exist.

This will overcome a deficiency in the present law which can encourage a bankrupt to co-operate with the trustee only at the last moment, that is, when a review hearing is imminent.

Cooling-Off Period

The Bill proposes the introduction of a mandatory 30 day cooling-off period in relation to debtor petition bankruptcies under which debtors will not become bankrupt until 30 days after presenting their petition.

The protection from creditors afforded to debtors for the 30 day period will allow debtors who have acted hastily in petitioning for bankruptcy to reconsider their decision.

If, on reflection, they are satisfied that bankruptcy is not the best option for them, they will be able to withdraw their petition.

The cooling-off period also will allow the creditors the opportunity to negotiate with the debtor to choose an alternative that avoids bankruptcy.

The cooling-off period is not appropriate in cases where, for example:

· the debtor has attempted an alternative to bankruptcy in the past 12 months;

· the debtor is in business or has assets at risk of dissipation if a trustee is not appointed immediately; or

· a creditor proceeding to recover the debt, such as a creditors' petition, is pending.

The cooling-off period will not apply in these situations.

Strengthening The Court's Power To Annul Debtors' Petition Bankruptcies

Under present law, the Court may annul a debtor's petition bankruptcy where it is satisfied that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver.

The Bill proposes to clarify the Court's annulment power so that it can annul a debtor's petition bankruptcy whether or not the bankrupt was insolvent when the petition was presented.

The amendment is intended to strengthen the Courts' power to annul a bankruptcy which is an abuse of the bankruptcy process, for example, in the case of high-income bankrupts who may be technically insolvent (that is, unable to pay a debt as it falls due) but who readily could borrow or make other arrangements to repay the debt.

I emphasise that the amendment will not deny the protection that bankruptcy affords to debtors who genuinely need it.

Most people who declare bankruptcy are on low incomes and have relatively low levels of debt.

However, the bankruptcy of a person who, for example, has made a lifestyle choice not to pay tax, could be annulled under this provision.

Doubling Of Debt Agreement Income Threshold

To encourage the increased use of debt agreements, a low cost alternative to bankruptcy introduced in 1996, the Bill will double the eligible income threshold to approximately $61,000 after tax in relation to debt agreement proposals.

This will ensure that a far wider group of debtors is eligible to make a debt agreement proposal to creditors, and thereby avoid bankruptcy.

Streamlined Bankruptcy Act Procedures

The Bill proposes many technical and machinery changes intended to improve the operation of the Act, and streamline bankruptcy administration processes.


In summary, the Bill introduces timely changes to bankruptcy law and practice aimed at ensuring that the interests of debtors and creditors are better balanced and at further streamlining technical and machinery provisions of the Act.



The Bankruptcy (Estate Charges) Amendment Bill 2001 will amend the Bankruptcy (Estate Charges) Act 1997 to exempt any surplus in a bankrupt estate from the scope of the realisations charge.

It also will align charge periods with the financial year, remove current payment obligations for the interest charge and the realisations charge if the amount otherwise payable is less than $10 in a charge period, and close some charge-avoidance opportunities.

Ordered that further consideration of these bills be adjourned to the first day of the 2001 summer sittings, in accordance with standing order 111.