Bills Digest no. 79 2009–10
Bankruptcy Legislation Amendment Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Key Issues
Main provisions
Contact officer & copyright details
Passage history
Date introduced: 28 October 2009
House: House of Representatives
Portfolio: Attorney-General
Commencement: Schedules 1, 2, and Part 2 of Schedule 4 commence
on a single day to be fixed by Proclamation (which need not be the same day for
all three Schedules), or the day after 6 months from Royal Assent, whichever
occurs first. Schedule 3 commences on the day after Royal Assent. Part 1 of
Schedule 4 commences on the 28th day after Royal Assent. The rest of
the Act commences on the day of Royal Assent.
Links: The relevant
links to the Bill, Explanatory Memorandum and second reading speech can be accessed
via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is at http://www.comlaw.gov.au/.
To amend the Bankruptcy Act 1966 (the Act) to make a range of amendments, most
notably:
- to increase the threshold for bankruptcy from a
minimum debt of $2000 to $10 000
- to increase timeframes under the Act to give potential
bankrupts more time to pay before creditors can take action to recover debts
- to widen the availability for debtors to enter
voluntary debt agreements with creditors
- to remove an outdated and unnecessary system of
‘Bankruptcy Districts’ from the Act
- to create a new infringement notice regime with
updated penalties for offences under the Act, and
- to update the methods
of determining the remuneration of trustees under the Act.
The Attorney-General announced the proposed reforms to bankruptcy legislation in August 2009. [1] In his second reading speech, the Minister commented that the reforms contained
in the Bill are the result of ongoing consultation with industry dating back to
2007 and 2008. [2] The proposed reforms contained in this Bill are a response to an identified
need for modernisation of the legislation, to account for the changing climate
of consumer spending and debt levels; and also to adjust statutory income and
remuneration thresholds to recognise the changing value of money since 1996.
An exposure
draft was released for public consultation in 2009. [3] Seventeen submissions were received.
The Bill was introduced into the House of Representatives on
28 October 2009 and was passed unamended through the House on 1 December 2009,
with the support of the Opposition. [4] It was introduced into the Senate for debate on 2 December 2009.
The Bill has been referred to the Senate Legal and
Constitutional Affairs Legislation Committee for inquiry and report by 2
February 2010. Details of the inquiry are at the Committee
website. [5]
The
Explanatory Memorandum indicates that the decision to increase the threshold
for bankruptcy is based on a number of factors, such as:
- the relative cost of winding up a debtor’s
estate
- the changed value of money since the $2000 threshold
was first established in 1996, and
- the general increase in
levels of personal debt. [6]
However,
there is no indication in the Explanatory Memorandum that the decision to set
the new threshold at $10 000 is based on any assessment of acceptable debt
levels. Rather, the Explanatory Memorandum provides statistics on recent
bankruptcy activity:
During
2008–09, of 1953 sequestration orders made across Australia and matched by
amounts in Bankruptcy Notices, 1551 were for an amount greater than $10,000;
217 were for an amount between $5,001 and $10,000; and 174 were for an amount
between $2,000 and $5,000. [7]
Submissions
received by the Attorney-General’s Department in response to the exposure draft
of the Bill in 2009 showed a mixed response to the proposed increased
bankruptcy threshold of $10 000.
For
example, Abacus – Australian Mutuals Limited (an association of building
societies and credit unions) noted that an increase in the threshold is
necessary, but that $5000 would be a more appropriate threshold:
Multiple
credit card and personal loan debts are common... A single debtor could
feasibly have three credit card debts of $8,000 each plus a personal loan of
$8,000 with four creditors – a $32,000 debt and in some circumstances,
reasonable grounds for bankruptcy should all other options be exhausted.
Increasing
the threshold to $5,000 rather than $10,000 will minimise this problem.
Alternatively, should the threshold increase to $10,000, Abacus recommends the
inclusion of an aggregation measure that allows any creditor to petition for
bankruptcy on a debt less than $10,000 should the aggregate debts across all
creditors exceed the threshold. [8]
Other
stakeholder submissions agreed with the increased threshold but expressed a
view that finer details of the threshold’s application should be reviewed (such
as the application of the threshold to aggregate debts, or recognition of
original debts as opposed to final judgment debts). [9] The Law Council of Australia does not
support the amendment, stating that no case has been made out to support the
increase of the threshold. [10]
Under
the proposed new infringement notice scheme in the Bill, infringement notices
can be issued to people who contravene a range of provisions in the Act
relating to a range of less serious, strict liability matters as an alternative
to prosecution. The proposed scheme is not set out in the Bill; rather, the
Bill provides for the making of regulations establishing the scheme. [11] Infringement notices will be able to be
issued by a non-judicial officer to suspected offenders, and allow suspected
offenders to pay a penalty fee to avoid prosecution. The penalties payable are
set out in item 82 of Schedule 2 of the Bill and should not exceed
one-fifth of the maximum fine payable for the offence under the Act. [12] This new infringement notice regime is
supported by widened powers of investigation for the Inspector-General contained
in the Bill. [13]
In
his second reading speech, the Attorney-General stated that these amendments
will ‘assist in highlighting the different treatment for bankrupts who engage
in criminal activity compared with those who are simply unfortunate’. [14]
Debt
agreements are set out in Part IX of the Act. The Part sets out a statutory
framework for debtors and creditors to enter a voluntary agreement which is processed, approved and monitored by the Official Receiver.
Access to debt agreements is based on an income threshold test. Again, as a
recognition of the changed value of money and the increased debt levels of
individuals recently, the income threshold for entering voluntary debt
agreements is being raised by 20 per cent under the Bill. [15] This will make the debt agreement scheme
accessible to more individuals.
Schedule 1 – Trustee remuneration
Schedule 1 to the
Bill makes amendments to the Bankruptcy
Act 1966 dealing with the remuneration of trustees of estates of bankrupts.
Item 1 repeals subsections 64U(2) to (4) of the Act. Items 2–6 make consequential amendments to section 64U. These paragraphs deal with the way
the issue of remuneration is dealt with at a meeting between a bank’s creditors
and a trustee.
Item 7 inserts a new subsection 64ZBA(2A) into the Act. The section details what a notice outlining a trustee’s proposal
to creditors must include if it relates to how a trustee is to be remunerated.
It requires the inclusion of information about the rate of remuneration or
commission, including an estimate of the total amount of the trustee’s
remuneration.
Item 9 replaces
current subsection 161B(1) with a revised provision. The
subsection currently sets the minimum entitlement of a trustee’s remuneration
at $1109. Item 9 amends the
subsection to increase the statutory minimum entitlement for trustees to $5000,
or an amount prescribed by the regulations.
Item 12 amends
subsection 162(4) of the Act, which deals with remuneration which has not been
fixed by a creditor’s resolution or the committee of inspection. The subsection
currently defaults to the regulations for determining the amount of
remuneration. [16] The amendments create a new system for determining remuneration, allowing a
trustee to make an application to the Inspector-General for determination of
his or her remuneration.
Item 13 repeals
current section 167 and inserts new
sections 166 and 167. [17] The current section 167 deals with the taxation of costs incurred by the
trustee. Provisions dealing with taxation of trustees are contained in the Bankruptcy
(Fees and Remuneration) Determination 2008. [18]
New sections 166 and 167 outline how remuneration is to be
dealt with by trustees. New section 166 deals with payments for services provided by third parties, and states that the
trustee must give notices about such payments as required by the regulations. New section 167 deals with reviews of remuneration,
and also largely refers to the regulations for instruction on how such reviews
must be conducted. The regulations could be subject to parliamentary
disallowance under Part 5 of the Legislative
Instruments Act 2003.
Schedule 2 – Offence provisions
Schedule 2 to the Bill
sets out a range of provisions dealing with offences under the Bankruptcy Act 1996. The
Explanatory Memorandum explains that these are intended to ‘strengthen the
penalties for some offences and ensure these are in line with the penalties for
other similar offences’. [19] New paragraph 12(1)(bc),
inserted into the list of functions of the Inspector-General under the Act, enables
the Inspector-General to make such inquiries and investigations as he or she
thinks fit with respect to whether a person has committed an offence under the
Act (item 2). New subsections 12(2A)–(2E) set out the procedure providing notices
to persons who are believed to have information relevant to such an inquiry or
investigation (item 4). Failure to
comply with these notices is an offence punishable by up to 12 month’s
imprisonment (new subsection 12(2C)).
Various
provisions in Schedule 2 deal with
penalties under the Act, and are consequential to the introduction of a new
infringement notice regime (see items 82
and 83). These provisions insert some new penalties (generally, of 5
penalty units) and increase some existing penalties (to 25 penalty units). Offence
provisions are amended relating to matters such as:
- sequestration orders
- filing statements of affairs
- compositions and arrangements
- powers of official receivers
- surrender of passports
- notification of annulments
- trustee’s requirement to provide certificate of
registration
- trustee not to pay money into a private bank
account
- annual estate returns, trustees books, records and
accounts, and
- notification of death of trustee or
administrator
Item 82 inserts a new section 277B – Infringement notices for offences into the Act.
The new section enables regulations to be made for the issuing of infringement
notices for contravention of the Act. The regulations (and thus the details of
the infringement notice scheme) would be subject to parliamentary disallowance
under Part 5 of the Legislative
Instruments Act 2003. The table in new subsection 277B(2)
sets out the penalties payable for alleged offences. Most of the offences
listed attract only 1 penalty unit, with no offence attracting higher than 5
penalty units. Item 83 inserts a
provision into the Act allowing for penalties to be paid for alleged offences
in lieu of prosecution.
Item 84 sets out the application for the
new and changed offence provisions in Schedule 2.
Schedule 3 – Removal of bankruptcy districts
Schedule 3 sets out provisions for the
removal of references to ‘Bankruptcy Districts’ in the Act, a system which has
been deemed outdated. [20]
Schedule 4 – Other amendments
Schedule 4 sets out other amendments to
the Act, notably, to increase the threshold of the amount required for a
creditor to file a petition, or for the issue of a bankruptcy notice against a
debtor. The amendment increases the amount from $2000 to $10 000 (items 1–4).
Also
of note are:
-
item 5 of Schedule 4,
which amends the definition of stay
period from 7 days to 28 days. The stay
period is the period of time after a debtor gives the Official Reciever a declaration of intent to file a debtor’s
petition (that is, to commence the bankruptcy process) before a creditor can
take action against that debtor to recover debts, and
- item 11 of Schedule 4,
which increases the threshold amounts for eligibility for debtors to enter into
debt agreements.
[1] . R McClelland MP (Attorney-General), Reforms to personal bankruptcy laws, media release, 25 August
2009, viewed 4 January 2010, http://www.attorneygeneral.gov.au/www/ministers/mcclelland.nsf/Page/MediaReleases_2009_ThirdQuarter_25August2009-ReformstoPersonalBankruptcyLaws
[2] . See R McClelland MP (Attorney-General), Reform to remuneration of bankruptcy
trustees, media release, 30 October 2008, viewed 13 January 2010, http://www.attorneygeneral.gov.au/www/ministers/mcclelland.nsf/Page/MediaReleases_2008_FourthQuarter_30October2008-ReformofRemunerationArrangementsforBankruptcyTrustees;
and R McClelland, Speech to the Insolvency Practitioners Association of Australia National
Conference, Sydney, speech, 22 May 2008, viewed 13 January 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2FA2JQ6%22
[3] . Attorney-General’s Department, ‘Bankruptcy
Legislation Amendment Bill 2009 – Exposure Draft’, Attorney-General’s
Department website, viewed 13 January 2010, http://www.ag.gov.au/www/agd/agd.nsf/Page/Publications_BankruptcyLegislationAmendmentBill2009-ExposureDraft
[4] . S Ley MP, ‘Second reading speech: Bankruptcy
Legislation Amendment Bill 2009’, House of Representatives, debates, 26 November 2009, p. 152.
[5] . Available at http://www.aph.gov.au/Senate/committee/legcon_ctte/bankruptcy/index.htm.
[6] . Explanatory Memorandum, Bankruptcy
Legislation Amendment Bill 2009, pp. 23–24.
[7] . Ibid., p. 24.
[8] . Abacus – Australian Mutuals Limited,
Submission to the Attorney-General’s Department, Bankruptcy Legislation Amendment Bill 2009 – Exposure Draft, 23
September 2009, p. 3.
[9] . See Consumer Action Law Centre, Submission
to the Attorney-General’s Department, Bankruptcy Legislation Amendment Bill 2009 – Exposure Draft, 14 September
2009, p. 4; also Legal Aid NSW, Submission to the Attorney-General’s
Department, Bankruptcy Legislation
Amendment Bill 2009 – Exposure Draft, 14 September 2009, p. 2.
[10] .
Law Council of
Australia, Submission to the Attorney-General’s Department, Bankruptcy Legislation Amendment Bill 2009 –
Exposure Draft, 30 September 2009, p. 2.
[11] .
Proposed section
277B in item 82 of Schedule 2 to the Bill.
[12] .
Item
83 of Schedule 2 to the Bill;
proposed paragraph 315(2)(l).
[13] .
Items 2–4 of Schedule 2 to the Bill.
[14] .
R McClelland MP (Attorney-General),
‘Second reading speech: Bankruptcy Legislation Amendment Bill 2009’, House of
Representatives, Debates, 28 October
2009, p. 11169, viewed 13 January 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F2009-10-28%2F0012%22
[15] .
Item 11 of Schedule 4 to
the Bill.
[16] .
The Explanatory Memorandum (p. 5)
explains that the Regulations currently sets out a default remuneration scale
based on the IPAA Guide to Hourly Rates, and that use of this default scale has
been judicially criticised.
[17] .
There is currently no section 166 in
the Act.
[18] .
Available at http://www.comlaw.gov.au/ComLaw/Legislation/LegislativeInstrument1.nsf/0/EFD3A9500413CFD3CA25746C001BDBC1?OpenDocument,
viewed 14 January 2010.
[19] .
Explanatory Memorandum, p. 1.
[20] .
Further details about Bankruptcy
Districts are available in the Explanatory Memorandum, pp 21-23.
PaoYi Tan
18 January 2010
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