Senate

Explanatory Memorandum

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

SCHEDULE 2-OTHER AMENDMENTS

(This schedule sets out the amendments relating to rural support schemes and the proceeds of crime legislation and also includes minor technical amendments to the Bankruptcy Act.)

Amendments to the Bankruptcy Act 1966

Definition of rural support scheme

Item 1 will insert a definition of 'rural support scheme' for the purposes of a proposed new regulation making power (see notes to items 5, 6 and 7).

Payments into the Consolidated Revenue Fund

Inspector-General's functions

Subsection 20H(5) of the Bankruptcy Act currently provides that the Official Trustee in Bankruptcy must determine whether payments should be made from the Equalization Reserve of the Common Investment Fund into the Consolidated Revenue Fund. In practice however, it is the Insolvency and Trustee Service Australia (ITSA), through the Inspector-General in Bankruptcy, which effectively exercises this power. ITSA provides services to the Official Trustee to enable the Official Trustee to fulfill its statutory responsibilities under the Bankruptcy Act and the Proceeds of Crime Act. The Official Trustee is the trustee of bankrupt estates but it does not invest the Common Investment Fund money - that is done by ITSA and essentially ITSA, through the Inspector-General in Bankruptcy, makes determinations as to whether monies earned from investment of money in the Common Investment Fund can be paid into the Consolidated Revenue Fund. The money earned from investment of the Common Investment Fund is public money.

The amendments to be made by items 2 and 3 will ensure that the provisions in the Bankruptcy Act accurately reflect the Inspector-General's role in relation to payments into the Consolidated Revenue Fund.

Transitional arrangements

The effect of the amendment proposed by item 4 is that anything done by the Official Trustee pursuant to subsection 20H(5) prior to commencement of this item has effect, after commencement of this item, as if it had been done under subsection 20H(5) by the Inspector-General.

Payments made under rural support schemes

The effect of the amendments to be made by items 5 to 7 will be to implement a regime to afford protection from seizure under the Bankruptcy Act to certain payments made pursuant to certain rural support schemes.

A number of rural grants are currently afforded the status of non-divisible property under the Bankruptcy Act. For example, grants pursuant to the Dairy Exit Program ("Dairy Exit") and the Farm Help Re-establishment Grant Scheme ("Farm Help").

The Bankruptcy Act does not currently explicitly provide that classes of rural grants may be prescribed by regulation as non-divisible property. The current non-divisible property status of Farm Help, Dairy Exit and other grants is provided for in the Bankruptcy Act and therefore can only be modified by primary legislation.

Amendments to existing rural grant schemes may necessitate changes to the provisions providing for their protection in bankruptcy. Existing rural grant schemes may be modified without the passage of fresh primary legislation which might be used as a vehicle to modify the Bankruptcy Act. Future rural grant schemes may also come into existence without the passage of fresh primary legislation which might be used to insert protective provisions into the Bankruptcy Act.

Grant schemes may be introduced (or amended) and payments to primary producers commenced within a short period. Rapid introduction (or amendment) of schemes may be necessitated by the circumstances giving rise to the creation (or amendment) of the schemes. Accompanying protections under the Bankruptcy Act for those payments must therefore also be capable of being introduced rapidly.

It is desirable that any appropriate protections can be put in place or take effect before payments are made under the relevant grant schemes. This will assist in ensuring that all of those recipients whose financial circumstances are most dire (those who are already in bankruptcy or whose bankruptcy is imminent) will receive the benefit of the financial assistance provided by the Government. This will also provide certainty to persons dealing with the recipients of these payments as to whether any grant funds will be available to creditors upon bankruptcy.

In such circumstances, a regulation making power is required to put in place or to amend, in a timely manner, adequate and appropriate protections for certain kinds of rural grants.

Minor technical amendments

Correction of drafting error in paragraph 121(4)(b)

The recently commenced Bankruptcy Legislation Amendment (Anti-avoidance) Act 2006 (BLAAA) amended the claw back provisions in the Bankruptcy Act, including section 121. That provision allows the trustee to recover property transferred by the bankrupt prior to bankruptcy with the intention to defeat the interests of creditors. Subsection 121(4) sets out the defences available to the transferee where the trustee seeks to recover property under these provisions. As noted in the Explanatory Memorandum to the BLAAA, the intention of an amendment to paragraph 121(4)(b) was to provide that:

a person could only take advantage of subsection 121(4) if they both didn't know the transferor was seeking to defeat creditors (as at present) AND they could not have reasonably inferred that this was the transferor's main purpose. In other words, if the evidence objectively suggests the transferee (i.e. recipient) should have known that the transferor (i.e. pending bankrupt) was attempting to defeat creditors, the transfer would not be protected by subsection 121(4).

However, the actual amendment does not reflect this policy intention, using an 'or' rather than an 'and' in this context. Item 8 will correct this drafting error in paragraph 121(4)(b).

Correction of drafting error in paragraph 121(9)(a)

By replacing the word 'or' with 'of' the amendment to be made by item 9 will correct a minor drafting error.

Minor technical amendment to subsection 302A(3)

Section 302A of the Bankruptcy Act voids certain governing rules of superannuation funds and approved deposit funds where a member or depositor becomes a bankrupt, commits an act of bankruptcy or executes a personal insolvency agreement under the Act. Subsection 302A(3) provides that 'This section applies to governing rules made before the commencement of this section'. As currently drafted, this provision could be interpreted to mean that the section applies only to governing rules made before commencement of the section. Item 10 will substitute 'applies' with 'extends' to make it clear that the section applies to governing rules made before and after commencement of the section.

Amendments to the Proceeds of Crime Act 2002

Section 299

Role of the Inspector-General

Section 299 of the Proceeds of Crime Act allows the Official Trustee to make determinations in relation to suspended and distributable funds held in the Confiscated Assets Account. However, following forfeiture orders being made, it is ITSA, through the Inspector-General, which makes determinations as to whether the proceeds of crime monies held in the Confiscated Assets Account should have the status of 'suspended funds' or be 'distributable funds'. The Official Trustee does not perform this function.

The amendments to be made by items 11, 12, 13, 14, 15 ,16 ,17 and 18 will ensure that these provisions accurately reflect the Inspector-General's role in relation to Confiscated Asset Accounts determinations.

Transitional arrangements

The effect of the amendment proposed by item 19 is that anything done by the Official Trustee pursuant to section 299 of the Proceeds of Crime Act prior to commencement of this item has effect, after commencement of this item, as if it had been done under section 299 by the Inspector-General.