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Senate

Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2006

Revised Explanatory Memorandum

(Circulated by authority of the Attorney-General, the Honourable Philip Ruddock MP)
This memorandum takes account of amendments made by the House of Representatives to the bill as introduced

Readers' Guide

1. This Explanatory Memorandum is divided into three main sections: a general outline of the main provisions of the Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2006 (the Bill) (Section 1); a discussion of the main policy objectives the Bill seeks to achieve (Section 2, commencing at page 3); and a detailed discussion of each provision, item by item (Section 3, commencing at page 6).

Section 1 - General Outline

2. The amendments proposed by this Bill are intended to strengthen the 'claw back' provisions in the Bankruptcy Act 1966 (the Act). These provisions allow trustees to recover property disposed of prior to bankruptcy or owned by a third person but acquired by that person using the bankrupt's resources. Bankrupts may deliberately avoid these provisions in a number of ways including; (a) transferring assets to related entities in anticipation of insolvency and delaying the commencement of the bankruptcy (e.g. through protracted litigation); (b) concealing records relating to the transfer of assets; (c) transferring assets to a person who should reasonably be aware of the bankrupt's intention to defeat creditors; or (d) accumulating wealth in the lead up to bankruptcy in the name of a person who allows the bankrupt to continue to enjoy the asset despite the transfer and after the bankruptcy commences.

3. The objects of this Bill are to:

(a)
increase the claw back period from 2 to 4 years for transfers of property by a bankrupt to a related entity for less than market value;
(b)
introduce a rebuttable presumption of insolvency for the purposes of the claw back provisions where a bankrupt has failed to keep proper books, accounts and records;
(c)
void a transfer made to defeat creditors if it was reasonable for the transferee to infer that the bankrupt's main purpose in transferring the property was to defeat creditors;
(d)
allow the trustee to recover consideration given to third parties prior to bankruptcy;
(e)
empower the court to make orders in relation to property or money of natural persons where during the period of up to 5 years prior to bankruptcy:

·
the person acquired an estate in property as a direct or indirect result of financial contributions made by the bankrupt during that period; or the value of the person's interest in particular property increased as a direct or indirect result of financial contributions made by the bankrupt during the period; and
·
the bankrupt used or derived (whether directly or indirectly) a benefit from the property during the relevant period.

(e)
allow transcripts and notes from examinations under sections 77C and 81 of the Act to be used in proceedings under the Act, regardless of whether the person examined is a party to the proceedings; and
(f)
amend sections 120 and 121 to make it clear that 'consideration' for the purposes of these provisions is not to include any right that the transferee has given to their bankrupt spouse to reside at the transferred property (except in the case of marital breakdown).

4. Schedule 1 contains the proposed amendments.

Financial Impact Statement

5. The amendments proposed by this Bill will have no significant financial impact.


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