Chapter 4


Chapter 4

Provisions of the Bill

4.1        This chapter examines the drafting of the Bill and discusses any concerns with aspects of its text, as well as the remaining issues which have been identified. The committee's views on the Bill are included at the end of the chapter.

Definitions and application

Policy guidelines covered by the Bill

4.2        Item 1 of the Bill provides the following definition:

Exceptional Circumstances Exit Package means the scheme known as the Exceptional Circumstances Exit Package 2007 made under the Exceptional Circumstances Exit Package 2007 Policy Guidelines (Revised November 2010), administered by the Department of Agriculture, Fisheries and Forestry.

4.3        The definition of the EC Exit Package as that made under the revised November 2010 Guidelines may not account for the further revised version of the policy guidelines that commenced in July 2011, which covers a different period of time than the November 2010 Guidelines:

  • November 2010 Guidelines—covers claims lodged between 25 September 2007 and 30 June 2011;
  • July 2011 Guidelines—covers claims lodged between period 1 July 2011 to 30 June 2012.[1]

4.4        As noted in chapter 2, there are some other differences between the policy guidelines such as the explanatory note in the November 2010 Guidelines regarding personal insolvency agreements under Part X of the Bankruptcy Act 1966, which is not included in the July 2011 Guidelines.

4.5        In any event, the definition varies slightly to that used in the Bankruptcy Regulations to describe other rural support schemes, where a fixed point in time is nominated rather than the version of the policy guidelines being cited. For example, the Sugar Industry Reform Program is defined as:

... the scheme known as the Sugar Industry Reform Program 2004 made under the Sugar Industry Reform Program Guidelines as in force on 29 April 2004, administered by the Department of Agriculture, Fisheries and Forestry.

4.6        By defining the EC Exit Package as the scheme governed by the November 2010 Guidelines, but because the Bill covers any grants made on or after 1 July 2010, two areas of uncertainty arise:

  • the status of grants paid from July to November 2010, which would be covered by the guidelines in force before the November 2010 Guidelines;
  • the status of grants paid under the July 2011 Guidelines.

4.7        A possible alternative definition of the EC Exit Package is as follows:

Exceptional Circumstances Exit Package means the scheme known as the Exceptional Circumstances Exit Package 2007 made under:

(a)         the Exceptional Circumstances Exit Package 2007 Policy Guidelines as in force on 1 July 2010; or

(b)         the Exceptional Circumstances Exit Package 2007 Policy Guidelines (Revised November 2010); or

(c)          the Exceptional Circumstances Exit Package 2007 Policy Guidelines (Revised July 2011);

administered by the Department of Agriculture, Fisheries and Forestry.

Time period covered by the Bill

4.8        Item 4 of Schedule 1 to the Bill proposes that the Bill's amendments apply to any grant under the EC Exit Package made on or after 1 July 2010. This is subject to the proviso that a final order in bankruptcy has not been made before the commencement of the Bill.

4.9        Neither the Explanatory Memorandum nor the Second Reading Speech provides guidance on why the amendments only apply from 1 July 2010 onwards. This date does not correspond with the commencement of the program (25 September 2007). It does correspond with the continuation of the EC Exit Package announced as part of the 2009–10 Budget, but it is not clear why this is otherwise a key date.

4.10      This could result in differences in bankruptcy treatment between EC Exit Package recipients, depending on whether they received their grant before or after 1 July 2010.

4.11      The wording of item 4 refers to grants made on or after 1 July 2010. This seemingly differs from the overall approach taken by DAFF in administering the program, which is more focused on the date an application is received. Indeed, the program was closed to new applicants on 10 August 2011, but applications submitted prior to close of business on that day, (including by mail) will be still be assessed.[2]

4.12      Whether a grant was made on 30 June 2010 or 1 July 2010 appears relatively arbitrary. As an applicant can decide the date they apply for the grant, but not the date the application is assessed nor the date they receive the grant, it may be appropriate to amend item 4 of Schedule 1 to the Bill to instead focus on the date an application was lodged.  

Meaning of 'final order in bankruptcy'

4.13      Item 4 of Schedule 1 to the Bill stipulates that the amendments made by the Bill apply

... in relation to any grant under the Exceptional Circumstances Exit Package made on or after 1 July 2010, where a final order in bankruptcy has not been made before the commencement of this item [Item 4].

4.14      The Insolvency Practitioners Association (IPA) raised some concerns about the wording of this item, suggesting that the phrase 'where a final order in bankruptcy has not been made' is unclear, and that the Explanatory Memorandum 'further confuses the issue'. The IPA noted the phrase suggests:

... a court order, not a voluntary bankruptcy. If that were the case, we would need to understand the policy behind that.[3]

4.15      The Attorney-General's Department made a similar observation, but also noted:

The reference to "final orders" could also lead to confusion as the term "final order" is used in a different context in the Act (see s 40(1)(g)).[4]

4.16      The IPA recommended that Item 4 be amended to refer to 'the date of the bankruptcy', a concept that is defined in subsection 5(1) of the Bankruptcy Act.[5]

Regulation 6.04A and 6.04B

4.17      Item 2 of the Bill proposes to amend regulation 6.04A of the Bankruptcy Regulations 1996. Item 3 seeks to amend regulation 6.04B.

4.18      Paragraph 116(2)(k) of the Bankruptcy Act allows for 'amounts paid to the bankrupt under a rural support scheme prescribed for the purposes of this paragraph' to be excluded from counting as property available for the payment of debts. Regulation 6.04A was made under this power.

4.19      Paragraph 116(2)(l) of the Bankruptcy Act is phrased in similar terms to paragraph 116(2)(k) but is more limited in scope—it covers prescribed rural support schemes 'where the amounts are paid in circumstances prescribed for the purposes of this paragraph'. That paragraph, therefore, has a more targeted application than paragraph 116(2)(k) as it allows certain aspects of the scheme to be prescribed, rather than the entire scheme.[6] Regulation 6.04B was made under this power.

4.20      Currently, Regulation 6.04A lists the following rural support schemes:

  • Dairy Exit Program Scheme 2000; and
  • Farm Help Re-establishment Grant Scheme.

4.21      Regulation 6.04B includes the following:

  • 1985 Rural Adjustment Grant Scheme;
  • 1988 Rural Adjustment Grant Scheme;
  • Rural Adjustment Grant Scheme;
  • Rural Adjustment Scheme;
  • Rural Reconstruction Grant Scheme;
  • Sugar Industry Reform Program; and
  • Tobacco Grower Adjustment Assistance Package.

4.22      As the lists show, no scheme is currently prescribed for the purposes of both regulation 6.04A and 6.04B. It is not clear that this is necessary, and doing so may create confusion. So the intent of the Bill is clear it may be beneficial that only one of the proposed amendments (i.e. either item 2 or item 3 of Schedule 1 to the Bill) remain in the Bill. As the proposed amendment in item 3 is more descriptive about the types of payments intended to be prescribed, it may be more appropriate that amendments to regulation 6.04B be pursued rather than amendments to regulation 6.04A.

Other practical considerations

4.23      The Attorney-General's Department suggested that if the Bill was passed some of the grant money received under the EC Exit Package could still find its way to creditors, depending on the ability of the bankrupt to prove how the funds have been spent:

If none of the monies received have been spent and the grant money is readily identifiable the bankrupt would retain the payment. If some of the monies received have been spent and/or the money has been commingled with other money the bankrupt would have to provide evidence to the trustee regarding the source of the money.[7]

4.24      The possibility of the grant money being used frivolously by a bankrupt was also noted (although the IPA pointed out this was 'merely a hypothetical example'):

If they purchase an expensive car with those moneys, that car does not vest in the trustee because of the operation of s 116(3). This is no different from other similar exclusions in bankruptcy. For example, bankruptcy law does not debate what a bankrupt person does with their personal injury moneys, which are also exempt.[8]

Committee view

4.25      Based on the evidence provided to the committee during this inquiry, as well as information otherwise available, the committee has formed the view that the Bill should not be passed.

4.26      The EC Exit Package was introduced in 2007 as a response to the severity of the drought. It was designed to assist farmers who choose to leave farming as a result of difficult circumstances to re-establish themselves in another sector. The committee understands the stress that financial hardship can place on farmers in difficult financial positions. The committee also appreciates that having grants under the EC Exit Package count as divisible property for the purposes of bankruptcy may not seem to be in line with the objectives of the program.

4.27      However, the proposal contained in the Bill could actually work against the aim of such a scheme by discouraging or delaying individuals from making timely decisions about their future in the sector (noting that the EC Exit Package has been discontinued as of 10 August 2011).

4.28      Further, not exempting rural support schemes is an approach consistent with the current treatment of a myriad of other government grants and payments. The committee considers that diverging from this approach could only be justified if the intent of a government program could not be achieved without an exemption from bankruptcy, or unless there were other clear extenuating circumstances. It has not been demonstrated that the objectives of the EC Exit Package have not been met because of bankruptcy considerations.

4.29      The committee is also concerned about the possible impact the proposal could have on certain vulnerable creditors—particularly small businesses in regional communities that are owed money from the debtor.

Recommendation 1

4.30      The committee recommends that the Senate reject the Bill.

Senator Mark Bishop

Chair

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