Second Reading SpeechMr Williams (Attorney-General)
That this bill be now read a second time.
The Bankruptcy Legislation Amendment Bill 2002 largely replicates the Bankruptcy Legislation Amendment Bill 2001 which I introduced on 7 June 2001 and which subsequently lapsed when parliament was prorogued.
This bill differs in one substantial respect from the 2001 bill, in relation to the provision of a cooling-off period, which I will address later.
Bankruptcy is designed to give people in severe financial difficulty relief, as a measure of last resort, from overwhelming debts.
Bankruptcies trebled in the decade to 1997-98, and have remained at high levels since then.
Almost all of the increase has been in the non-business consumer bankrupt category.
Clearly, greater numbers of consumer debtors are choosing bankruptcy as a way of resolving their financial problems.
The government is concerned to ensure as far as possible that these people are properly informed when making such an important decision as entering into bankruptcy.
The Bankruptcy Legislation Amendment Bill 2002 will amend Australia's bankruptcy laws to address concerns that bankruptcy is `too easy' and to better balance the interests of debtors and creditors.
The reforms contained in these bills are designed to encourage people contemplating bankruptcy to consider the seriousness of the step they are about to take and to consider alternatives to bankruptcy.
The abolition of early discharge is consistent with this purpose.
The reforms were developed following more than two years of consultation with various stakeholders in the personal insolvency field.
In particular, there has been consultation with members of the Bankruptcy Reform Consultative Forum, a peak consultative body I established in 1996 to facilitate better consultation between the Insolvency and Trustee Service of Australia (ITSA) and key groups with a stake in the bankruptcy laws.
As I said in this place last year, the Senate Legal and Constitutional Legislation Committee has reported into the 2001 bankruptcy bills, and the government welcomed the committee's report.
The committee recognised that the proposed amendments will achieve the government's aim of preventing people using bankruptcy in a mischievous or improper way and encouraging people who can or should avoid bankruptcy to consider other options.
The reforms propose to give the Official Receiver discretion to reject debtors' petitions that are a blatant abuse of the bankruptcy system, when it is clear that the debtor is solvent and has singled out one creditor for non-payment, or where the debtor is a repeat bankrupt.
The exercise of this discretion will be subject to external administrative review.
The bill will strengthen the trustee's powers to object to the automatic discharge from bankruptcy of uncooperative bankrupts.
The strengthening of the trustee's objection to discharge powers is directed at the intentional failure by a bankrupt to cooperate with his or her trustee and at deliberate attempts by the bankrupt to impede the trustee's administration of the estate.
Reforms relating to objection-to-discharge provisions will overcome a deficiency in the present law which can encourage a bankrupt to cooperate with the trustee only at the last moment, that is, when a review hearing is imminent.
Another reform in the bill will confirm the court's power to annul a bankruptcy even if the debtor was insolvent when petitioning.
This measure is directed at high income earners who have chosen to not pay a particular creditor, for example the Australian Taxation Office, and then petitioned for bankruptcy to extinguish the debt.
The bill makes clear that in such a situation the court would be able to annul the bankruptcy as an abuse of process, despite the fact that the petitioning debtor technically was insolvent.
The bill proposes to raise by 50 per cent, to about $47,000 after tax, the income threshold for debt agreements to encourage more people to consider the debt agreement option as an alternative to bankruptcy.
The practical utility of debt agreements is restricted at present by the relatively low income threshold which applies: raising it will make the debt agreement alternative available to a much larger group of debtors.
The 2001 bill proposed to double the threshold but in light of the recent increased take-up of debt agreements the government has decided that a 50 per cent increase will adequately enhance access to the debt agreement alternative to bankruptcy.
Other changes to improve the operation of the act include further streamlining meetings procedures, simplifying the mechanism for changing trustees and bringing controlling trustees and debt agreement administrators under the regulatory purview of the inspector general.
Amendments will allow creditors to permit a bankrupt to retain `sentimental' property and require trustees to realise property within a six-year time period. Finally, other changes will clarify the qualifying requirements to become a registered trustee, allow trustees, rather than the court, to consent to debtors travelling overseas and impose conditions on that consent, and will allow trustees, rather than the official receiver, to determine hardship under the income contribution scheme.
This bill contains one significant change from the 2001 bill, which is the government's decision not to proceed with the introduction of a cooling-off period.
This decision was taken after careful consideration of the issue, and followed re-canvassing the views of stakeholders in the personal insolvency industry and, in particular, taking due note of the recent sharp rise in the number of debt agreements.
Debt agreements were introduced in 1996 as a low cost, simple alternative to bankruptcy for debtors with low incomes, few assets and relatively low levels of debt.
The take-up rate was initially slow but the number of agreement proposals has risen sharply since mid-2001 to around 430 per month, well over double the rate of 2000-01.
The government sees this as clear evidence that, increasingly, people in financial difficulties are considering and choosing debt agreements as an alternative to bankruptcy.
Thus, a key purpose of the cooling-off period proposal to encourage people to consider the consequences of, and alternative to, bankruptcy is being achieved to a noticeable degree by the debt agreement process.
In addition, this process will be accessible to more debtors as a result of the proposed increase in the income threshold.
Stakeholders in the insolvency industry when reconsulted late last year expressed concern about the administrative complexity a cooling-off period would introduce into the bankruptcy process.
The majority of them also doubted that many debtors would change their mind during the cooling-off period.
Finally, concerns were also expressed from financial counselling organisations that undesirable pressure may be put on debtors by creditors during the cooling-off period.
Accordingly the government has decided that the cooling-off proposal should not now proceed.
In summary the Bankruptcy Legislation Amendment Bill 2002 will amend Australia's bankruptcy laws to address concerns that bankruptcy is `too easy' and to better balance the interests of debtors and creditors.
It will encourage people contemplating bankruptcy to consider alternatives to bankruptcy.
By restoring fairness to the bankruptcy system, we will promote confidence in it.
I tender the explanatory memorandum for the bill.
Debate (on motion by Mr Sidebottom) adjourned.