House of Representatives

Explanatory Memorandum

Circulated By Authority of the Attorney-General, the Honourable Robert Mcclelland MP

SECTION 2 - POLICY OBJECTIVES

7. The principal purpose of the amendments to be made by this Bill is to modernize the national personal insolvency scheme and to make it more efficient.

8. In particular, the Bill includes amendments which recognize that the majority of bankruptcies relate to consumer debts and involve bankrupts with relatively few assets and little income. The 2008-2009 financial year produced the highest ever level of personal insolvency activity (36,479). This represents an increase of 11 per cent on the 2007-2008 financial year level of personal insolvency activity. The vast majority of these are non-business bankruptcies principally involving consumer debts.

9. Given these prevailing circumstances surrounding most bankruptcies, the system could do more to encourage informed decision making and access to alternative solutions. Many debtors who are overwhelmed by debts find it difficult to deal with all their creditors and may not always have the time available to do this. There are also opportunities to ensure debtors receive information and advice from a wider 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.

Trustee Remuneration

10. The proposed reforms relating to trustee remuneration have been developed following consultation with key stakeholders including insolvency practitioners, financial counsellors and creditors. Details of the proposed reforms were announced on 22 May 2008.

11. The overall purpose of the amendments relating to remuneration of trustees is to provide a clearer regime for setting and reviewing remuneration. In particular, they provide a more accessible and streamlined process for challenging the trustee's remuneration claim. The amendments reinforce the principle 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.

12. The amendments also provide the Inspector-General in Bankruptcy with enhanced oversight to ensure trustees are following the rules when claiming remuneration. There will be a new review process where the trustee's remuneration claim is disputed. This process will be free to the applicant (most often the bankrupt) and which is flexible by allowing it to be tailored to the particular issues in dispute.

13. It is important to ensure trustees are accountable to creditors in relation to their remuneration. However, an effective insolvency system also relies on there being trustees of a high calibre who are willing to undertake the work. The amendments recognise this by streamlining the process for claiming a basic amount of remuneration (set at $5000) which reasonably reflects the essential tasks which every trustee must undertake. The trustee will not require creditor approval for claims up to this amount. Any additional remuneration will require the approval of creditors. This will avoid unnecessary expense to the estate. The increase in the minimum remuneration entitlement will also replace the existing mechanism for default remuneration which allows a trustee to claim remuneration by reference to an outdated scale of fees without consulting creditors. This will ensure greater oversight by creditors of the trustee's remuneration.

Offences

14. The overall purpose of the amendments relating to offences is to:

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introduce an infringement notice regime as an alternative to prosecution for offences of strict liability;

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ensure the 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;

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provide stronger powers to obtain a statement of affairs from a bankrupt who fails to file this as required; and

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provide stronger powers for the Inspector-General in Bankruptcy to investigate possible offences under the Act.

Removal of Bankruptcy Districts

15. The overall purpose of the amendments relating to the removal of bankruptcy districts is to deliver a more efficient, national personal insolvency scheme. Over time the use of Bankruptcy Districts as an organising principle in bankruptcy administration has become increasingly cumbersome.

No retrospective amendments

16. All amendments will apply prospectively only.