House of Representatives

Explanatory Memorandum

(Circulated by authority of the Attorney-General, the Honourable Philip Ruddock MP)

Section 1 - General Outline

1. The purpose of this Bill is to extend the application of the realisations charge and interest charge to money received by debt agreement administrators pursuant to debt agreements under Part IX of the Bankruptcy Act 1966 . The amendments are all contained in Schedule 1 of the Bill.

Financial Impact Statement

2. The amendments made by this Bill will have no significant financial implications for the Commonwealth. The amendments will result in additional revenue of approximately $0.7m per year which will partly offset the additional costs to the Commonwealth of the amendments made by the Bankruptcy Legislation (Debt Agreements) Bill 2007.

3. The overall impact on fees and charges of the amendments to be made by this Bill and the Bankruptcy Legislation (Debt Agreements) Bill 2007 will be detailed in a revised Cost Recovery Impact Statement to be published by the Insolvency and Trustee Service Australia prior to 1 July 2007.

Section 2 - Policy objectives

4. The principal purpose of the amendments to be made by this Bill is to apply the realisations charge and interest charge to debt agreements. This will give effect to the Government's Cost Recovery Policy.

5. The basic principle of the Government's cost recovery policy is that users of services provided by the Government should generally pay for those services and that the price they pay should reflect the actual cost of providing those services. Where it is inefficient or inequitable to recover costs directly from the individual using the service, costs may be recovered through levies imposed on industry or a defined group of beneficiaries. Where cost recovery is inappropriate or counterproductive to the Government's personal insolvency policies, the cost should be borne by the Government.

6. The realisations charge and interest charge recover the cost of regulating the personal insolvency system. The cost of regulating debt agreement administrators within that system is currently recovered through the realisations charge and interest charge as they apply to bankruptcies and personal insolvency agreements. This means that the cost of regulating debt agreement administrators is effectively borne by creditors in bankruptcies and personal insolvency agreements. This is no longer considered appropriate as debt agreements make up a significant proportion of insolvencies in Australia and the cost of regulating that system should be correctly reflected by imposing these charges on money received from debt agreements.

7. In practice, it is largely the same creditors who are paying the realisations charge in bankruptcies and personal insolvency agreements who cover the cost of regulating debt agreement administrators. Applying the charge to debt agreements will broadly result in the same creditors paying the same amount of money but over a larger range of administrations. This means the rate of the realisations charge will be reduced following these amendments.

8. The current rate of the realisations charge was calculated taking account of projected revenue from the interest charge. The interest charge is payable by trustees in bankruptcies and personal insolvency agreements and requires the trustee to remit to the Commonwealth interest they receive on monies realised in those administrations. Effectively, this is money which would otherwise be payable to creditors. However, it would be complex for trustees and administrators to calculate interest for each estate and apportion this between creditors. The requirement to remit interest to the Commonwealth as a way of meeting part of the costs of regulating practitioners provides a benefit to creditors which should be reflected in setting the rate of the realisations charge. The interest charge is currently not payable by debt agreement administrators. The amendments will impose the charge on administrators and is supported by an amendment in the Bankruptcy Legislation Amendment (Debt Agreements) Bill 2007 which will require administrators to deposit debt agreement monies into a single, interest-bearing account. That is the same requirement which currently applies to trustees.

Section 3 - Notes on sections

Section 1 - Short Title

9. The Bankruptcy (Estate Charges) Amendment Bill 2007 (the Bill) proposes amendments to the Bankruptcy (Estate Charges) Act 1997 . Section 1 of the Bill provides that, when the Bill has been enacted, it will be known as the Bankruptcy (Estate Charges) Amendment Act 2007 .

Section 2 - Commencement

10. Section 2 will provide that the Act commences on 1 July 2007.

Section 3 - Amendments

11. Section 3 is a drafting device to allow all the amendments proposed to be made to the Act to be set out in a Schedule. The items in the Schedule will amend the Act and will have effect according to their terms. Notes on the Schedule items follow.