House of Representatives Speech- Bankruptcy Legislation Amendment Bill 2009

The Bankruptcy Legislation Amendment Bill 2009 contains a set of timely and practical reforms. I want to concentrate in particular on the provisions which will increase the minimum debt for a creditor’s petition to $10,000. Before doing so, though, it is worth making some general comments about the nature of the bankruptcy system.

The Bankruptcy Legislation Amendment Bill 2009 contains a set of timely and practical reforms. I want to concentrate in particular on the provisions which will increase the minimum debt for a creditor’s petition to $10,000. Before doing so, though, it is worth making some general comments about the nature of the bankruptcy system.

Since the reforms that are contained in this bill were announced, there has been some criticism, particularly from some credit collecting agencies and small business organisations, and the tone of some of that criticism really suggests that, for some people, the bankruptcy system is seen as intending to inflict some punishment on those who have had difficulty paying their debts. The bankruptcy system is not intended to be a system of punishment. It has no punitive element—even though, for people who have the misfortune to find themselves at the wrong end of bankruptcy proceedings, it very often will feel like a punishment, because the consequence of being in bankruptcy is, of course, a very direct and serious interruption to any citizen’s financial affairs. It is not intended to be a punishment. It is intended to provide an orderly way in which society can regulate the payment and collection of debts, and an orderly way in which people can overcome a financial disaster occurring in their lives and, as it were, live to fight another day.

The particular criticism that has been directed at the increase in the minimum debt that is regarded as necessary for a creditor’s petition, from the present $2,000 to $10,000, is that, it is suggested by some of the small business organisations, $10,000 is too high an amount. But I think it needs to be put in the context of the commentary that has been made by a number of other interested groups in this, and that context would include that the Westpac Bank and the Australian Bankers Association accept very directly that there is a need to alter this threshold amount, which has not been raised since 1996, when it was raised from $1,500 to $2,000. They accept that some higher threshold is needed—indeed, I would digress to say that the Australian Financial Review editorial writer on 30 October noted:

Many would agree that a higher threshold is overdue …

What the Westpac Bank and the Australian Bankers Association called for was an increase to $5,000. I would suggest that the increase to $10,000 is a wholly appropriate amount, and we are able to judge that by looking at the whole of the bankruptcy system in Australia. It is a system that keeps—as one might imagine, for a system dealing with the collection of debts and the reordering of the financial affairs of Australian citizens who fall into difficulty—statistics. And the statistics for 2008-09 tell us that there were only 391 sequestration orders made by the court system for an amount of less than $10,000. That is a very, very small proportion of the total number of sequestration orders.

When one considers that there are 1.93 million small businesses in Australia, one can readily see that only a very small proportion of small businesses are likely to file a creditor’s petition in any given year for an amount of less than $10,000—and that is really the proper context in which to look at this increase from $2,000 to $10,000. This will ensure that the heavy instrument of the bankruptcy system is not used to collect small debts; rather, the bankruptcy system will be confined to those appropriately serious cases where there is a need to bring to bear the machinery for creditors to collect the bankrupt’s estate and for a trustee—it is often a very expensive trustee, and that is another matter that is dealt with in this legislation—to come in and sort through what proportion of the bankrupt’s estate is able to be shared among creditors and the way in which that sharing is to occur.

There are many other means of debt collection that stop short of bankruptcy. In fact, I am not sure that bankruptcy was ever intended to be a primary tool of debt collection. It is appropriate that all other measures that are available to collect debts—which includes garnishee orders by a court or simple proceedings leading to a judgment in court or other means—should be employed before the last resort of a petition in bankruptcy is taken up.

As I said at the outset of this speech, the reason that this is timely is that we are presently enduring the effects of the global financial crisis—although Australia is faring better, as we have often heard, than every other developed country. This has already led to many Australians falling into financial difficulty. Regrettably, it is likely to lead to many more Australians falling into financial difficulty in the next year or so. This has been reflected in the actual increase in bankruptcies over the last year. There has been an 11 per cent increase in bankruptcies in 2008-09, which was noted by the Attorney-General in his speech. This year we have seen the highest ever level of personal insolvency, with a total of 36,479 administrations. The vast majority of these, regrettably, are non-business bankruptcies principally involving consumer debts where consumers have got themselves into difficulty. Generally speaking it is not appropriate for the costly and complex proceedings in bankruptcy to be used as a tool to recover a debt of only $2,000, though at present the law would permit this. It is wholly appropriate that there be this increase to $10,000. I would suggest that the criticisms that have been expressed about this are misplaced in the sense that they are focusing on the use and inappropriate use of bankruptcy proceedings as a debt collection tool. Bankruptcy, I repeat, is intended to be a means of reordering, in a civilised way, the affairs of those citizens who have fallen into financial difficulty.

There are a number of other amendments contained in this legislation, including the abolition of bankruptcy districts, which will enable the Insolvency and Trustee Service Australia to administer the personal insolvency system in a more efficient way. The bankruptcy districts are very much a 19th-century institution and do not bear much resemblance to any of the divisions that we see elsewhere in the court system at either the state level or the federal level. It is appropriate that these slightly antiquated districts be abolished.

The legislation also goes on to make other amendments, including some useful changes to the provisions that deal with trustee remuneration. The amendments will provide a clearer regime for settling and reviewing remuneration, and in particular they will provide a more accessible and streamlined process for challenging a remuneration claim once the trustee has made such a claim. There have for a long time been concerns expressed by creditors that they have no ready means of checking the remuneration charged by a trustee, the basis on which the remuneration has been charged, or indeed ensuring that the amounts charged truly reflect the value of the work that has been done by the trustee. These amendments will, as I said, provide a clearer regime.

Mr Speaker, I understood that there was a proposal to finish at six. I shall continue.

The amendments also introduce changes to the offence provisions. These include an infringement notice regime as an alternative to prosecution for offences of strict liability. Quite commonly there will be some infraction that has occurred in the administration of a bankrupt’s estate which might not call for the infliction of the most severe penalties possible, and the introduction of an infringement notice regime, which is a regime that is used to good effect in some other areas of federal administration, as well as in a number of state regimes, is very often an appropriate alternative tool in the armoury of prosecution authorities. The amendments also will ensure that the penalties for some other offences, particularly those involving fraud, do reflect the seriousness of the conduct and are consistent with penalties for similar offences in other Commonwealth, state and territory legislation.

The amendments will provide some stronger powers to obtain a statement of affairs from a bankrupt who fails to file that statement of affairs as required and also provide some stronger powers for the Inspector-General in Bankruptcy to investigate possible offences under the act.

There is a technical change which is being made to the process that is used at the commencement of bankruptcy proceedings by the increase in the stay period for declarations of intent to file from seven to 28 days. The declaration of intent to file is one of the steps right at the start of bankruptcy proceedings and by increasing the period from seven to 28 days there will be a proportionate increase in the likelihood that the debtor will obtain proper information and advice about all options, which of course is very important because putting a citizen’s affairs into bankruptcy is properly to be regarded as a last-resort step. By slowing down the processes right at the start of a bankruptcy it is likely that it will remain and be seen to remain a last-resort option. The official receiver under these proposed processes will notify creditors of the declaration, which will allow them to be proactive in contacting the debtor to negotiate alternative arrangements. The provisions envisage that the debtor will be required to file a simple statement of affairs with the declaration and that will mitigate the risk of the debtor dissipating assets during the period and also provide an opportunity for the debtor to have explained the seriousness of the action which is being taken.

The other matter which these amendments deal with is to increase the debt income and assets thresholds for debt agreements by 20 per cent. Again, these were last looked at in 2002 and their purpose was to encourage more people to consider a debt agreement as a viable alternative to bankruptcy. The proposed increase will make these agreements available to more consumer debtors.

It is entirely appropriate in the difficult economic times that the country is facing, and is certainly likely to continue to experience as a result of economic difficulties in many other developed countries, that these reforms are undertaken. They are properly considered as part of the government’s wider microeconomic reform agenda and as part of a continuation of improvement to the effectiveness of credit markets in Australia. They are appropriate reforms to the personal insolvency system, particularly at a time when it is likely that there will be increasing numbers of people in financial distress, at least for the next year or so, and that those increasing numbers of people are able to be given a more realistic opportunity to consider their options and, where possible, avoid bankruptcy. It is very important that the aim of avoiding bankruptcy be kept squarely in mind at all times. The bankruptcy system should be considered an option of last resort.

The commentary on these reforms since they were announced by the Attorney-General is to some extent misplaced insofar as it treats the whole of the bankruptcy system as simply a debt collection tool. It is not a debt collection tool; it is a way of ordering the affairs of people in financial difficulties and ensuring that we continue to be a civilised society in relation to matters of debt. The amendments have been supported by all speakers in the House, I am pleased to say, despite some very small criticism that seems to have been expressed by the opposition in relation to the threshold amount. They are timely and appropriate reforms. I commend the bill to the House.