CHAPTER 3
Key issues
3.1
Submissions and witnesses expressed support for the overall objective of
the Bill: that is, to modernise the national personal insolvency scheme and improve
its efficiency. However, for some, this support did not extend to certain
provisions of Schedule 4. The three key issues arising in relation to Schedule
4 are discussed in this chapter:
- the threshold for a creditor's petition;
- the increase in debt, income and asset thresholds for debt
agreements; and
- the increase in the stay period following a declaration of intent
to file a debtor's petition.
The threshold for a creditor's petition
3.2
The Australian Government has taken the view that bankruptcy tends to
involve people who have fallen on hard times, rather than debtors seeking to
escape payment of their debts. The Bill therefore introduces measures aimed at
giving those in financial distress a more realistic opportunity to consider
their options, reorganise their affairs, and, where possible, avoid bankruptcy.[1]
3.3
One such measure is contained in item 1 of Schedule 4, which proposes to
increase the threshold for a creditor's petition from $2,000 to $10,000.
Submitters and witnesses were divided on this issue, with some supporting the proposed
new threshold and others expressing concern with the increase.
Support for the increased threshold
3.4
In general, those who supported the proposed new threshold did so on the
grounds that a $10,000 threshold is more appropriate than the $2,000 threshold
set in 1996; and, further, that a $10,000 threshold will prevent minor abuse of
the bankruptcy system by some creditors.
3.5
The Consumer Action Law Centre (CALC), for example, submitted that the
increased threshold would prevent the inappropriate use of bankruptcy laws by
creditors seeking to recoup small debts. The CALC stated that a creditor's
petition triggers a process which can significantly impact on debtors and their
families. In its view, the bankruptcy process should never be used for the collection
of small debts:
It is the excessive cost and disproportionate impact of
bankruptcy, combined with the existence of alternative debt collection
processes that makes the use of bankruptcy to collect a debt under $10,000 so
harsh, unfair and punitive to the debtor. [2]
3.6
The CALC, and others, referred particularly to Eastern Access Community
Health's November 2007 report, Homes at risk: using bankruptcy to collect
small debts, which noted:
Mainstream creditors are currently paying more attention to
the development and implementation of financial hardship policies for debtors
in financial difficulty. Attention to responsible collection of debt beyond
this stage would be welcomed by financial counsellors. Using the bankruptcy
regime to collect small debts should be a last resort.[3]
3.7
In relation to a minimum debt amount, the CALC went on to submit that a
$10,000 threshold is appropriate in view of the Consumer Price Index (CPI) and increases
in personal debt levels since 1996:
The [Eastern Access Community Health] report, which is the
only detailed investigation into this issue, concluded that the minimum debt
amount should be increased from $2,000 to $10,000. We agree that this is an
appropriate level for 2009. The threshold amount was last raised from $1,500 to
$2,000 in 1996, however, the original minimum debt amount was, in fact, set in
1966 at $500. This amount has not kept pace with inflation or other market
changes, being raised only sporadically since that time. At current values, the
$500 original threshold would equate to over $5,000 merely as a result of
inflation. In addition, the consumer credit market has been transformed since
1966. Personal debt levels are increasing exponentially and considerably larger
amounts of debt are now routinely carried by consumers. Forced bankruptcy in
order to liquidate a person's home over a $5,000 debt is a manifestly
disproportionate response to the size of such a debt.[4]
3.8
The views in paragraphs 3.5 to 3.7 were shared by the Homeless Persons'
Legal Centre (a project of the Public Interest Law Clearing House (PILCH)), the
Consumer Credit Legal Centre NSW (CCLC), the Financial and Consumer Rights
Council (FCRC), and Legal Aid NSW.[5]
3.9
While supportive of the increased threshold, the CALC, and others,
called for clarification of the threshold amount; that is, whether it relates
to the original amount owing or the amount owed at the time the petition is
presented, which could also include collection costs, late fees, and interest:
We have seen several cases in which a creditor or debt
collector owed a small debt below the minimum debt amount in the Act has simply
waited until costs have accrued on the debt and, once the debt amount has
passed the threshold, they have pursued bankruptcy proceedings.[6]
Opposition to the increased
threshold
3.10
In contrast, other submitters and witnesses expressed concern with the Bill's
proposal to increase the minimum threshold for a creditor's petition.[7]
These concerns primarily focussed on a lack of evidence for the need to
increase the threshold, and a perceived failure to attack the root causes of
financial hardship.
3.11
The Australian Institute of Credit Management (AICM) argued that it was
inaccurate to characterise the majority of bankrupts as having 'fallen on hard
times'. In support of its position, the AICM drew on annual reports of the
Inspector‑General in Bankruptcy, which show that:
- more than half of bankruptcies in 2008‑09 occurred in the
over 35 age bracket; and
- the occupational profile of bankrupts discloses a four‑fold
increase since 2005 in the percentage of bankrupts who are managers or
administrators, as well as a three-fold decrease in the percentage who are
students, pensioners, retired or unemployed.[8]
3.12
Similarly, Bartier Perry submitted that the rationale for the increased threshold,
and the statistics put forward by the Australian Government to support that
change, are 'misconceived'.[9]
This view was supported by the Insolvency Practitioners Association of
Australia (IPAA). The IPAA told the committee:
...if there is a case for the increase of that threshold, we do
not think the case is made out in the information provided in the explanatory
memorandum and elsewhere. We think that there should be clear statistical or
other evidence that would show that, where a petitioning creditor's debt is
under $10,000 or, let us say, close to $2,000, that results in a bankrupt
estate of minimal assets and liabilities. That information, we feel, would be
available, and we do not feel that the information that has been provided
substantiates that.[10]
3.13
The committee asked the IPAA precisely what was wrong with the figures
set out in the REM. In response, the IPAA described the figures as 'bald', and
indicated that a further level of detail is required to determine whether the
existing threshold is sufficient, that is, whether it is actually resulting in 'small
bankruptcies':
Sequestration orders made where the amount claimed was, in
effect, below $10,000, do not seem to take the matter very far. Of those
bankruptcies—and I am just speaking broadly—we would like to know to what extent
they were very small bankruptcies in terms of number of debts and number of
assets. That is not shown, and that is really the substance of what I think
this whole issue is about...I suppose it is a matter of policy as to whether a
person should be able to go bankrupt when their ultimate debt position is
$4,000—they have got $4,000 worth of debts—and they have got $3,000 in the bank...I
think that there is a feeling that is not appropriate and that person might be
dealt with in another way.[11]
3.14
The IPAA went on to tell the committee that the Bill would also create
an unjustifiable disparity between the personal and corporate insolvency
regimes, where the latter does not appear to need an increase in its threshold
amount:
There has been no parallel move or comment or request for
increase in corporate insolvency. One fundamental point about insolvency, in
both personal and corporate, is that the debt upon which the petitioning
creditor relies to trigger the insolvency is only a trigger amount.[12]
3.15
PPB Pty Ltd (PPB), an advisory firm practising in insolvency, separated
bankrupts into two categories: unwilling debtors; and incapable debtors. While
the Australian Government has identified those in the latter category as in
need of assistance, PPB considered that:
Denying creditors access to the bankruptcy process does not
encourage Incapable Debtors to deal with their debts. Instead it allows them to
further defer dealing with their problems. The consequence is that debts will
be allowed to increase to a less manageable level before the debtor is obliged
to deal with the problem.[13]
3.16
Some submitters also took issue with the apparent assumption that
creditors are not using alternate debt collection processes. Bartier Perry
submitted that creditors are using all means at their disposal to recover debts
owed to them:
Individual creditors and small businesses are much less
capable of in effect writing off debts under $10,000...It is, with respect,
somewhat insulting to suggest that simply because they have debts less than $10,000
these creditors have 'other options' which they have somehow failed to explore
and which would lead to a recalcitrant debtor complying with his or her
obligations. There is no evidence whatsoever that these 'other options' are not
being pursued.[14]
3.17
The AICM also submitted that seeking payment of debt through lodgement
of a creditor's petition remains a relatively unpopular avenue for creditors,
featuring in only nine per cent of bankruptcies:
...the decision to pursue a debt through the provisions of the Bankruptcy
Act 1966 (Cth) is only made when a thorough assessment of the debtor’s
situation has been undertaken. There is little purpose in seeking to exercise
remedies under the Bankruptcy Act if the individual concerned has no
assets and little or no income. Creditors' petitions are primarily utilised in
situations where the individual has assets and income and is in a position to
meet their obligations albeit reluctantly.[15]
3.18
At the public hearing, an AICM representative also suggested that there
would be no real need for the new threshold or, implicitly, any other reforms
proposed by the Bill, given the recent introduction of a number of significant
legislative reforms (such as the Personal Property Securities Act 2009):
...we feel that it would be preferable to let those reforms
take place and become part of the financial and credit and debt recovery domain
before this amendment proceeds, because we feel that at that stage you may find
that it is actually not necessary.[16]
What is an appropriate increase?
3.19
Submitters and witnesses differed in their views as to what would be an
appropriate increase to the threshold amount. If there were to be any increase,
some suggested that a $5,000 threshold would be sufficient.[17]
However, for those in favour of the threshold proposed in the Bill, $5,000 was
considered far too low.
3.20
The Australian Finance Conference (AFC) and the Australian Bankers'
Association (ABA) both expressed a preference for a $5,000 threshold, on the
basis that:
It is unclear how the proposed threshold has been arrived at
and [it] may operate as a disadvantage to small business operators who are
generally owed debts of much smaller amounts.
A change of this magnitude further signals to a debtor that a
failure to pay far lesser amounts is unlikely to result in bankruptcy at the
suit of a debtor's creditors and so dilute the importance to the debtor of the
debtor's obligation to pay.
Where a debtor's liabilities to pay accrue over time, for
example a strata title owner's payments to their body corporate management
company, it may take several years before enforcement action with the prospect
of bankruptcy can be undertaken.[18]
3.21
The IPAA also considered $5,000 to be a more appropriate threshold
amount for a creditor's petition, on the basis of a previous CPI assessment of
the 1996 figure. However, the IPAA emphasised that the amount merely serves as
a trigger:
...there is a lot of focus on this figure which is not
necessarily relevant...to what the extent of the insolvency may ultimately be. I
think the figures are there to demonstrate it, but they just have not been
extracted. For example, we do not know to what extent, for petitioners with
$2,000 worth of debt, a bankruptcy results with that being the only debt or
with the other debts even smaller than that totalling no more than $5,000. It
really is, as I said, just a trigger point—a trigger debt. Insolvency law
requires a creditor to show that the debtor against whom they are bringing the proceedings
is insolvent. That insolvency is in effect demonstrated by the fact that that
debtor cannot pay on the bankruptcy notice an amount of $2,000.[19]
3.22
Much of the evidence received by the committee focussed on the current
threshold amount of $2,000 set in 1996, and what would have happened to that
figure over time. Supporters of the proposed new threshold also claimed that
making appropriate adjustments to the 1996 figure would not equate to a threshold
amount of $5,000. For example, the CCLC contended:
Five thousand dollars is clearly too low. There would be no
point making this reform if this were the amount. It would not protect people,
particularly given that solicitors' fees and legal costs have risen greatly
since this has been put in. Worse, it would be less than the original amount of
$500 set in 1966, adjusted for inflation—and that is not even taking into
account the huge changes in personal debt since 1966...You do not make good
policy by simply picking a number roughly in the status quo; you make sure it
is appropriately chosen. The policy underlying the bankruptcy system needs to
deal with genuine insolvency. It has not been created simply to provide another
tool for debt collection.[20]
3.23
Similarly, the CALC questioned the basis for selecting $5,000 as the
threshold amount, and intimated that this figure has been 'plucked out of the
air' by businesses opposed to the threshold amount proposed in the Bill:
...there is actually plenty of evidence to suggest that the amount
should be raised to $10,000. The first time any other amount has been raised is
during this process when they have tried to pick an amount in the middle
because they do not like it being raised to $10,000.
The only comprehensive report in this area is the Homes at
risk report which had 25 case studies. It based its recommendation on an
analysis of all of those case studies and the law in the area. It came up with
the figure of $10,000. We know from the statistics that [Insolvency and Trustee
Service Australia] provided in its submission and that are in the explanatory
memorandum to the bill that it is only a small amount of creditors' petition
initiated bankruptcies that are under the $10,000 limit again suggesting that
is the correct amount and that it is only a small number of cases that it would
affect. We have provided plenty of case studies in our submission and I know
other groups did as well. These also suggest that $10,000 is the correct
amount. The amount of $5,000 is patently too low.[21]
Department response
3.24
At the public hearing, officers from the Attorney‑General's
Department (Department) reiterated the view that a $10,000 creditor's petition threshold
is appropriate. Officers told the committee that the Department had held
stakeholder consultations and had adopted a balanced approach in the Bill:
[The government] believes that that threshold is appropriate
given the magnitude of the consequences that bankruptcy has for a debtor, the
cost and complexity of bankruptcy proceedings compared with other available
debt collection methods, and the increase in levels of consumer debt.[22]
3.25
Departmental officers indicated that CPI changes to the 1996 amount were
one factor taken into consideration by the government when determining the
proposed new threshold.[23]
When asked what CPI had done to the 1996 amount of $2,000, the Department
advised that it would be $2,770 in 2009 dollars.[24]
3.26
Although some witnesses argued for indexation of the proposed threshold,[25]
the Department confirmed that this approach is not favoured by the Australian
Government:
...this is a very significant trigger for a creditor to pull on
somebody to make them bankrupt and...parliament in enacting legislation in this
area is making a very significant decision about what that figure should be...In
terms of indexing it, again, the change from $2,000 to $10,000 is about more
than just changes in the value of money; it is about recognising the cost and
complexity of bankruptcy, the overall shift in the demographics of bankruptcy
and the level of debt that is owed. So we did not really think that indexation
was the right approach to take, particularly when the government is already
proposing to make a very significant increase on that basis.[26]
3.27
The committee also asked whether the Department had conducted any
research into the asset and liability positions of debtors who were made
bankrupt for debts of between $2,000 and $10,000. Departmental officers stated
that no such investigations had taken place in relation to the Bill, because
the information was not relevant to the policy intent:
The policy intent here is to say to a creditor who is owed
less than $10,000, 'We are taking away the right for you to commence bankruptcy
proceedings.' It does not matter to that creditor what the overall indebtedness
is.[27]
The increase in debt, income and asset thresholds for debt agreements
3.28
Item 11 of Schedule 4 of the Bill would raise by 20 per cent the
eligibility threshold to enter into a debt agreement. This measure attracted
support from a number of submitters, including the ABA and the IPAA.[28]
3.29
However, the CALC (and others) expressed 'major concerns' with the
proposal, citing ongoing problems with the 'administration of such debt
agreements and their appropriateness for many of the debtors to whom they are
marketed and sold'.[29]
Providing a number of case studies, the CALC went on to submit:
...financial counsellors have reported that many of their
clients have been lured into unrealistic and unsustainable debt agreements, and
we are concerned that the large number of unsuccessful agreements is driven by
the large fees retrievable by debt agreement administrators under the
agreements. 11,353 debt agreements were proposed in the 2008‑09 year and
8,599 of these proposed agreements were accepted by creditors but only 29
agreements were completed during the year...[A] 2005 report...found that many
debtors failed to comply with their debt agreement after being unable to
maintain payments that were unlikely to have been sustainable from the start.[30]
3.30
The committee heard from CCLC representatives that debt agreements are
proving counterproductive, and are placing debtors in a worse situation than
they would have been in had they been able to make an informed choice prior to
entering into such an agreement:
We see a whole lot of other people who have gone into a debt
agreement and a little while down the track it has become apparent that they
either cannot pay or their circumstances changed yet again, whereas if they had
been bankrupt in the first place or had had an informal agreement in place with
their creditor they might have been on the way to getting back on track by that
stage. Instead, they have to go through the bankruptcy process at that later
date and a lot of the money does not go through to the creditors anyway. There
is a situation where people are actually in limbo—that is, where they are not
bankrupt, they are not in their debt agreement anymore and they may or may not
be being sued—and it is really a big mess.[31]
3.31
The FCRC also argued against an expansion of the eligibility criteria
for debt agreements, and observed:
It is also important to recognise that many debtors enter
into debt agreements under the false belief that they will avoid the
consequences associated with bankruptcy. For example, entering into a debt agreement
will be recorded on a person's credit information file in a similar manner to
bankruptcy and the person's name will be recorded permanently on the National
Personal Insolvency Index. It is also generally considered an 'act of
bankruptcy' under clauses in typical consumer lending arrangements such as
mortgages, triggering default or foreclosure options for lenders.[32]
3.32
At the public hearing, witnesses commented on the extensive work of the Insolvency
and Trustee Service Australia (ITSA), and its efforts to encourage people to
consider all available options. The AICM also advised:
...there is a document that is produced jointly by the [Australian
Competition and Consumer Commission] and [Australian Securities and Investments
Commission] on debt collection. There are two versions. There is one for
creditors and one for debtors. They are incredibly useful guides to help people
understand what their alternatives are from both sides of the picture. We feel
that, coming out of the legislative reforms, in particular national consumer
credit protection, more material of that sort in this easy, usable, friendly
format is going to assist people.[33]
3.33
Both the CALC and the FCRC recommended that the Australian Government should
review the recommendations of the Consumer Credit Legal Service and Eastern
Access Community Health's 2005 report, Debt Agreements: Remedy or Racket,
as well as the operation of debt agreements, prior to any amendment of the debt
agreement eligibility requirements.[34]
The CCLC also recommended that the threshold not be increased until a
government review of the debt agreement regime is undertaken in 2010.[35]
Department response
3.34
The Department explained the increased eligibility requirements for debt
agreements on the bases that the reform will increase access to the arrangements,
and that such arrangements provide greater returns than the bankruptcy system:
This will give more debtors access to debt agreements. Debt
agreements provide, on average, far superior returns to creditors than
bankruptcy. In 2008-09, 60c in the dollar—this is dollars actually paid to
creditors, contrary to what you have heard from witnesses earlier this
afternoon—was paid for the agreement system. That compares with [$0.134] for
all bankruptcies.[36]
3.35
Departmental officers also noted that creditors appear to have more
confidence in the debt agreement system since reforms came into effect on
1 July 2007:
The rate of acceptance of debt agreement proposals has
increased from around 70 per cent to well over 80 per cent, and there has been
a significant reduction in the termination rate, which is about six per cent
down from well over 30 per cent for debt agreements made since the 2007
reforms.[37]
3.36
At the public hearing, the committee received conflicting evidence in
relation to completion and failure rates for debt agreements. According to some
witnesses, as little as 3.7 per cent of debt agreements were completed over the
2006‑09 period.[38]
3.37
However, the Department contested this view. The Department indicated that
the presentation of information in the Inspector‑General in Bankruptcy's
2006‑09 report is confusing as it covers debt agreements made both before
and after the 1 July 2007 regulatory reforms. After much discussion
concerning how debt agreements are tracked, a departmental officer concluded
that completion rates have improved, and continue to improve:
...when we did the review of debt agreements prior to the 2007
amendments, the formal termination rate was around a third, but only about a
third of agreements were actually completed. There was this other group that
just went off into limbo—people lost interest in them. So the actual
termination rate was over 30 per cent. If you only look at debt agreements made
under the new system, from 1 July 2007, until either the end of October or the
end of November last year—so we are talking nearly 2½ years—6.1 per cent had been
terminated...In our view, those numbers demonstrate that the failure rate has
diminished very significantly. So the way that the numbers are moving at the
moment would suggest that, in a year or two, when we look at that table again
and see what has happened to agreements that have been in place since July 2007—over
four or five years—a much higher percentage of those will have been completed
than had been under the old system.[39]
The increase in the stay period following a declaration of intent to file a
debtor's petition
3.38
Item 5 of Schedule 4 of the Bill would increase the stay period
following a declaration of intent to file a debtor's petition from seven days
to 28 days. This measure attracted widespread support,[40]
with some exceptions.[41]
3.39
Among the supporters was the Australian Financial Counselling and Credit
Reform Association (AFCCRA). A representative of AFCCRA told the committee:
...the whole point of...[the reform] is to give people an opportunity
to seek some advice about their financial position. Seven days is just far too
short a time to do that. You will not get an appointment with a financial
counsellor, generally...[and] people are incredibly stressed in these
circumstances. They need counselling and they need time. It certainly does not give
you a chance to potentially negotiate with your creditors. So it has been an
ineffective provision, other than allaying enforcement action, which is what
happens.[42]
3.40
The CCLC agreed with this view, using similar reasoning to argue against
the proposed requirement that a statement of affairs must be completed at the
same time as a declaration of intent to file a debtor's petition:
[Declarations of intent]...are a stopgap measure to try and
save the situation so you can get your kids to school, you can get to work and
things like that because you are genuinely insolvent and you just need time to
see a financial counsellor. We should not add a statement of affairs to the burden
of doing that in a desperately difficult situation where you basically have
about 10 minutes, because the sheriff has told you he is coming—he or she...The
idea that you are going to be carefully filling out a statement of affairs is
absurd. Nobody has time to do anything except put your name, address, who you
are and that you need one...
Anybody who then goes to see the financial counsellor is
suddenly in this awful position where they have filled out one form in a mad
rush, in absolute terror of something terrible happening to them, and then they
go to fill out a form with the financial counsellor and they do not match.
Everybody, even the most literate people, will make mistakes
in a rush.[43]
3.41
In contrast, opponents of a 28‑day stay period argued that debtors
would not necessarily use the additional time as envisaged by the government,
and this leeway would be to the detriment of legitimate creditors. For example,
the AFC submitted:
Ideally, providing a longer period [than seven days] would
encourage greater dialogue between debtors and creditors with a view to working
out alternative arrangements to settle debts. In reality there are doubts that
the 28 days would be used for that purpose. In the meantime, legitimate
judgement debts cannot be enforced.[44]
3.42
The ABA agreed:
...the ABA considers that the stay on creditors' rights of enforcement
for 28 days is too long when taking into account the interests of creditors
whose judgment debts cannot be enforced in that period and that 14 days would
be a better balance with the need for the debtor to understand the implications
of bankruptcy and other options that may be available.[45]
3.43
Westpac concurred, stating:
The proposed 28 day moratorium is too long and likely to
create an excessive delay in agreeing a customer solution.
A 14 day moratorium strikes the right balance between the
debtor and creditor(s), assisting in retaining a sense of urgency while
providing a more reasonable timeframe for both parties to reach an appropriate
outcome.[46]
Department response
3.44
The Department considered 28 days to be a 'happy medium', during which
time debtors might be able to 'get themselves back on their feet'. Officers affirmed
that the government does not support a shorter time period, on the basis that
such a period would not give debtors sufficient time to make a considered
decision:
There are long waiting lists for appointments with financial
counsellors and if a person has multiple creditors it may take some time to
negotiate with all of them. Creditors will also benefit from the new
requirement that the official receiver must notify them when a declaration of
intent is lodged. This allows creditors to be proactive in negotiating with
debtors who can then possibly avoid bankruptcy. In addition, the requirement to
file a simple statement of affairs with a declaration makes it more likely the
debtors will have considered their situation and received advice before
deciding what steps to take next. Of course, it will always be open to
creditors and debtors to reach a negotiated agreement in less than 28 days.[47]
3.45
Departmental officers acknowledged the concern that some debtors might
not use the extended stay period as intended. In this regard, officers stated
that the requirement for a declaration of intent to be filed with a statement
of affairs will assist in the tracking of any dissipated assets:
If...[debtors] then proceed into bankruptcy, that act of
bankruptcy which has occurred before they actually become bankrupt, as long as
it occurs within the six months prior to bankruptcy, will be the start of their
bankruptcy. Everything that happened from the day that they file this declaration
will be undone if they do eventually become bankrupt, which is arguably more
likely if they are using that period to defeat their creditors.[48]
3.46
Officers from the Department and ITSA also told the committee that the
statement of affairs intended to be filed with a declaration of intent will be
a simple three‑page document, the sole purpose of which will be to serve
as a record of assets and not as a forensic document.[49]
Committee's view
3.47
Based on the evidence presented throughout the inquiry, the committee considers
that the Bill should be passed in its present form.
3.48
The committee notes that the purpose of the Bill is to modernise the
national personal insolvency scheme and to make it more efficient. While the
Bill contains numerous provisions to this effect, the inquiry focussed on the proposed
measures to assist debtors who owe relatively small amounts. Those measures aim
to improve opportunities to consider options, reorganise affairs, and, where
possible, avoid bankruptcy.
3.49
In this context, the committee considers it appropriate to increase the
existing $2,000 threshold for a creditor's petition to $10,000. The threshold
should recognise significant changes in personal debt levels over the past 14
years, as well as the cost and complexity of bankruptcy proceedings (as
compared with other available debt collection methods), and the magnitude of
the consequences that bankruptcy has for a debtor. The committee adds that, in
this day and age, it would be harsh and punitive to bankrupt an individual on
the basis of a debt as low as $2,000. The committee accepts that $10,000 is an
amount that appropriately balances the interests of all relevant parties.
3.50
In relation to debt agreements, the committee supports the proposal to
increase the eligibility threshold by 20 per cent. The committee endorses the
availability of debt agreements as an alternative to bankruptcy proceedings,
and accepts the Department's evidence that debt agreements provide far superior
returns to creditors than the bankruptcy system. While available statistics are
somewhat confusing, they do suggest that debt agreements are fulfilling their
purpose. The committee welcomes the Department's proposed review of the debt
agreement regime later this year, and looks forward to the outcomes of that
review.
3.51
As far as the stay period is concerned, the committee agrees that the
period should be increased from seven to 28 days to allow debtors a greater
opportunity to review and organise their affairs. The committee notes that
there are existing mechanisms to deal with debtors who misuse the stay period
by dissipating assets.
3.52
On a final note, the committee observes the numerous comments regarding the
stress that financial hardship can place on debtors and their families. The Bill's
objective is to seek to assist such people as much as possible. The committee
concurs with this objective and suggests that, when the Bill comes into
operation, the Australian Government take steps to better educate and inform
debtors of their legal position and options available to them to avoid
bankruptcy.
Recommendation 1
3.53
The committee recommends that the Senate pass the Bill.
Senator
Trish Crossin
Chair
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