Sussan Ley (Farrer, Liberal Party, Shadow Minister for Justice and Customs) Share this | Link to this | Hansard source

I rise to speak on theBankruptcy Legislation Amendment Bill 2009. The coalition supports the passage of this bill. The main purpose of the amendments to be made by this bill is to modernise the national personal insolvency scheme and to make it more efficient. These are tough economic times which have an impact on many Australians. The 2008-09 financial year produced the highest ever level of personal insolvency—a total of 36,479 administrations. In the last year there was an 11 per cent increase in bankruptcies and the vast majority of these are non-business bankruptcies principally involving consumer debts. As mentioned in the explanatory memorandum, the bill includes amendments which recognise that the majority of bankruptcies relate to consumer debts and involve bankrupts with relatively few assets and little income. Given the circumstances surrounding most bankruptcies, the system could do more to encourage informed decision making and access to alternative solutions. The reality is that many debtors who are overwhelmed by debts find it difficult to deal with all their creditors and may not always have the time, the wherewithal or, to put it this way, the emotional engagement to do this at what is a very stressful time of life.

There are also opportunities to ensure that debtors receive information and advice from a wide range of sources which will assist in rational decision making. These issues are addressed by the amendments to extend to 28 days the period of effect of a declaration of intent to file a debtor’s petition and increasing the availability of debt agreements. The bill is intended to streamline and update the regime to reflect the change in the value of money since the last significant revisions in 1996. The most important of these are to increase the minimum amount for which a creditor may petition from $2,000 to $10,000. In addition, the threshold amount for debt agreements has been increased by 20 per cent.

The bill aims to bring about changes to fixing and reviewing trustee remuneration, strengthen penalties for bankruptcy offences, remove the concept of bankruptcy districts in personal insolvency administration, increase the minimum debt for a creditor’s petition to reflect changes in the economic environment, increase the stay period following the declaration of intent to file a debtor’s petition, and increase the debt income and assets tests thresholds for debt agreements to ensure the thresholds keep pace with increasing wages and the increasing availability of credit.

Concerns have been raised by industry stakeholders that the raising of the creditor’s petition threshold will excise a substantial portion of consumer debt from the bankruptcy regime and may compound cash flow problems for small businesses. Some insolvency practitioners, particularly those with a significant practice in arranging debt agreements, have complained that the lifting of the bankruptcy threshold will reduce the utility of the debt agreement limit.

Though the coalition supports the bill, we foreshadow amendments that may be made in the Senate following the committee’s report. The Senate Legal and Constitutional Affairs Committee is due to report on 2 February 2010. The coalition is committed to ensuring our bankruptcy laws are able to deal with personal insolvency issues quickly and efficiently so that those affected can get back on their feet and get on with their lives as soon as possible. We do recognise that there must also be protection for creditors to ensure that bankruptcy laws are not misused. I commend the bill to the House.

Julie Collins (Franklin, Australian Labor Party) Share this | Link to this | Hansard source

I rise to indicate my support for theBankruptcy Legislation Amendment Bill 2009. This bill is part of the government’s wider macroeconomic reform agenda which continues to improve the effectiveness of Australia’s credit market. The amendments in this bill are designed to modernise Australia’s personal insolvency system. They will also give people in financial distress a more realistic opportunity to consider their options and where possible avoid bankruptcy.

The objectives of the bill specifically are to provide a more streamlined process for fixing trustee remuneration and a more transparent process for reviewing that remuneration; to strengthen the penalties for some offences and ensure that these are in line with the penalties for other similar offences; to remove the outdated concept of bankruptcy districts in order to provide more flexibility in personal insolvency administration; and to ensure that those who find themselves in financial difficulties have access to proper information and advice about all options when it comes to insolvency.

The amendments, I believe, strike a real balance between the rights of debtors and creditors when they access the insolvency system. The bill protects the debtor when it comes to additional fees often charged through the insolvency and bankruptcy process. There will be an increased flexibility for debtors to pay their debt and for creditors who are recovering debts. Financial distress, as we all know, is not a pleasant situation to be in whether you are a small business operator or an individual. These amendments are important additions to strengthening Australia’s personal insolvency system as they will combine protectionist measures alongside the financial options to assist people to still pay their debt while avoiding bankruptcy, or having bankruptcy as the last resort.

In addition to these changes we are also seeking an increase in the minimum debt threshold. Currently, people can claim bankruptcy or be forced into bankruptcy for what I believe are small debt amounts. Where the debtor owes at least $2,000 creditors can petition for bankruptcy. This amount has not been updated since 1996. We seek to increase the minimum debt for a creditor’s petition to $10,000. A change to the minimum debt level is an important part of this reform package. It will assist to end a creditor’s inappropriate means of enforcing payment of very small debts where cases such as these often result in trustee’s fees which are many times the amount of the original debt.

Along with an increase in the minimum debt, the amendments also include an increase in the stay period for declarations from seven to 28 days for automatic defaults. A longer stay period will increase the likelihood of the debtor obtaining proper information and advice about their financial options to make an informed decision. This will allow the debtor to take charge when it comes to negotiating alternative arrangements and to try to avoid bankruptcy. The debtor will be required to file a simple statement of affairs with the declaration. This will mitigate the risk of the debtor dissipating assets during the period and provide an opportunity to explain to the debtor the seriousness of the action that is being taken. If confronted by short time frames and financial problems, it is not always easy to consider all of the options and get appropriate advice quickly. So these extra days will be an appropriate and relevant change within this legislation.

As I said earlier, these amendments offer a balanced approach to debtors paying monies owed and creditors recovering the debts. What these amendments will offer creditors are also options when seeking to recover debts. Their first option will not be to force bankruptcy on an individual—debt agreements will also be more readily available as a tool for debt collection. For some Australians in financial difficulty, bankruptcy is the only option to solve their financial woes. For some, it seems an easy choice at the time for someone who owes money to creditors. Some believe simply claiming bankruptcy will make their problems go away. Admittedly bankruptcy, whether it is forced or voluntary, is a control mechanism to assist people to confront their financial situation. However, claiming bankruptcy is a last resort and is not as simple as just signing your name away on a piece of paper—nor should it be.

Claiming bankruptcy brings with it many disadvantages. There is a distinct lack of control when a person becomes bankrupt. There are restrictions on the bankrupt’s life in the future. There is a permanent record of the bankruptcy kept on the National Personal Insolvency Index. Assets will be sold, investigations of their financial affairs will occur and there can be mandated contributions from their income once they earn over a certain amount.

What this bill does is give people in financial distress more options before they head down this path of bankruptcy. One of the options made available to debtors through these amendments is having access to a debt agreement rather than a bankruptcy claim. Debt agreements will give debtors more choice while at the same time giving creditors a better return on the money that is owed to them. This bill is much more than just debt agreements that will be made available. Negotiated payment arrangements and civil debt recovery will also be available for debtors, giving them choice to consider a personal insolvency scheme that suits their individual circumstance. It will also benefit the creditors who will no longer need to force bankruptcy on debtors as a collection tool for monies owed. More importantly, people will not be forced into bankruptcy over small debts.

I think it is fair to say that sometimes people make financial decisions without appropriate or proper advice. From time to time financing business ideas or personal purchases seems a good idea at the time but it is not until a person’s finances go pear-shaped that we see them head toward a claim of bankruptcy rather than have a number of options to choose from and, where possible, avoid the bankruptcy altogether. This makes good sense. These impending changes around giving what would be good for the debtor are also good for the creditor.

In October this year, the Insolvency and Trustee Service Australia released its latest data on personal insolvency across the nation for the September 2009 quarter. In relation to bankruptcies, there were 7,329 new claims in the September quarter. This is an increase of 9.62 per cent against the September quarter in the previous year. There was also an increase in total personal insolvency activity of 7.91 per cent against the same period in 2008-09.

To give a more accurate picture, it is worth looking at some annual figures. Figures released by the Insolvency and Trustee Service Australia reveal that in the 2008-09 financial year there were 3,822 business related bankruptcies across Australia and 23,681 non-business bankruptcies. In Tasmania, there were 204 new non-business related bankruptcies in the recent September quarter. ABS statistics show that most of the bankruptcies, particularly in Tasmania, are due to excessive credit card use and/or loss of employment. We all know that, during this global financial crisis, loss of employment is a big issue as more and more people find themselves in that difficult situation. There is an increase in insolvency activity across most states and territories. When you compare the last two financial years, there is an overall increase in total insolvency activity of 11 per cent; bankruptcies in isolation are up around six per cent.

In supporting this bill, I would like to ensure that individuals who experience financial hardship in the future have at least some access to choice, other options, before heading down the insolvency path of bankruptcy. I think that, with figures like these before us, we really do need to do something. To expect that debtors and creditors would be happy with the status quo is simply folly. I think both debtors and creditors would like to see some changes made to the current situation.

As I said, these amendments are an important part of improving the effectiveness of Australia’s credit markets. These changes will modernise Australia’s personal insolvency system, bringing it into the 21st century. The options for debtors will increase along with added protection to ensure they pay only their original debt, without any further penalties or imposts. The amendments will balance the options for debtors as well as those for creditors, who will be provided with a much better return on the debt owed to them. Debtors will no longer be bankrupted by small debts, and creditors will have other options available to them without resorting to bankruptcy as a collection tool. With its combination of protection, increased options and flexibility, I commend this bill to the House.

Kirsten Livermore (Capricornia, Australian Labor Party) Share this | Link to this | Hansard source

I also rise to support the Bankruptcy Legislation Amendment Bill 2009. The amendments before the House today are intended to modernise Australia’s personal solvency system. They will make the system more responsive to the needs of people experiencing financial distress and will improve the efficiency of the scheme. These amendments are the result of consultation with stakeholders who administer the bankruptcy system, those who advise people in financial trouble and those who need to use the laws, either as creditors or as debtors. Submissions on the legislation were received from across the board and talked about the changes to people’s circumstances, to the nature and scale of consumer credit and to the way that bankruptcy laws and other mechanisms like debt agreements are being used. These amendments largely reflect those changes.

It makes sense for us to make these changes to the bankruptcy laws at this time. The last financial year, 2008-09, saw the largest ever number of personal insolvency cases, including an 11 per cent jump in bankruptcies. Over 36,000 insolvency cases were administered, and the vast majority of these were consumer debts rather than business bankruptcies. The government was very conscious from the start of the global financial crisis and the subsequent global recession of the impact the downturn would have on individuals and households carrying debt at a time of increasing unemployment. As well as introducing substantial stimulus measures into the economy to boost economic activity and protect jobs in communities right around Australia, the government has increased funding for programs to assist those who find themselves in financial difficulty.

Last year we doubled funding for the Commonwealth Financial Counselling program and in April this year the Minister for Families, Housing, Community Services and Indigenous Affairs announced a further $1.75 million to rapidly train 50 new financial counsellors. This is in addition to doubling the money in the emergency relief program. Emergency relief funding is given to local organisations to allocate to people who need support to address their immediate needs in times of crisis. Assistance includes food and clothing, transport vouchers, and help with accommodation.

The scale and speed of the downturn that hit our economy over the last year revealed how financially stretched many Australians have become, and this is demonstrated in those record insolvency figures of June 2009. As many people learned during the past year, financial failures are not often seen coming and when they hit there can often be a snowball effect which quickly overwhelms people. We have seen huge growth in the availability of consumer credit, and often people’s financial literacy and capacity to pay has not kept pace with the amount of debt they have assumed. Credit that starts out as the answer to a financial problem can very quickly become the problem itself. Personal debt can consume an enormous amount of money and can create a huge amount of stress for an individual and their family, often leading to the failure of relationships.

Bankruptcy is a very genuine option when debt rises above the capacity to pay it off and people find that they can barely keep up with payments, bills, expenses and the money needed for day-to-day living. When financial commitments are putting individuals further and further into debt, bankruptcy may seem the only outcome, but it is important that people know exactly what it is they are getting into before they go down the road of bankruptcy. Bankruptcy allows legal protection from creditors during the time frame between a financial problem and having an organised answer to obligations. Lenders, banks and financial institutions who have extended money or credit should be repaid. When this is impossible, however, bankruptcy does allow people to pay those creditors back to the best of their ability. The bankruptcy laws set out to achieve a balance between allowing debtors to make fair and reasonable efforts to repay their debts and then make a clean start and providing a means by which creditors can enforce the obligations owed to them.

There are a number of amendments and changes in this legislation. This bill caught my eye when it came through the caucus room a few weeks ago because of the experience of a constituent who came to see me last year. He had gone into bankruptcy but had a stock of assets that he could use to extinguish the debts. He was shocked, however, when he found out how much extra on top of the original debt would be taken out of the returns from those assets once the trustee’s fees were taken into account. So I was pleased to see that, among other things, this bill will provide for a more accessible and streamlined process for debtors who wish to challenge a trustee’s remuneration claim. This is important for debtors, particularly to avoid the type of situation my constituent faced where the fees appeared to be out of proportion to the size of the debt and ended up having quite punitive consequences.

There are changes too that will result in a more streamlined and transparent process for setting and reviewing trustee remuneration. The amendments reinforce the principal that creditors have oversight of a trustee’s administration of a bankrupt estate and should be required to approve claims for remuneration. This ensures creditors who are the beneficiaries can be satisfied that the remuneration is reasonable and reflects the value added to the estate by the trustee’s work. Notwithstanding that, however, it is important for the system to be efficient. These amendments therefore include a streamlined process to allow trustees to claim a basic amount of remuneration, up to $5,000, which reasonably reflects the essential tasks that every trustee must undertake. A trustee will not need creditor approval for claims up to that amount. Whether it is initiated by the creditor or the debtor, the review process to assess a disputed claim for trustees’ fees, overseen by the Inspector-General in Bankruptcy, will be free to the applicant.

Another important amendment contained in this bill is the increase in the minimum debt that must be owed before a creditor’s petition to commence bankruptcy proceedings can be filed. Currently a creditor can petition for bankruptcy in circumstances where they are owed $2,000. The amendments before the House will increase that amount to $10,000. The government has not made this change lightly as we recognise the needs of small businesses in particular to have the means to recover money owing to them. Nonetheless, we believe that this part of the legislation, which has not been changed since 1996, needs to better reflect the current environment. For one thing, levels of personal debt are much higher than they were in 1996 and in recent years the number of bankruptcy cases involving debts for less than $10,000 has been small.

This change reinforces the government’s view that bankruptcy proceedings should be used as a last resort. Bankruptcy should not become a regular means of debt collection for relatively small debts. It is an expensive process and there are more cost-effective options that creditors can use before resorting to bankruptcy with its costs and far-reaching consequences for the debtor. Going down the bankruptcy path to recover a debt of less than $10,000 risks the situation where the trustee’s fees are as high as the amount of the debt.

A number of submissions on the exposure draft of the bill referred to creditors using bankruptcy inappropriately to enforce small debts. The Financial and Consumer Rights Council gave the example of a client who owed a relatively small amount for an internet bill. A creditor’s petition was filed against her and the bankruptcy proceedings added $20,000 in trustee’s fees to the debt owed. The submissions also pointed out the other options available to creditors, usually at a much lower cost than bankruptcy proceedings. Options such as civil debt recovery, negotiated payment arrangements and garnishing income and assets are available to creditors at a lower cost than bankruptcy proceedings.

Just as the government wants to encourage creditors to think through their options and the best course of action for them in enforcing their debt, so too do we want people in financial distress to think carefully about their options when it comes to dealing with their debts. That is why this bill proposes to increase the stay period that follows a declaration of intent to file a debtor’s petition, to allow debtors to better assess their options. Currently, a debtor can give the official receiver a declaration of intent to file a debtor’s petition and, once received, creditors cannot take any action to recover debts for a stay period of seven days. This bill increases the stay period for declarations of intent to file, from seven to 28 days. A seven-day stay does not give a debtor enough time to assess their options. A longer stay period increases the likelihood of the debtor obtaining proper advice and information about all of the options and, if possible, avoiding bankruptcy by using a debt agreement or other arrangement.

The amendment will also require the official receiver to notify creditors of the filing of the declaration. This gives creditors the opportunity to be proactive in coming forward with other options for the debtor to avoid bankruptcy. To help in this process, the debtor will now be required to lodge, with their declaration of intent to file, a statement of affairs. The requirement for the debtor to lodge a statement of affairs at that time will protect creditors by ensuring that the debtor does not dissipate assets during the stay period.

I note that in some of the submissions provided during the consultation on this bill concerns were raised about this point. Those who advise debtors were concerned that the requirement to lodge a statement of affairs might undermine the purpose of the extended stay period. Instead of encouraging the debtor to calmly and carefully think through all of the options, they would be frightened off when faced with the onerous exercise of completing the statement of affairs needed in order to give effect to the stay period. However, this is answered in the explanatory memorandum to the bill, which states that the statement of affairs required to accompany a declaration of intent to file a debtor’s petition will be simpler than that required for bankruptcy.

These changes are designed to help creditors use the bankruptcy system to more effectively and efficiently recover their debts and to help people manage the situations they find themselves in when things go wrong so they can pay their debts as best they can whilst seeing some way to get back on their feet. The CQ Financial Counselling Service, based in Rockhampton, is at the frontline of helping people in financial distress, and it does a great job. The counsellors at the service have been assisting people in the Central Queensland region since 1991. The CQ Financial Counselling Service is funded under the Department of Families, Housing, Community Services and Indigenous Affairs through the Commonwealth Financial Counselling Program, and I am pleased to say that the service benefited from the increased funding in last year’s budget. That was just in time to meet the increased demand brought on by the economic downturn.

The Commonwealth Financial Counselling Program, which funds the CQ Financial Counselling Service, is particularly focused on low-income groups. It funds incorporated non-profit community based organisations to provide free financial counselling services to people who are experiencing financial difficulties due to circumstances such as unemployment, sickness, credit overcommitment and family breakdown. It is great to have the CQ Financial Counselling Service operating in my electorate as a place where constituents can go to get the advice that they need in these very difficult times.

CQ Financial Counselling Service assists people who are experiencing personal financial difficulties for many reasons. A counsellor there gave me a rundown on the main reasons why people come to see them. For example, if someone has a loan, mortgage or credit card and is having difficulty maintaining repayments, CQ Financial Counselling Service can assist in negotiating with creditors to reach an acceptable agreement. Where a person feels overwhelmed by a personal financial problem and would like help to communicate effectively with the government or non-government organisations, CQ Financial Counselling Service can advocate on their behalf. If someone cannot pay an outstanding bill, CQ Financial Counselling Service can help them with their options and explain what they can do. Where a person has received a letter of demand, a summons, a warrant of execution or a judgment summons and is not sure what to do next, the counsellors can explain the debt recovery process and assist them to take the appropriate course of action. If someone is having difficulty in making ends meet, the counsellors can assist them to develop a budgeting plan to suit their circumstances and help them gain financial management skills that will enable them to take control of their lives. The service can also give information on bankruptcy and assist people to explore alternatives.

During the first quarter of this financial year, from July to September 2009, the service has assisted 220 clients. There has been an increase in the number of people requiring financial counselling since July 2009. Of that 220, 74 sought information about personal solvency. Even though the service is funded to cover the Fitzroy statistical region, which is big enough in itself, they in fact extend far beyond this area and have been fielding calls from Capella, Barcaldine, Longreach, Mount Isa, Tambo, Alpha and even Perth. There is a wide cross-section of people seeking assistance, and in recent times there has been a noticeable increase in the number of clients in the high-income brackets, mainly from the mining sector. Also, there has been an increase in the number of people with proprietary limited companies who have given personal guarantees, as well as an increase in the number of sole traders who are having to petition for bankruptcy.

People take up the option of bankruptcy for many reasons, but the major one listed by CQ Financial Counselling Service is relief from the constant contact with debt collectors. Financial counsellors have experienced difficulty in dealing with debt collectors, they tell me, as they invariably take a hard-line attitude and refuse to negotiate affordable repayment plans. The counsellors at CQ Financial Counselling Service do a terrific job. I really do not know what we would do without them in Central Queensland. They have been operating since 1991 and they really are the place to go when people find themselves in difficulty. I hope this legislation gives the service more to work with to assist their clients. The amendments we are debating today have been well thought through. They respond to the changes in the financial environment over the last few years. A lot of consultation has gone into these amendments, and I think they make sensible and balanced changes to our bankruptcy legislation.

Amanda Rishworth (Kingston, Australian Labor Party) Share this | Link to this | Hansard source

I am very pleased to rise to speak on the Bankruptcy Legislation Amendment Bill 2009. As noted by the Attorney-General in his second reading speech, the purpose of the bill is to modernise the National Personal Insolvency Scheme to make it more effective. In modernising our laws in this area, the Attorney-General also made mention of the need to strike the right balance between the interests of businesses in recovering their debt and the interests of individuals who are prevented from contributing to our economy by the penalties and stigma associated with the bankruptcy process. The Australian economy, the Attorney-General says, needs to have strong but fair bankruptcy laws—and I agree with him.

As we engage in the process of modernising Australia’s bankruptcy laws and making it responsive to our times, it is worth bearing in mind the larger historical picture. Bankruptcy laws in this country have come a long way since their origins in 12th and 13th century England, where it became commonplace for debtors to find themselves in prison for failure to pay their debts. Over the past 700 years, important advancements have been made. These changes have produced better outcomes for debtors who have been offered alternatives to imprisonment and, likewise, advancements have provided alternatives to bankruptcy to be given to creditors who then have a greater chance of recovery of the money owed to them. At the heart of these reforms has been an understanding that a robust economy needs strong but fair bankruptcy laws. Last year there was a record 36,475 administrations for personal insolvency in Australia. This was an increase of 11 per cent from the year before and reflects how these tough economic times are hurting Australian families.

I would like to discuss a few of the significant changes introduced by this bill which will seek to make our bankruptcy laws strong, fair and responsive to the present economic times. Firstly, the bill raises the minimum debt for creditors’ petition for bankruptcy from $2,000 to $10,000. The figure of $2,000 was set in 1996, as previous speakers have mentioned. Considering the cost and complexities of the bankruptcy process, this increase is long overdue. The increase is also designed to stop creditors using bankruptcy proceedings as a means of enforcing very small debts. Such debts can be more effectively dealt with through other avenues, including negotiated payment arrangements, civil debt recovery, garnishing income and seizing assets.

Last year 20 per cent of bankruptcies in Australia related to debts between $2,000 and $10,000. Too often bankruptcy for very small debts hurt individuals and families struggling under financial pressure when another option could well be available. I have met a number of these people in my local electorate who have found themselves in a difficult situation. They have perhaps at times been ill-advised about taking out a loan or signing up to some payment option and find themselves in real trouble. There are a number of alternatives that they often say they would be willing to enter into but have not been given that as an option. There are alternative options and in most cases these are more appropriate for debtors, more appropriate for creditors and more appropriate for communities. Bankruptcy really should only be a last resort for the recovery of debts.

Secondly, these amendments increase the stay period for a declaration of intent to file for bankruptcy from seven days to 28 days. This increase in the period in which creditors are barred from taking action to recover debts will allow debtors some extra breathing space for assessing their options. Hopefully this extended four-week period will offer a more realistic chance for debtors to seek advice from a financial counsellor or a lawyer or to negotiate the debt with creditors. Recently, I held a debt forum which was open to people across my electorate of Kingston to get advice from experts in the area, such as financial counsellors, Centrelink staff or lawyers. We had a panel of people to advise people. One of the issues that came through at that forum was that people really did not know what they could do. They felt very pressured into making a decision very quickly. Increasing this time will allow people to have a little bit of breathing space, and that will be welcomed by many of the people I met at the debt forum in the electorate of Kingston. That is a very important amendment that I can see having on-the-ground practical use.

Thirdly, the amendments open up the option to more individuals of entering into debt agreements. This will be achieved by increasing the income threshold for such agreements by 20 per cent. A debt agreement is a popular alternative to bankruptcy and offers better returns to creditors. These changes will allow many individuals and their families to avoid the stigma and cost involved in bankruptcy and also allow small businesses to increase their returns from debts that they are owed. Fourthly, the bill provides for a minimum entitlement of remuneration to trustees for their administration of bankruptcy estates. This will offer certainty for trustees and also ensure that an estate is not unnecessarily diminished by non-streamlined administration fees.

Importantly, these and other amendments in the bill have been developed through a process of extensive consultation with industry and stakeholders on both sides of the creditor-debtor relationship. A wide variety of input has been made through submissions to the exposure draft of the bill that was released in August this year. It is very important to acknowledge that there has been discussion across a wide range of stakeholders and other interested parties to get this information.

I would like to say—and I have spoken about this in this House before—that prevention is better than cure. The people who attended the debt forum I held in Noarlunga gave a real sense that they wanted to know more, that they felt they were not in control of their finances and that they did not really know what options were available to them. The previous speaker talked about the importance of financial counselling services, and I know that there are some very, very good counselling services in my electorate, and one in particular is UnitingCare Wesley. They do an enormous job in helping people understand what is going on, counselling them and helping them work out their finances so that they do not get to a point where they have to file for bankruptcy.

I believe that we need to improve financial literacy in this country. Many people speak to me about signing contracts that contain a huge amount of fine print. While it is all well and good for companies to say that the fine print was there, if you have ever tried to read it you would understand that it can be very, very small. There is also a lot of pressure on people to sign contracts. In fact, I have had people from certain companies door-knock me and ask me then and there to sign contracts that would last 12 months or even 24 months. It is very important for people to be educated about financial matters so that they have a better understanding of them. This will improve their financial literacy so that they understand what some of these things mean. Hopefully, this will go a long way to preventing people from even getting to the point where they need to choose whether or not to file for bankruptcy. Rather, they will work out other ways so that they do not have this problem.

We live in a society which increasingly relies on the seamless creation and payment of debts, from our credit cards, to our phone bills, to accessing loans as part of our personal and business lives. The economic necessity of the credit system has been well known for many hundreds of years; however, there will be circumstances in which individuals struggle to repay their debts. In dealing with these cases, it is important that our laws strike the right balance between the interests of debt recovery and the interests of individuals who are penalised by the bankruptcy process. The amendments introduced by this bill offer a timely realignment of these interests in light of the present economic situation. I therefore commend the bill to the House.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the Bankruptcy Legislation Amendment Bill 2009. I encourage anyone who may be listening to this debate to go online to the Insolvency and Trustee Service Australia site and look at the statistics. They show an increase in the number of administrations, the number of debt agreements and the number of bankruptcies. It is quite clear that the Australian public has suffered during the global financial crisis. It is quite clear that individuals and individual households across the whole of Australia have suffered. Certainly the people in my electorate have suffered.

A number of financial counsellors in my electorate—and I pay tribute to so many of them, including the lawyers and accountants who act on the front line when it comes to personal insolvency and advice on financial matters—will tell you, as they have told me, that people are under stress and often feel that they are under duress when it comes to the question of their financial positions. They are finding it tough to pay for food and clothing, to meet their children’s social and recreational needs, to ensure that their children are adequately educated and not just that there is enough food on the table but that they have proper, decent and adequate accommodation.

That is the stark reality when it comes to people who are facing financial insolvency. In my many years practising as a lawyer I had many people come and see me about the fact that they were in trouble, whether it was trouble with a business arrangement or whether they were subject to financial stress as a result of a marriage breakdown or whether they had sustained an injury in a motor vehicle accident. They told me they were under stress and they could not take it any longer. I advised them of the implications of those types of matters from a legal point of view but advised them to seek counsel from an accountant or a financial counsellor on the best way to arrange their financial affairs. It is not just the stigma; it is forever feeling a failure. It is the fact that they feel they cannot achieve what they wanted to in life. It affects their esteem, their reputation and their confidence. It also affects their families and their children. Bankruptcy is the human face of tragedy. It is the feeling of failure, the feeling of letting yourself down and letting your family down. That is the human consequence of financial trouble and travails.

We are dealing with complicated law. The Bankruptcy Act reminds me of the Income Tax Assessment Act in its complexity: things like voidable preferences, relation back periods, debtors’ petitions, creditors’ petitions and acts of bankruptcy—complicated legal terms which have implications for people’s very existence. If you are in business and you have taken a punt and set up a newsagency or a fish and chip shop, or you have a good idea and you want to go into small business, you are to be commended, but there is a real risk you could be in financial trouble in the future. Sadly, even though we have four million people employed in small business, working as entrepreneurs or as employees in small businesses, many of the 1.9 million small business operators in this country fail, often in the first year. Approximately one-third of people fail in business. Anyone who takes on a small business is to be commended, but it is a risk not just to yourself but to your personal assets and to your family’s future.

This legislation is about improving the Bankruptcy Act and our bankruptcy system. There must be a balance between helping people who need assistance in this very difficult time and helping businesses that, when faced with the circumstance of a debtor having failed to pay their debt, have legal options. There are many legal options, and this bill includes other options such as garnishing wages or pursuing civil litigation rather than going the route of bankruptcy. Sadly, sometimes issuing a creditors’ petition of bankruptcy after issuing a bankruptcy notice is the only way forward for a company or a business to get back the money which is owed in the circumstances. There are changes in the law as a result of this legislation, and I am happy to go through those.

Issuing a bankruptcy notice is a serious thing. Certainly when I was in practice I took it seriously when someone asked me to issue a bankruptcy notice. For there to be a bankruptcy, there must be an act of bankruptcy, and a failure to comply with a bankruptcy notice is considered an act of bankruptcy. The creditor can then make an application for a creditor’s petition and the bankruptcy notice must be based on the final judgment or order of at least $2,000 which is less than six years old. We are changing the law here to up that to $10,000 in the circumstances, and I think that is sensible and appropriate. The facts that have been given to me by the Attorney-General’s Department show that we are talking about fewer than 400 sequestration orders for less than $10,000 in the year 2008-09. So we are talking not about thousands and thousands of applications for bankruptcy orders but about hundreds. We need a balance to be struck. The provision set back in 1996 was $2,000. It has not been updated since that time, but we all know that inflation has operated since that time upon the value of the dollar. A person’s wages and the value of money back in those days was different from that which it is today, so updating to $10,000 is reasonable in the circumstances. I note that a number of the stakeholders have made comment about that.

There is support in general terms from the Law Council of Australia for this legislation. Subject to a couple of qualifications, the Law Council of Australia does endorse the amendments to the Bankruptcy Act contained in this bill. The Business Law Section of the Law Council of Australia said that it was appropriate to do so, making the comment that the reform of the trustee remuneration procedures are long overdue and are welcomed by the committee. The Law Council of Australia has advocated the offence changes in this legislation for a long time and commends the government for them. The offence changes are ‘long overdue for review and revision of the penalties attached’, as the Law Council of Australia indicates in its letter of 30 September 2009. The 28-day moratorium prior to an act of bankruptcy is also supported by the Law Council of Australia, but it does not support an increase from $2,000 to $10,000. I am a bit mystified about why the Law Council of Australia failed to support that. I thought that particular provision and amendment was fair in the circumstances. The Insolvency Practitioners Association of Australia also supports many of the changes in this legislation to make sure there is a more streamlined procedure for fixing trustee remuneration and a more transparent process, as the Attorney-General made reference to.

I am comforted by the fact that so many of the stakeholders are in support of what we are doing. Extension of the seven-day moratorium under section 54A to 28 days was commented upon by the IPA, because the law should provide opportunities for debtors to fully consider the options available to them before they proceed to bankruptcy. As I said before, going into bankruptcy is a dreadful decision. It is something that everyone should consider carefully before having the stigma of your name being placed on the National Personal Insolvency Index. It is there for all to see. It is a public record. It contains creditors’ petitions, debtors’ agreements, personal insolvency agreements and bankruptcy notices. Your name, date of birth, previous names and aliases, the types of proceedings and the names and business addresses of the trustee and administrator are all there for the public to see. It is a terrible thing for the public to see those records, which have been kept in that database since the late 1920s. We should do all we can to ensure that people do not go down that road. Extending the period from seven to 28 days in the moratorium provides a time for mature reflection in all the circumstances. I think the increase in the $2,000 to $10,000 as the minimum amount for a creditor’s petition is a sensible reform, as I have said.

There are other changes in this legislation which will have an impact by improving the efficacy and the cost-effectiveness of recovery, reducing the stigma of bankruptcy and striking that balance. The exposure draft was available for many people to respond to, and they did. I mentioned a couple of organisations which responded. I think the extension of the stay period so the person can consult financial counsellors is a good thing. The extension of time to negotiate with creditors is also a worthy thing. A debt agreement is far preferable to a creditor’s petition, or indeed even a debtor’s petition, being issued. A debt agreement gives a person the option to manage their debt. Arrangements can be undertaken through, for instance, a weekly or monthly method whereby payment can be effected and it does have the impact of stopping the person going bankrupt. They are not bankrupt—they do not have the stigma, the opprobrium, the ignominy and the shame of bankruptcy. They are released from unsecured debtors when they complete their obligations. It means that creditors cannot take action against them or their property. In the circumstances, negotiating with creditors is a better thing.

The sad thing about a debt agreement, which I think we should look at in the future, is that when someone enters into a debt agreement they do commit an act of bankruptcy. That means that if, for example, the proposal is not accepted by creditors a creditor can make application to the court to make the person bankrupt. So it is a pretty dangerous path to go down. It is not mentioned in this legislation, but it is an area of law reform we could look at in the future because I think there may be some benefit to us changing the law in that regard. It certainly would strike the balance more in favour of a debtor than a creditor and I think it is worthy of consideration.

Debt agreements are binding agreements between a debtor and a creditor or creditors and can agree on a sum of money. In my experience, it does result in a better outcome for creditors and in a reduction in the fees that could be expected to be charged by a trustee. Trustees are entitled to their fair pay for the work they undertake, but, like liquidators when it comes to companies, trustees in bankruptcies seem to get their pound of flesh, in my experience and observation. They make sure that they get paid first, of course, and creditors have to take that into consideration and account when they pursue bankruptcy.

It is important that we benefit small business in the reforms we undertake. Tony Axford and many of the people working in the Ipswich Business Enterprise Centre in my electorate help small business to avoid going into bankruptcy through mentoring, monitoring, advice on loan applications and credit and advice generally on how to set up a business, what the GST is, what a profit and loss statement is and what it means to have a balance sheet—all this kind of advice is very important for small business. I commend the Ipswich Business Enterprise Centre in my electorate because they go around not just to Ipswich but to surrounding rural areas to give small business and householders this type of advice, to avoid and prevent, if at all possible, bankruptcies increasing in the Ipswich and West Moreton area. I thank Tony for his work and commend him on the fact that he and his centre have been nominated for an award. I hope they do well and they continue to prosper. I commend the Rudd government and the Minister for Small Business, Independent Contractors and the Service Economy, the member for Rankin, for the election commitment of $300,000 across four years for that centre. It has made a big difference locally to business in my community and it is a good way to minimise the impact of the global financial crisis and the number of bankruptcies and debt agreements which are undertaken in my local area and my constituency of Blair in South-East Queensland.

In conclusion, we are modernising the insolvency system. We are hoping that fewer and fewer Australians will have to acquaint themselves with complicated legal terms like ‘relation back’, ‘voidable preferences’, ‘debtors petitions’, ‘bankruptcy notices’ and terms of that nature. I hope that they are not in the lexicon of the Australian public in the suburbs and the rural communities in my electorate. I hope that more and more people can avoid going into bankruptcy and that if they are faced with these challenges they will look to advice from lawyers, accountants, financial counsellors and great organisations like Lifeline in Ipswich, who have been tremendous in the way they have helped.

But I also want to finish up by commending one particular organisation in my electorate which has gone a long way in assisting people who are faced with the kinds of challenges we are dealing with, the human face of this sort of legislation, this amendment bill—and that is Harvest Rain. The Rivers of Life church and Pastor Fred Muys have done a tremendous job delivering hundreds of food parcels to struggling families in the Ipswich area. They have helped many people who have been suffering from personal insolvency, many people who have suffered the tragedy of loss of job, loss of accommodation and not being able to feed their families. That is the coalface of these challenges, and I want to thank very much the government for the legislation here, which will improve the lot of the people in my community and the people in the rural areas outside of Ipswich as well. I commend the legislation to the House.

Craig Thomson (Dobell, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the Bankruptcy Legislation Amendment Bill 2009. This bill is part of the government’s wider microeconomic reform agenda, which continues to improve the effectiveness of Australia’s credit markets. The amendments are intended to modernise Australia’s personal insolvency system. The amendments will give people in financial distress a more realistic opportunity to consider their options and, where possible, avoid bankruptcy. The reforms will encourage more debtors to get advice and information about all of their options before choosing bankruptcy. In particular, the reform aims to encourage people experiencing financial trouble to consider debt arrangements rather than bankruptcy. These arrangements provide a much better return to creditors and are far less of a stigma for those people who in the past have been forced to go into bankruptcy. The increase in the threshold for creditor petitions will also ensure that people are not bankrupted over a small debt. Creditors have other options to recover debts without resorting to bankruptcy as a collection tool. These options include negotiated payment arrangements, civil debt recovery and garnisheeing income and assets.

Before I take a more detailed look at these amendments, I would like to talk about the scale of bankruptcy in Australia. In New South Wales over the year July 2008 to June 2009 there were 10,499 bankruptcies. I am referring to personal administrations. This represents an increase over the previous year of 5.7 per cent. The total number of bankruptcies in the whole of Australia in 2008-09 was 27,503, up from 25,970 in the previous 12 months, or an increase of around 5.9 per cent. These figures are naturally of concern, but what is perhaps a little more troubling is the increase in bankruptcies, again in personal administrations, in more recent months. The total bankruptcies in Australia for the June to September quarter this year were 7,329, as opposed to 6,886 for the same quarter the previous year. This is an increase of 9.62 per cent. Business bankruptcies, according to various studies done in recent years, are caused by a number of issues, including economic conditions, excessive drawings, excessive interest, lack of capital, seasonal conditions and gambling or speculation. Those same studies show non-business bankruptcies are caused by unemployment, excessive use of credit, domestic discord, ill-health, adverse litigation and, again, gambling or speculation. So this puts the subject of this bill into some perspective.

Now let us look at the bill in a bit more detail. The proposed amendments provide a clearer regime for setting and reviewing remuneration for trustees. In particular, they provide a more accessible and streamlined process for challenging a trustee’s remuneration claim. They ensure creditors can be satisfied that the remuneration is reasonable and reflects the value added to the estate by the trustee’s work. The changes to offences under the proposed amendment will introduce an infringement notice regime as an alternative to prosecutions for offences of strict liability; ensure that penalties for some offences, particularly those involving fraud, reflect the seriousness of the conduct and are consistent with penalties for similar offences in other Commonwealth, state and territory legislation; provide stronger powers to obtain a statement of affairs from a bankrupt who fails to file this as required; and provide stronger powers for the Inspector-General in Bankruptcy to investigate possible offences under the act.

The bill will also result in the abolition of bankruptcy districts. This will allow the Insolvency and Trustee Service Australia to administer the personal insolvency system in a more efficient way. The bill proposes an increase in the minimum debt for a creditor’s petition to $10,000. Currently a creditor can petition for bankruptcy where the debtor owes at least $2,000. This amount has not been updated since 1996. There is also evidence that some creditors use bankruptcy inappropriately as a means of enforcing payment of very small debts. These cases often result in trustees’ fees which are many times the amount of the original debt.

Another amendment will increase the stay period for declarations of intent to file from seven to 28 days. A longer stay period will increase the likelihood of the debtor obtaining proper information and advice about all options. The official receiver will notify creditors of the declaration, which will allow them to be proactive in contacting the debtor to negotiate alternative arrangements. The debtor will be required to file a simple statement of affairs with the declaration. This will mitigate the risk of debtors dissipating assets during the period and provide an opportunity to explain to the debtor the seriousness of the action being taken. The bill will also increase the debt, income and assets thresholds for debt agreements by 20 per cent. These were last amended in 2002 to encourage more people to consider a debtor agreement as a viable alternative to bankruptcy. The proposed increase will make these agreements available to more consumer debtors.

It has been asked what impact these changes will have on small business. Again, let us put this issue into perspective. In 2008 and 2009 there were only 391 sequestration orders for an amount less then $10,000. Given that there are approximately 1.93 million small businesses in Australia, it is likely that only a very small proportion of small businesses would file a creditor’s petition in any given year for an amount less than $10,000. Small businesses will also benefit from other reforms. Increasing the availability of debt arrangements will increase returns to creditors in many cases and the 28-day moratorium on payments will enable more creditors to negotiate with debtors to achieve payment.

Earlier I touched on the fact that the bill is part of the government’s wider microeconomic reform agenda, which continues to improve the effectiveness of Australia’s credit markets. Of course, we have also embarked on a major reform of Australia’s credit regulation regime to bring it into the 21st century, and we determined that at the heart of this plan would be a new approach for Australia built on responsible lending and consumer protection. Just over two weeks ago the National Consumer Credit Protection Bill 2009 was passed in both houses. The government is implementing a credit reform package that delivers on its commitment to nationalise and modernise Australian consumer credit laws. The package will, for the first time in this country, provide for one single standard and nationally consistent regime for consumer credit regulation. There are substantial benefits to be realised from this credit reform package and its implementation is long overdue. It is a key COAG reform and represents the first stage of a plan to transfer the consumer credit regulation to the Commonwealth.

The reform package includes several key components. The credit bills will establish for the first time a comprehensive national licensing regime for people engaging in credit activities—that is, lenders and providers of consumer credit broking services must obtain an Australian credit licence. Licensing will, over time, encourage the improvement of standards in the industry and thereby improve consumer confidence and market integrity. In particular, fringe or predatory players will be excluded. In other areas, such as the broker space, this will improve the credibility of the profession. In order to become licensed, the person will need to demonstrate to ASIC that they are a fit and proper person—for example, a person cannot be licensed where they are banned by a state regulator or are subject to a state control order used against organised criminal gangs—and can comply with the standards expected of a licensee: for example, conducting business efficiently, honestly and fairly or properly training and supervising their agents. ASIC will publish guidelines for the industry on how to demonstrate that they meet the requirements for being licensed to make this as straightforward as possible. This guidance will include parts particularly directed at small businesses to give them simple, practical assistance on how to become licensed.

The key change in the market for consumer credit in Australia arising from the credit bill will be the requirement for credit not to be given to consumers irresponsibly. The enhanced level of consumer protection requires all lenders to lend responsibly and all brokers to suggest loans responsibly by ensuring that a credit product is not unsuitable for the customer after assessment that it meets their needs and they have the capacity to repay the financial obligations.

In addition to these key fundamental obligations, the consumer will be provided with specific protections that will assist with the problems associated with financial distress and refinancing. These specific measures include, for example, a presumption that the primary home should not have to be sold to afford any refinancing arrangements. And, in the event that a consumer in hardship is unable to be placed into an alternative contract, credit assistants will now be obliged to inform consumers of their ability to seek respite from their credit provider.

To ease the transition burden for industry and facilitate the implementation of the national credit regime in a sensible and practical fashion, the government has, firstly, simplified the way in which the proposed responsible-lending arrangements will apply and, secondly, delayed the commencement of responsible-lending obligations for credit licensing to 1 January 2011. This will give industry more time to put in place the necessary infrastructure changes needed to support responsible lending. Thirdly, and importantly, the government is giving ASIC more flexibility to exempt or modify the licensing and registration requirements in the law. ASIC will play a key role during the transition period to provide assistance to industry. The government is confident that, by industry and ASIC working closely together in this process, we will effectively facilitate a seamless and successful transfer to the new credit regime.

The state based Uniform Consumer Credit Code, which has been in force since 1996, has been largely replicated, with minimal changes in the credit bill. However, several enhancements have also been made. A key enhancement is the extension of the coverage of the code to credit for residential investment properties. This will extend existing protections under the code to this type of credit, including precontractual disclosure requirements, a right to seek a variation to payments on the grounds of hardship, and remedies against the lender where they have engaged in unjust conduct. The monetary threshold under which consumers have the right to seek a hardship variation or stay of enforcement has been increased to $500,000. Under the state code, the threshold has fluctuated monthly according to the average cost of homes in Sydney and has varied between $295,790 and $368,390 since 2004.

Other key adjustments have been made to address specific abuses and avoidance techniques, such as prohibiting the taking of mortgages over essential household goods and the use of fee-splitting structures between related parties to avoid the code, as under the state code only fees charged by lenders are relevant in assessing whether there is a charge for credit attracting the application of the code; and amending the effect of business purpose declarations. Under the state code, if a borrower signed a declaration that the credit was for a business purpose, the result was to exclude the code, leading to abuses of the declaration by predatory lenders. This has been changed so that in general terms a lender will only be able to rely on such declarations where they have made reasonable inquiries as to the purpose of the credit.

Considerable and realistic protections for consumers have also been included in the new credit regime. For example, there will be heavy penalties for licensees who place consumers in unsuitable loans. ASIC will have enhanced powers to deal with licensees who act contrary to their obligations, and it can issue infringement notices to act quickly to penalise certain breaches of the law. All licensees will be required to be members of the external dispute resolution scheme. Consumers with disputes with their lenders or service providers will be able to complain to these schemes. They are an effective alternative to court, as they are free and operate without the formality of costs of court action.

Concerns about the loss of access to state tribunals in the states of Victoria and Queensland to hear credit disputes have been specifically addressed by putting in place the new dispute resolution framework. For example, the Federal Magistrates Court and state and territory magistrate and local courts will be able to hear consumer credit claims using an opt-in streamlined small-claims procedure for compensation claims up to $40,000 and to obtain orders under the code. This mechanism replicates some of the advantages of the state tribunal systems by having a presumption against consumers needing legal representation and allowing the court to operate without formalities. This will minimise the time and costs to consumers of having a court resolve their disputes.

Those are the features of the national consumer credit protection legislation. To sum up: a nationally consistent consumer-credit framework marks a generational change that will significantly improve the effectiveness of protection for consumers and address the gaps that continue to exist in the state regulatory system. A single standard regulation will reduce the cost of doing business across the eight different jurisdictions. In the longer term, it would also allow the consolidation of requirements within the broader financial services sector and reduce compliance costs for those businesses that provide both credit and other financial product services.

Some of the other vital microeconomic reforms which the Rudd government is undertaking include strengthening the international legal cooperation arrangements; promoting better dispute-resolution processes, including arbitration at the national and international levels; personal property securities reforms; and uniform regulation of the legal profession across Australia. These reforms will reduce costs for business and support business confidence and will be vital to growing our economy in the future.

The reforms in the Bankruptcy Legislation Amendment Bill 2009 will go towards improving the effectiveness of Australian credit markets and for this reason I commend the bill to the House.

Mark Dreyfus (Isaacs, Australian Labor Party) Share this | Link to this | Hansard source

The Bankruptcy Legislation Amendment Bill 2009 contains a set of timely and practical reforms. I want to concentrate in particular on the provisions which will increase the minimum debt for a creditor’s petition to $10,000. Before doing so, though, it is worth making some general comments about the nature of the bankruptcy system.

Since the reforms that are contained in this bill were announced, there has been some criticism, particularly from some credit collecting agencies and small business organisations, and the tone of some of that criticism really suggests that, for some people, the bankruptcy system is seen as intending to inflict some punishment on those who have had difficulty paying their debts. The bankruptcy system is not intended to be a system of punishment. It has no punitive element—even though, for people who have the misfortune to find themselves at the wrong end of bankruptcy proceedings, it very often will feel like a punishment, because the consequence of being in bankruptcy is, of course, a very direct and serious interruption to any citizen’s financial affairs. It is not intended to be a punishment. It is intended to provide an orderly way in which society can regulate the payment and collection of debts, and an orderly way in which people can overcome a financial disaster occurring in their lives and, as it were, live to fight another day.

The particular criticism that has been directed at the increase in the minimum debt that is regarded as necessary for a creditor’s petition, from the present $2,000 to $10,000, is that, it is suggested by some of the small business organisations, $10,000 is too high an amount. But I think it needs to be put in the context of the commentary that has been made by a number of other interested groups in this, and that context would include that the Westpac Bank and the Australian Bankers Association accept very directly that there is a need to alter this threshold amount, which has not been raised since 1996, when it was raised from $1,500 to $2,000. They accept that some higher threshold is needed—indeed, I would digress to say that the Australian Financial Review editorial writer on 30 October noted:

Many would agree that a higher threshold is overdue …

What the Westpac Bank and the Australian Bankers Association called for was an increase to $5,000. I would suggest that the increase to $10,000 is a wholly appropriate amount, and we are able to judge that by looking at the whole of the bankruptcy system in Australia. It is a system that keeps—as one might imagine, for a system dealing with the collection of debts and the reordering of the financial affairs of Australian citizens who fall into difficulty—statistics. And the statistics for 2008-09 tell us that there were only 391 sequestration orders made by the court system for an amount of less than $10,000. That is a very, very small proportion of the total number of sequestration orders.

When one considers that there are 1.93 million small businesses in Australia, one can readily see that only a very small proportion of small businesses are likely to file a creditor’s petition in any given year for an amount of less than $10,000—and that is really the proper context in which to look at this increase from $2,000 to $10,000. This will ensure that the heavy instrument of the bankruptcy system is not used to collect small debts; rather, the bankruptcy system will be confined to those appropriately serious cases where there is a need to bring to bear the machinery for creditors to collect the bankrupt’s estate and for a trustee—it is often a very expensive trustee, and that is another matter that is dealt with in this legislation—to come in and sort through what proportion of the bankrupt’s estate is able to be shared among creditors and the way in which that sharing is to occur.

There are many other means of debt collection that stop short of bankruptcy. In fact, I am not sure that bankruptcy was ever intended to be a primary tool of debt collection. It is appropriate that all other measures that are available to collect debts—which includes garnishee orders by a court or simple proceedings leading to a judgment in court or other means—should be employed before the last resort of a petition in bankruptcy is taken up.

As I said at the outset of this speech, the reason that this is timely is that we are presently enduring the effects of the global financial crisis—although Australia is faring better, as we have often heard, than every other developed country. This has already led to many Australians falling into financial difficulty. Regrettably, it is likely to lead to many more Australians falling into financial difficulty in the next year or so. This has been reflected in the actual increase in bankruptcies over the last year. There has been an 11 per cent increase in bankruptcies in 2008-09, which was noted by the Attorney-General in his speech. This year we have seen the highest ever level of personal insolvency, with a total of 36,479 administrations. The vast majority of these, regrettably, are non-business bankruptcies principally involving consumer debts where consumers have got themselves into difficulty. Generally speaking it is not appropriate for the costly and complex proceedings in bankruptcy to be used as a tool to recover a debt of only $2,000, though at present the law would permit this. It is wholly appropriate that there be this increase to $10,000. I would suggest that the criticisms that have been expressed about this are misplaced in the sense that they are focusing on the use and inappropriate use of bankruptcy proceedings as a debt collection tool. Bankruptcy, I repeat, is intended to be a means of reordering, in a civilised way, the affairs of those citizens who have fallen into financial difficulty.

There are a number of other amendments contained in this legislation, including the abolition of bankruptcy districts, which will enable the Insolvency and Trustee Service Australia to administer the personal insolvency system in a more efficient way. The bankruptcy districts are very much a 19th-century institution and do not bear much resemblance to any of the divisions that we see elsewhere in the court system at either the state level or the federal level. It is appropriate that these slightly antiquated districts be abolished.

The legislation also goes on to make other amendments, including some useful changes to the provisions that deal with trustee remuneration. The amendments will provide a clearer regime for settling and reviewing remuneration, and in particular they will provide a more accessible and streamlined process for challenging a remuneration claim once the trustee has made such a claim. There have for a long time been concerns expressed by creditors that they have no ready means of checking the remuneration charged by a trustee, the basis on which the remuneration has been charged, or indeed ensuring that the amounts charged truly reflect the value of the work that has been done by the trustee. These amendments will, as I said, provide a clearer regime.

Mr Speaker, I understood that there was a proposal to finish at six. I shall continue.

The amendments also introduce changes to the offence provisions. These include an infringement notice regime as an alternative to prosecution for offences of strict liability. Quite commonly there will be some infraction that has occurred in the administration of a bankrupt’s estate which might not call for the infliction of the most severe penalties possible, and the introduction of an infringement notice regime, which is a regime that is used to good effect in some other areas of federal administration, as well as in a number of state regimes, is very often an appropriate alternative tool in the armoury of prosecution authorities. The amendments also will ensure that the penalties for some other offences, particularly those involving fraud, do reflect the seriousness of the conduct and are consistent with penalties for similar offences in other Commonwealth, state and territory legislation.

The amendments will provide some stronger powers to obtain a statement of affairs from a bankrupt who fails to file that statement of affairs as required and also provide some stronger powers for the Inspector-General in Bankruptcy to investigate possible offences under the act.

There is a technical change which is being made to the process that is used at the commencement of bankruptcy proceedings by the increase in the stay period for declarations of intent to file from seven to 28 days. The declaration of intent to file is one of the steps right at the start of bankruptcy proceedings and by increasing the period from seven to 28 days there will be a proportionate increase in the likelihood that the debtor will obtain proper information and advice about all options, which of course is very important because putting a citizen’s affairs into bankruptcy is properly to be regarded as a last-resort step. By slowing down the processes right at the start of a bankruptcy it is likely that it will remain and be seen to remain a last-resort option. The official receiver under these proposed processes will notify creditors of the declaration, which will allow them to be proactive in contacting the debtor to negotiate alternative arrangements. The provisions envisage that the debtor will be required to file a simple statement of affairs with the declaration and that will mitigate the risk of the debtor dissipating assets during the period and also provide an opportunity for the debtor to have explained the seriousness of the action which is being taken.

The other matter which these amendments deal with is to increase the debt income and assets thresholds for debt agreements by 20 per cent. Again, these were last looked at in 2002 and their purpose was to encourage more people to consider a debt agreement as a viable alternative to bankruptcy. The proposed increase will make these agreements available to more consumer debtors.

It is entirely appropriate in the difficult economic times that the country is facing, and is certainly likely to continue to experience as a result of economic difficulties in many other developed countries, that these reforms are undertaken. They are properly considered as part of the government’s wider microeconomic reform agenda and as part of a continuation of improvement to the effectiveness of credit markets in Australia. They are appropriate reforms to the personal insolvency system, particularly at a time when it is likely that there will be increasing numbers of people in financial distress, at least for the next year or so, and that those increasing numbers of people are able to be given a more realistic opportunity to consider their options and, where possible, avoid bankruptcy. It is very important that the aim of avoiding bankruptcy be kept squarely in mind at all times. The bankruptcy system should be considered an option of last resort.

The commentary on these reforms since they were announced by the Attorney-General is to some extent misplaced insofar as it treats the whole of the bankruptcy system as simply a debt collection tool. It is not a debt collection tool; it is a way of ordering the affairs of people in financial difficulties and ensuring that we continue to be a civilised society in relation to matters of debt. The amendments have been supported by all speakers in the House, I am pleased to say, despite some very small criticism that seems to have been expressed by the opposition in relation to the threshold amount. They are timely and appropriate reforms. I commend the bill to the House.

Robert McClelland (Barton, Australian Labor Party, Attorney-General) Share this | Link to this | Hansard source

in reply—I thank the House for its indulgence in continuing at this time. I would certainly like to thank members for their contributions to the debate. The principal purpose of the amendments in the Bankruptcy Legislation Amendment Bill 2009 is to modernise the national personal insolvency scheme and make it more efficient. They strike a balance between the need for fairness and the need to ensure a strong economy. The bill contains reforms that will encourage debtors to obtain early advice and give debtors greater access to alternatives to bankruptcy by making debt agreements an option for more debtors. Last year, for instance, debt agreements provided an average return to creditors of around 60c in the dollar compared to less than 2c in the dollar in bankruptcy. In other words, there are benefits all round.

The increase in the minimum amount upon which a creditor can petition for bankruptcy to $10,000 will ensure that debtors are not bankrupted over a relatively small debt. As I mentioned when I introduced the bill, I believe that it is inappropriate to use bankruptcy to recover relatively small debts or to use it effectively as a debt collection device rather than as a last resort. In that respect, unquestionably, the increase in the minimum amount upon which a creditor can petition for bankruptcy to $10,000 has attracted the most attention from stakeholders and also the media. That has been the most controversial of all the reforms proposed in the bill. Critics of the increase in the minimum amount have argued that businesses, and in particular small businesses, will find it more difficult to collect smaller debts under that sum. This point was made, for instance, by the member for Farrer. I can only reiterate that the purpose of bankruptcy is as a last resort rather than a debt collection tool. As speakers have indicated, there are alternatives to seeking bankruptcy.

I should also point out that the increase in the minimum amount will not have a large or disproportionate impact on small businesses. For instance, in 2008-09 there were only 391 sequestration orders for an amount of less than $10,000. Given that there are approximately 1.93 million small businesses in Australia, it is likely that only a tiny proportion of small businesses would have filed a creditor’s petition for an amount of less than $10,000 in any given year. The measures in this bill will encourage more people to consider other options, such as debt agreements. As I have indicated, these most certainly can be a constructive alternative to bankruptcy.

The reforms contained in the bill related to trustee remuneration will reinforce the principle that creditors should have oversight of a trustee’s administration of a bankrupt’s estate. The requirement to lodge a statement of affairs also protects the interests of creditors. In particular, it prevents the debtor from dissipating funds and assets potentially available to pay creditors. This requirement is strengthened by this bill by increasing the penalty for failure to lodge a statement of affairs and providing the official receiver with a specific power to compel a bankrupt to provide such a statement of affairs. The bill also contains reforms in relation to offences. These amendments will help ensure that any criminal, dishonest or other inappropriate conduct by bankrupts is dealt with appropriately.

The bill highlights the government’s commitment to modernising the personal insolvency system and to ensuring that our personal insolvency system treats both debtors and creditors fairly. Given the tough economic times that we are currently experiencing and the fact that in the last financial year Australia recorded a record level of personal insolvency, it is evident that the reforms contained in this bill are necessary. The reforms strike an appropriate balance by giving additional grace to debtors in some respects but also imposing stronger obligations of good faith in other respects. Importantly, the reforms will encourage those facing financial difficulty to obtain early advice with a view to negotiating an appropriate resolution of their circumstances with creditors which can be in the interests of both parties. I commend this bill to the House.

Question agreed to.

Bill read a second time.