House of Representatives

Bankruptcy Legislation Amendment Bill 2004

Second Reading Speech

Mr Ruddock (Attorney-General)

I move:

That this bill be now read a second time.

The Bankruptcy Legislation Amendment Bill 2004 will make important changes to part X of the Bankruptcy Act 1966.

The bill follows a review of the operation of part X undertaken by the Insolvency and Trustee Service Australia and the Attorney-General's Department.

The review was conducted in response to concerns that part X arrangements were being manipulated by some debtors to avoid paying their debts.

The reforms generally have three objectives:

to increase the disclosure requirements of debtors, creditors and trustees involved in part X arrangements;

to simplify the process for establishing these arrangements by replacing the current three types of arrangements and replacing them with a single form of arrangement to be called a personal insolvency agreement; and

to provide a simpler and more consistent process for setting aside and terminating part X arrangements.

A key finding of the review was that part X arrangements continue to have an important place in Australia's personal insolvency system as a formal alternative to bankruptcy allowing debtors to come to binding arrangements with creditors for payment or settlement of outstanding debts.

However, there were a number of areas identified in which improvements could be made to increase confidence in these arrangements.

A critical feature of part X arrangements is that the debtor's proposal must be accepted by creditors.

The creditors are asked to make a decision based on information provided to them and following an opportunity to question the debtor at a creditors' meeting.

It is vital that creditors have available to them all information which is relevant to the debtor's proposal and affairs.

This must include information about relationships between the debtor and controlling trustee and between the debtor and other creditors.

As a result, the bill proposes amendments to ensure that creditors have early access to the debtor's statement of affairs and that the debtor and controlling trustee are required to make written declarations of any relationships of which creditors should be aware prior to making a decision whether or not to accept the debtor's proposal.

The bill also proposes amendments which will reduce the complexity of part X and improve its transparency.

Even the description 'part X arrangements' has been inadequate to describe, for the benefit of debtors and creditors alike, what these arrangements are intended to achieve.

Therefore, the bill proposes to replace the three existing types of arrangements under part X with a single type of arrangement to be called a personal insolvency agreement.

A personal insolvency agreement, as described in the bill, will provide greater choice and flexibility to debtors and creditors.

The debtor's proposal must contain provisions which will give creditors a clearer picture of what they are being asked to accept.

For example, the proposal must detail the property and income to be covered by the agreement and state:

how that property or income is to be dealt with;

whether the normal rules for distribution of dividends apply or whether property is to be distributed in another way;

whether the antecedent transactions provisions of the act apply; and

whether and to what extent the agreement will operate to release the debtor from his or her provable debts.

The bill also proposes amendments to streamline the process for setting aside and terminating personal insolvency agreements.

Currently, there are numerous provisions dealing with when a part X arrangement is void and for termination of an arrangement.

The amendments will consolidate these provisions so it is clear that there is a single process and set of grounds on which a personal insolvency agreement can be set aside and a single process and set of grounds for terminating a personal insolvency agreement.

Many of the issues which may undermine the integrity of part X arrangements can also arise in relation to post-bankruptcy schemes of arrangement and compositions under division 6 of part IV of the act. Therefore, this bill also includes amendments to those provisions particularly in relation to the disclosure obligations of debtors, creditors and trustees.

These amendments will mirror those being made to part X.

Finally, the bill will make some minor and technical amendments to improve the operation of the Bankruptcy Act and correct a drafting error in the transitional provisions contained in the Bankruptcy Legislation Amendment Act 2002.

I table an explanatory memorandum to the bill.

Debate (on motion by Mr Kelvin Thomson) adjourned.

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