Joe Ludwig (Queensland, Australian Labor Party, Manager of Opposition Business in the Senate) Share this | Hansard source

The incorporated speech read as follows—

The problem of high-flying professionals who use bankruptcy to avoid tax and other liabilities first came to national attention in 2001. That was when Paul Barry, for the Sydney Morning Herald, published an investigation into NSW barristers, some of whom had been bankrupt more than once, but who continued to enjoy the high life because they had put all their assets into the names of spouses or trusts – unreachable by the tax office or other creditors.

Playing catch-up, the Government set up its own taskforce to look into the matter that same year.

Now here we are in 2006 – 5 years later – finally debating a piece of legislation that might deal with this issue. Before I discuss the detail of this bill, this House deserves to hear its history. It is an extraordinary tale of incompetence. For five years the Government has zig-zagged bizarrely between nonchalance and over-zealousness, until now never managing to steer a straight, sensible path.

At first, the Government dragged its boots for three years before producing any response.

Then in 2004 it produced an exposure draft that went overboard with a disproportionate response to the problem. It proposed retrospective laws and a reversed onus of proof. That draft also would have undermined legitimate asset protection arrangements, where families divide their property so that all family members are not exposed to the business and

credit risks taken by one. Bankruptcy law has to get the balance right between cracking down on rorters and protecting legitimate family arrangements. The exposure draft got it completely wrong – and a furore erupted. Coming up to the 2004 election the Government took the anti-avoidance parts of that plan completely off the table. This was the return to another period of inaction.

Rather than have another try at more sensible legislation, the Coalition gave up on getting anti-avoidance right. The Attorney-General came back with the Bankruptcy and Family Law Amendment Bill – basically the exposure draft minus the anti-avoidance schedule.

Although we supported that Bill, Labor was very disappointed that the Government would let slip an opportunity to fix the high-flyers problem once and for all. We moved some amendments which would have gone part of the way. The Government, in its arrogance, refused to consider them.

That was once year ago.

One year later – in all, five years too late – Labor is pleased to see that the Government has accepted the approach we had advocated.

Finally, we have before us a bill sensibly targeting the use of bankruptcy to avoid tax and other debts. It takes the approach of strengthening existing `claw back’ provisions, as Labor proposed through amendments last year. `Claw back’ provisions allow the trustee to undo transactions, transfers and arrangements designed to defeat or frustrate creditors. They make it harder to hide assets.

This bill proposes four mechanisms to toughen claw back provisions.

First, it will introduce a rebuttable presumption of insolvency where the bankrupt has keep books, records and accounts below an acceptable standard, or not retained them at all. This is precisely what Labor proposed and the Government rejected last year. That is a real shame, because these laws could have been active a whole year earlier if not for the Governments’ pure arrogance. Sadly, the Attorney-General would rather delay reform of the law than be seen to pick up an amendment proposed by the Labor Party.

A rebuttable presumption is useful because in many instances it is hard to prove that the bankrupt was insolvent at a relevant time. This introduces a new fair concept, preventing people from frustrating trustees and creditors by relying on their own incompetent record keeping.

Second, the bill will increase the time period for claw back for `related entities’, including family members, to four years rather than two. Avoidance techniques are obviously more common amongst related entities than strangers, so it is reasonable to have a longer period to inquire into the purpose and nature of transactions.

Third, the bill will introduce a requirement of `reasonableness’ into the test for the claw back of transfers intended to defeat creditors. Currently, transferees are immune from claw back if they had no actual knowledge of the transferors’ true intention. Under this bill, transferees will only be protected if they `could not reasonably’ have known. This will target those cases where a person has turned a blind eye to an obvious attempt to avoid liabilities.

Fourth, the bill will allow property to be vested in the trustee in bankruptcy in those cases where the bankrupt has paid for property on behalf of someone else, but still enjoys the benefits of the property. For example, it would cover the situation where a person has put their income into a house that is technically owned by their spouse, but where the person still enjoys rent-free living. This is exactly the sort of scam that allows some high-flying bankrupts to maintain a high income lifestyle while still avoiding creditors.

The bill contains three other changes relating to the admissibility of transcripts from interviews by the Official Receiver and correcting two possible unintended interpretations of the sections 120 and 121. These are uncontroversial.

Indeed this whole Bill is uncontroversial—it is a welcome set of reforms to target the high-flying bankruptcy problem. Labor will closely watch to see whether they achieve this.

The only controversy here is why this bill has taken so long—6 years since the problem emerged. It is all the more embarrassing given that Labor offered a large part of the solution 12 months ago, only to have it arrogantly dismissed by the Attorney-General.

Earlier today we started debating the Family Law Amendment (Shared Parental Responsibility) Bill 2005. That is another case in which the Opposition has made some constructive amendments to one of the Attorney’s bills. I hope he has learnt from the embarrassing experience of this anti-avoidance bill that good policy sometimes means being prepared to swallow his pride and accept Labor’s good ideas the first time around.