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2002
THE PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF REPRESENTATIVES
BANKRUPTCY
LEGISLATION AMENDMENT BILL 2002
EXPLANATORY
MEMORANDUM
(Circulated by authority of the Attorney-General,
the Honourable Daryl Williams AM QC MP)
Readers’ Guide
This Explanatory Memorandum is
divided into three main sections: a general outline of the main provisions of
the Bankruptcy Legislation Amendment Bill 2002 (the Bill) (Section 1); a
discussion of the main policy objectives underlying each of the provisions
(Section 2, commencing at page 7); and a detailed discussion of each
provision, item by item (Section 3, commencing at page 11).
Section 1 - General Outline
2 The Bankruptcy Legislation
Amendment Bill 2002 (the Bill) will make a number of significant changes to
bankruptcy law. The changes address concerns that the bankruptcy system is
biased toward the debtor and that debtors are not encouraged to think seriously
about the decision to declare themselves bankrupt. The changes also address
unfairness and anomalies, particularly in relation to the operation of the early
discharge arrangements and the lack of effective sanctions on uncooperative
bankrupts. Finally, the changes will streamline the administration of
bankruptcies by trustees.
3 The objects of this Bill are to:
(a) give Official Receivers a discretion to reject a debtor’s petition
where it appears that, within a reasonable time, the debtor could pay all the
debts listed in the debtor’s statement of affairs and that the
debtor’s petition is an abuse of the bankruptcy system;
(b) abolish
early discharge from bankruptcy;
(c) strengthen the
objection-to-discharge provisions of the Bankruptcy Act 1966 (the Act) by
making it easier for trustees to lodge objections to a person’s discharge
from bankruptcy and harder for bankrupts to sustain challenges to
objections;
(d) make clear that a bankruptcy can be annulled by the Court
whether or not the bankrupt was insolvent when a debtor’s petition for
bankruptcy was accepted; and
(e) raise by 50% the current income
threshold for debt agreements, to allow and encourage many more debtors to
choose this particular alternative to bankruptcy.
4 Other changes
proposed by the Bill are consequential on the above measures, streamline the
operation of the Act or are a consequence of the Insolvency and Trustee Service
of Australia (ITSA) having become an executive agency. The changes include
those to:
(g) allow the Inspector-General to enquire into the activities
of debt agreement administrators and of solicitors who are controlling
trustees;
(h) give the court a power, in specified circumstances, to
effect the discharge of a bankrupt, despite the bankrupt’s failure to meet
the formal requirements for filing a statement of affairs;
(i) make the
filing of a debtor’s petition an act of bankruptcy;
(j) allow the
amounts of final judgments or final orders obtained by a creditor to be
amalgamated for the purpose of meeting the $2,000 threshold for the issue of a
bankruptcy notice;
(k) require an Official Receiver to reject
debtors’ petitions of debtors who do not have the same connection with
Australia as is required in relation to creditors’
petitions;
(l) amend several machinery provisions about creditors’
meetings to:
(i) require trustees, when convening a meeting, to consider the
convenience of creditors;
(ii) clarify the quorum provisions that apply to
creditors’ meetings;
(iii) require trustees to provide to initial
creditors’ meetings an estimate of the trustee’s total remuneration
and of its impact on dividends (if any) to creditors;
(iv) clarify the voting
rights of a secured creditor by correcting an unintended consequence of the
wording of a 1996 amendment of the Act; and
(v) allow holders of proxies
lodged at a meeting to vote on subsequent motions at that meeting, including at
any adjourned part of that meeting;
(m) introduce a streamlined meeting
procedure to allow creditors to meet and vote by post, and also to resolve
proposals for variations of section 73 compositions and schemes of arrangement
by a similar means, if no creditor objects to this procedure;
(n) allow a
trustee to refuse to call a section 73 meeting unless adequate provision has
been made for trustee fees that have been approved but are unpaid, and for the
costs of, and trustee remuneration regarding, the meeting;
(o) require
bankrupts to notify trustees of material changes to matters relevant to a
trustee’s administration of a bankrupt’s estate;
(p) provide
that a debtor is liable for new debts incurred during his or her cooling-off
period, even when bankruptcy follows at the end of that period;
(q) make
clear that priority amounts due to a bankrupt’s employees for unpaid wages
extend to unpaid superannuation, and that Medicare levy constitutes income tax
for contribution scheme purposes;
(r) allow the Court to deny, to those
debtors who file frivolous counter-claims, set-offs or cross demands as defences
to a bankruptcy notice, the benefit of the subsection 41(7) extension of time
for compliance with the notice;
(s) allow creditors, by special
resolution, to permit a bankrupt to retain sentimental property of a prescribed
kind;
(t) require trustees to realise assets in a bankrupt estate within
a 6 year period after discharge but allow trustees to extend that time, in
appropriate circumstances, on giving written notice to the
bankrupt;
(u) alter the contributions scheme provisions to:
(i) remove
the ‘zero income’ test of whether a person is a bankrupt’s
“dependant” and allow an eligible person to earn up to an amount
prescribed by the regulations and still qualify as a dependant;
(ii) clarify
which income tax refunds are assets that vest in the trustee and which are
income for contributions scheme purposes;
(iii) allow trustees, rather than
an Official Receiver, to determine a higher income threshold in the income
contribution scheme if the bankrupt is in circumstances of undue
hardship;
(iv) require trustees to notify contributors of their rights to
have a trustee’s assessment decisions reviewed; and
(v) introduce a
standard 60 day limit for most applications for a review of a trustee’s
decisions, including those on contributions assessments and the filing of
objections;
(v) ensure that a bankruptcy cannot be annulled on full
payment of the debts unless interest on the interest-bearing debts has been paid
to the date the debts are paid;
(w) ensure that no person who applies to
be registered as a bankruptcy trustee can be registered unless, at that time,
the person has the ability - and not merely the capacity to acquire the ability
- satisfactorily to perform the duties of a registered
trustee;
(x) increase the statutory minimum remuneration for registered
trustees by 8.4% to take account of the impact of the goods and services tax and
other tax reform measures;
(y) allow bankruptcy administrations to be
transferred from one trustee to another, without a formal meeting of creditors,
provided the creditors agree;
(z) introduce a streamlined procedure to
allow variations and terminations of Part X deeds of arrangement and
compositions if the debtor is in default and no creditor objects to this
procedure;
(za) allow the trustee, rather than the Court, to consent to a
bankrupt travelling overseas and, whether or not the bankrupt is a contributor,
to impose written conditions on that consent, the breach of which conditions
will be an offence;
(zb) require that applications for an extension of
time for payment of interest charge and realisations charge be made before the
payment is due;
(zd) extend to Part X trustees eligibility for the
assistance available, under section 305, to trustees in a
bankruptcy;
(ze) abolish a bankrupt’s direct access to an external
tribunal for review of trustee decisions, eg, those about income contributions
and objections to discharge.
Financial Impact
Statement
5 There is a resource implication for the Insolvency and
Trustee Service Australia (ITSA) arising from the proposed increase in the
income cutoff for debt agreements. Debt agreement numbers have increased
markedly in 2001-02 to more than double the number in the previous year and
extending access to debt agreements by increasing the income cut-off by 50% to
$47,500 will result in further increases. ITSA’s role is to assess debt
agreement proposals against elgibility criteria, refer them to creditors and
supervise the voting on them. An estimated 15 additional staff will be
allocated to this activity. It is expected that the financial impact of the
other measures in the Bill will offset each other.
Regulation Impact Statement
PROPOSED AMENDMENTS TO THE
BANKRUPTCY ACT AND REGULATIONS APPLYING TO THE REGISTRATION OF BANKRUPTCY
TRUSTEES.
Background: The present trustee registration scheme
6 The
Bankruptcy Act 1966 (the Act) makes provision for the registration
of private sector trustees to administer bankrupt estates. Trustees are
registered for an initial period of 3 years and can apply for re-registration
after that time. Re-registration is automatic on application and payment of a
fee (currently $1,000). The fee partially recovers the costs of administering
the registration system. The provisions of the Act require applicants to hold
certain qualifications and to have relevant experience and prescribe the duties
of a trustee.
7 On receiving an application a Committee is convened to
consider it. The Committee comprises the Inspector-General, an officer of the
Attorney-General’s Department and a member chosen by the Insolvency
Practitioners Association of Australia (IPAA). The Inspector-General must act
in accordance with the Committee’s recommendation.
8 A person who
applies to become a trustee is registered if they meet criteria set out in
section 155A of the Act. The Committee assesses the suitability of the
applicant using criteria relating to minimum academic qualifications,
experience, knowledge and abilities, insurance coverage, and moral and business
conduct.
9 Section 155A(3) of the Regulations provides the Committee with
some discretion to register a trustee who does not meet all the requirements
(defined in Regulation 8.02) prescribed by the regulations.
10 There are
about 200 trustees registered, of which 165 are active. An inactive trustee is
one who has not taken on any new estates in the past year. He or she may still
be working on older estates, as an estate can take several years to finalise.
11 There are no limits to the number of trustees registered at any time.
In the past, where there were insufficient trustees in a particular area, staff
of ITSA encouraged qualified people to apply for registration.
12 Qualifications and experience are tested not only at initial
registration. Continued eligibility is tested through ITSA investigations of
complaints about specific conduct of trustees, its periodic inspections of the
trustees’ practices and regular reporting to the Inspector-General in
Bankruptcy.
13 If ITSA considers a trustee is not performing
satisfactorily, the Inspector-General may call upon a Committee to determine
whether the trustee should be de-registered or have conditions imposed on his or
her further practice as a registered trustee.
14 There is a right of
review to the Administrative Appeals Tribunal (the AAT) of all the
Inspector-General’s decisions regarding
registration.
Problems
15 Two issues needed to be
addressed:
(a) In November 1998, the AAT made a decision that two
applicants who did not meet the specific criteria could nonetheless be
registered because, in its opinion, they had the capacity to become trustees.
The Tribunal members relied, as they were entitled to, upon a strict view of
subsection 155A(3). That provision was intended to allow registration of
otherwise qualified applicants who may have had international qualifications
that did not exactly fit those prescribed. However, it was cast in wider terms
and the applicants fell within them.
Following the AAT decision, senior
counsel advised that, in his view, it was a real threat to the continued
efficacy of the registration scheme, particularly if applied in future
registration review matters before the AAT. Counsel also recommended that the
Committee be able to require applicants to sit an exam.
(b) Unrelated
issues have been the lateness of applications by some trustees to extend their
registrations and the delay by some in paying estate charge due by trustees
under the Bankruptcy (Estate Charges) Act
1997.
Objectives
16 The objectives of the current trustee
registration system are:
(a) that only competent and adequately qualified
practitioners work as bankruptcy trustees; and
(b) that registration
extension applications be lodged before the expiry of current registration and
that charge debts be paid by the due date.
Options
-
initial registration
17 As to objective (a), there were only two options
available. Option one, doing nothing, was undesirable because, first, it would
not achieve the outcome required of the registration system and, secondly,
applicants would be left unsure about the standard of knowledge required of
them.
18 Option 2 was to recast section 155A to ensure that applicants
cannot be registered if the Committee is not satisfied that they have the
ability (including knowledge) to perform satisfactorily the duties of a
registered trustee. In that regard, the proposed insertion of a provision
empowering a Committee to require applicants to sit for an exam will assist the
Committee’s decision making.
19 In parallel, the involuntary
termination provisions in section 155H are proposed to be amended to extend the
grounds on which a trustee can be asked to give the Inspector-General a written
explanation why he or she should continue to be registered. Under the proposal,
an explanation can be sought if the Inspector-General believes that the trustee
no longer has the ability (including knowledge) to perform satisfactorily the
duties of a registered trustee. Regulations would also be amended to support
this course of action.
- re-registration
20 As to objective
(b), again, one option would have been to do nothing. However, this was
unacceptable, as trustee re-registration applications should be lodged before
the relevant expiry date, and charge payments should be made by the due date for
payment. Option 2 was to make the necessary changes to address these
issues.
21 To encourage trustees to apply and pay for re-registration on
time, it is proposed to add a provision prohibiting re-registration if the
person owes more than $50 of notified charge, or of penalty in relation to it.
It is also proposed to bring forward the due date for applications and payment
of fees to a month before current registration expires.
22 Payment of
the fee late, but before the current registration expiry date, will attract a
20% penalty. If the fee and the penalty are not paid before the current
registration expiry date, the trustee will be unregistered and will need to
apply to the Court to become registered again.
Costs imposed by the
new regulatory measures
23 Under both proposed measures, there ordinarily
will be no additional registration costs to the Government or trustees. The
assessment of a trustee for initial registration will continue to be made by a
Committee using standards applied before the AAT decision, but with the
Committee also having the proposed new option of requiring the applicant to sit
an exam.
24 Trustees will re-register, as, as at present, by application.
By encouraging on-time payment this proposal is expected to reduce trustee
applications to the Court for registration and the associated
expense.
25 Additional costs will be incurred if a trustee has failed to
perform in a satisfactory manner in the preceding 3 year period. This will be
assessed by ITSA periodically and the trustee given advice after each
inspection. If a trustee falls short of the standards, he or she will be asked
prior to the date for re-registration to explain why he or she should continue
to be registered. If the response is unsatisfactory, a Committee will be
convened to assess the application for re-registration.
26 The proposed
amendments will impose a small additional cost on ITSA, which must evaluate
trustee performance. This is consistent with the regulatory role already
performed and in line with planned enhancements to regulatory procedures in
other areas.
27 It is anticipated that the need to convene the Committee
would be rare, as most trustees respond to reports made following annual
inspections. The costs of convening Committees are about
$3,000.
Consultation
28 The consultants who reviewed the
trustee registration provisions consulted key stakeholders in the personal
insolvency system, including registered trustees, creditors, and financial
counsellors, the Bankruptcy Reform Consultative Forum and a bankruptcy
discussion group in Melbourne. Public submissions were called for but no
submissions were received.
29 The parties affected are the trustees. The
IPAA has agreed that regulation of trustees is desirable and should continue in
its present form. It has indicated that it is desirable to have an effective
mechanism for weeding out non-performers.
30 Without competent trustees,
creditors and bankrupts could be affected adversely and costs to government in
dealing with complaints would escalate. Eventually, creditor confidence in the
bankruptcy system as a whole would be affected adversely.
31 The
Bankruptcy Reform Consultative Forum and a reasonable sample of active trustees
in each State were consulted by ITSA about the proposed registration extension
procedures. No objections were raised.
Conclusion
32 The
amendments proposed clarify and strengthen the registration provisions to enable
the registration Committee to recommend for registration only those applicants
who have the necessary qualifications, experience and practical expertise to
undertake satisfactorily the duties of a trustee. They encourage trustees to
lodge and pay for re-registration on time.
33 The proposed amendments
will have little financial impact while enhancing the Inspector-General’s
capacity to ensure the desired outcome that only those individuals who are
competent are registered and remain registered
Implementation
34 The proposals are to be implemented by
amendments to Division 1 of Part VIII of the Act and by amendments to the
Bankruptcy Regulations.
Review
35 The registration scheme and
the inspections of trustees are reviewed regularly to ensure they are meeting
their objectives. The Inspector-General reports annually to Parliament on both
the outcomes achieved by regulation of trustees and the registration
process.
------------------------------
Section 2 - Policy objectives
Official Receiver’s discretion to reject a debtor’s petition
36 There has never been an insolvency test for petitioning debtors and this basic principle will remain largely undisturbed by the Bill. However, some debtors petition for bankruptcy for the wrong reasons: their petitions are an abuse of laws intended to protect debtors who cannot pay their debts, and to give them a fresh start.
37 Accordingly, in quite limited circumstances, Official Receivers will be able to reject a debtor’s petition. The Bill proposes that, where it appears to the Official Receiver, from information in the statement of affairs (or from other information supplied by the debtor) that, if the debtor did not become a bankrupt, the debtor would be likely to be able to pay the debts, within a reasonable time, the Official Receiver may reject the petition.
38 However, the discretion can only be exercised if, in addition to the above:
(a) it is evident to the Official Receiver that the debtor is petitioning because of an unwillingness (and not an incapacity) to pay; or
(b) the debtor has been bankrupt previously, on his or her own petition, either at least three times in all or at least once in the last 5 years.
39 This measure is directed only at the most blatant abuses of the system. It is not envisaged that any petition will be rejected under this proposed measure without personal or telephone contact first being made with the debtor by senior, experienced ITSA staff.
40 Importantly, the Bill proposes that the Official Receiver will not be bound in every instance to consider whether to exercise the discretion. This means that, as now, the vast majority of petitions will be accepted without any enquiry into the debtor’s solvency.
41 A debtor whose petition is rejected through the exercise of the Official
Receiver’s discretion will be able to have that decision reviewed by the
Administrative Appeals Tribunal (the AAT.)
Abolition of early
discharge
42 The Bill proposes the abolition of the early discharge
provisions of the Act. These provisions are most often cited as the cause of
concern that bankruptcy is too easy. The reduced period of bankruptcy is seen
to discourage debtors from trying to enter formal or informal arrangements with
their creditors to settle debts, and provides little opportunity for debtors to
become better financial managers.
43 Also, when introduced, early
discharge was described as applying to those whose bankruptcy was brought about
by ‘misfortune’ rather than ‘misdeed’. The provisions
were targeted at a new category of bankrupt - consumer debtors with low
asset-backing who over-extend and then cannot repay their debts. However, they
have not achieved their stated intent. There is no evidence that qualifying for
early discharge is a sound measure of whether a bankruptcy has been due to
misfortune rather than misdeed.
44 There is no intrinsic reason why
bankrupts who have assets available for distribution or income sufficient to
make a contribution to the estate (which disqualifies them for early discharge)
are less worthy of early discharge than those who do not. In addition, allowing
only those whose debts exceed 150% of income to apply, discriminates against
women who have joint debts with, and generally a lower income than, their
spouse. In other words, the provisions operate in quite discriminatory
ways.
Objection-to-discharge provisions strengthened
45 The
objection-to-discharge provisions allow bankruptcy trustees to lodge an
objection to the bankrupt’s automatic discharge at the end of the
3 year standard period of bankruptcy. Depending on the grounds of
objection, the standard bankruptcy period can be extended by 2 years or, in
more serious cases, by 5 years.
46 Under the present regime a
notice of objection must set out the ground(s) of objection, refer to the
evidence that, in the trustee’s opinion, establishes the ground(s) and
state the trustee’s reasons for objecting to discharge on the ground(s)
specified in the notice.
47 In practice, trustees often have found it
difficult to maintain objections. Frequently, objections have been cancelled on
review by the Inspector-General, the Administrative Appeals Tribunal (AAT) or
the Federal Court. The reasons for cancellation vary. Some trustees have found
it difficult to differentiate clearly the ground(s) of an objection and
the reason for filing the objection. Moreover, on occasions, the AAT has
upheld a bankrupt’s challenge to an objection simply because, either
during an AAT hearing or just before it occurs, the bankrupt eventually has
provided information long sought by the trustee and the non-supply of which
information was the ground of the trustee’s objection. Such decisions
undermine a prime purpose of the objection regime which is to induce a bankrupt
to cooperate, promptly, with the trustee of the bankrupt estate.
48 The
Full Federal Court decision in Inspector-General in Bankruptcy v Nelson
(1998) 168 ALR 340 establishes that a sufficient reason for filing an objection
under the current provisions is that doing so will advance the trustee’s
administration of the bankrupt estate. However, conversely, punishment of the
bankrupt for failure to cooperate was found to be an impermissible reason for
filing an objection.
49 To address these deficiencies in the present
law which have hampered a trustee’s capacity to elicit cooperation from
some bankrupts, and to strengthen the trustee’s hand, the Bill proposes a
tougher objection-to-discharge regime under which it is expected that more
objections will withstand the review process.
50 It is proposed that
trustee objections will fall into one of two groups, namely, those which specify
at least one ‘special ground’ and those which specify none. In the
first group, the trustee’s notice of objection still will have to set out
the ground(s) of objection and the evidence relied on to establish it or them,
but need not state the reasons for filing an objection to the bankrupt’s
discharge from bankruptcy. For objections which contain no ‘special
ground’, the trustee will be obliged, as now, to provide in the notice the
trustee’s reasons for filing an objection.
51 The existing
objection grounds in paragraphs 149D(1)(d) to (h) inclusive will now constitute
special grounds, as will those in proposed new paragraphs 149D(1)(ab), (da),
(ha) and (ma). The existing objection grounds in paragraphs 149D(1)(a), (b) and
(h) to (n) inclusive will constitute other grounds, as will the ground in
proposed new paragraph 149D(1)(aa). Special grounds are directed at deliberate
actions by the bankrupt to defeat creditors or to hinder the trustee’s
administration. The bankrupt’s pre-objection conduct, rather than the
trustee’s capacity to show that an objection will advance the conduct of
the administration, will determine whether any notice of objection will have to
state the reason(s) why it has been lodged. Examples of special grounds that
may be listed in an objection notice and regarding which no reasons are required
include:
(a) any transfer is void against the trustee in the bankruptcy
because of section 121 (ie, the section which deals with property transfers to
defeat creditors) (proposed new paragraph 149D(1)(ab)); and
(b) after the
date of the bankruptcy, the bankrupt intentionally provided false or misleading
information to the trustee (proposed new paragraph 149D(1)(da))
.
52 Proposed new subsection 149N(1A) identifies the special ground
paragraphs. As noted, they relate to deliberate actions which can disrupt a
trustee’s administration or which are intended to defeat creditors. While
it can be difficult to infer intention, in each instance the burden of proof
which the trustee will bear if an objection is challenged is the civil onus, ie,
proof on the balance of probabilities.
53 Further, by proposed
subsection 149N(1B), a reviewer will not be able to cancel an objection by
taking into account any conduct of the bankrupt after the time when the ground
first commenced to exist. Objections on special grounds will be reviewable only
as to whether the ground(s) and evidence are made out, unless the reviewer is
satisfied by the bankrupt that the facts supporting the objection arose without
any fault on the bankrupt’s part.
54 While a trustee’s hand
is strengthened greatly by the proposed new provisions, it remains the case that
a trustee does not have to file an objection unless subsection 149B(2) applies,
and a trustee can cease to object on a particular ground (section 149H) or
withdraw an objection at any time (section 149J).
Annulment of
bankruptcy by Court whether or not petitioning debtor
insolvent
55 Section 153B of the Act gives the Court power to annul a
bankruptcy if it is satisfied that a petition ought not to have been presented.
The Bill proposes an amendment to make clear that the Court can so decide, even
if the debtor is insolvent.
56 High-income debtors who are maintaining
an expensive lifestyle and petition for bankruptcy with the aim of avoiding
paying a particular creditor (eg, the ATO) will be among those targeted by this
proposed amendment. If the Court believes that the debtor could make
arrangements to pay the creditor it could annul the bankruptcy as an abuse of
process.
Raising by 50% the current income threshold for debt
agreements
57 Debt agreements were introduced in 1996 as a low-cost
alternative to bankruptcy, available to low-income debtors with assets and debts
below specified thresholds. Debtors cannot access the provisions if they have
an after-tax income of more than $31,176 (if there are no dependants) and either
their assets or debts exceed $62,352 (these are January 2002 figures, and are
subject to 6-monthly indexation). The comparatively low income threshold has
been criticised as denying the debt agreement alternative to a group of debtors
whose circumstances would be well suited to it.
58 It has been noted
that debtors who were ‘too poor’ to be required, under one Part of
the Act, to make contributions from income for the benefit of their creditors
were nonetheless invited, under another part of the Act, to make a debt
agreement proposal to creditors. Despite this criticism, 2,320 debt agreement
proposals were lodged with ITSA for processing in 2000-01. Raising the
threshold by 50% will increase substantially the number of debtors who will be
able to make a debt agreement proposal to their creditors as an alternative to
bankruptcy. It is consistent with an important theme of the reform measures -
to encourage debtors to consider the alternatives seriously before choosing
bankruptcy.
---------------------------
Section 3 - Notes on sections and Schedule
items
Section 1 - Short Title
59 The Bankruptcy
Legislation Bill Amendment 2002 (the Bill) proposes amendments to the
Bankruptcy Act 1966 (the Act). By proposed section 1, when the Bill has
been enacted, it will be known as the Bankruptcy Legislation Amendment Act 2002.
Section 2 - Commencement
60 In accordance with the table
in proposed section 2, proposed sections 1 to 3 and anything in the Bill not
elsewhere covered in that table will commence on the day of Royal Assent.
Proposed Schedule 1 will commence on a day to be fixed by Proclamation. If the
proclaimed day has a date more than 6 months after the day of Royal Assent, the
Schedule 1 provisions will commence on the first day after the end of that
6 months period.
Section 3 - Schedule
61 Proposed
section 3 is a drafting device to allow all the amendments proposed to be made
to the Bankruptcy Act 1966 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 and include notes on transitional and
application items.
Schedule 1—Amendments to the Bankruptcy
Act 1966
(This schedule sets out all of the amendments proposed
to be made to the Bankruptcy Act 1966.)
Part
1—Amendments
Definitions
62 Items 1, 2 and 4
inclusive propose amendments to subsection 5(1) of the Act which contains a
number of definitions of terms used in the Act.
63 Item 1 proposes to
insert a definition of administrator by which a person authorised
(under paragraph 185C(2)(c) of the Act) to deal with property under a debt
agreement is an administrator. The definition is relevant for proposed
provisions relating to the Inspector-General’s proposed powers in relation
to debt agreement administrators. The term administrator will also apply to a
replacement administrator appointed after an administrator’s death to
complete that person’s administrations. The replacement administrator
will be an Official Receiver appointed by the Inspector-General or another
person subsequently appointed by an Official Receiver.
64 Item 2 proposes
a definition of authorised employee to refer to an Australian
Public Service employee whose duties include supporting either or both of the
Inspector-General or the Official Receivers in the performance of their
functions, or in the exercise of their powers, under the Act. This definition
is relevant to changes proposed by several items [5, 8, 50, 78 and 141] in
Schedule 1 to delete references to ‘officer of the Department’ and
substitute references to ‘authorised employee’. The former
terminology is now inappropriate due to ITSA’s status, from 1 July 2000,
as an executive agency quite separate from the Attorney-General’s
Department.
65 Item 3 replaces an incorrect reference to
‘section 56’ in the subsection 5(1) definition of
debtor’s petition with a correct reference to ‘section
56A’.
66 Item 4 inserts a definition of offence against
this Act as including an offence against section 137.1 or 137.2 of the
Criminal Code and being an offence that relates to this Act. The purpose of
inserting this definition is to ensure that the expression ‘offence
against this Act’ picks up offences which were contained in the Bankruptcy
Act but have been consolidated into the Criminal Code. By transitional
provision item 227, this provision will apply to conduct which constitutes an
offence at any time.
67 Item 5 proposes to replace the words
‘officer of the Department’ in subsection 11(4) of the Act with the
words ‘authorised employee’. Since ITSA became an executive agency
on 1 July 2000, it no longer is a part of the Attorney-General’s
Department and nor are its staff. This change will enable the Inspector-General
to continue to delegate powers to the same persons as previously, ie, currently,
those who are individual ITSA staff members, but in their capacity as an
‘authorised employee’ rather than as an ‘officer of the
Department’.
Enquiry powers regarding controlling
trustees
68 Item 6 proposes the insertion of the words ‘(including
a controlling trustee)’ after the words ‘conduct of a trustee’
in paragraph 12(1)(b) of the Act. This proposed amendment will empower the
Inspector-General to inquire into and investigate the conduct of a controlling
trustee just as he or she may now do regarding a trustee.
Enquiry
powers regarding debt agreement administrators
69 Item 7 proposes an
amendment to subsection 12(1) to extend the Inspector-General’s regulation
powers under the Act to debt agreement administrators.
70 Item 8 is an
amendment comparable to that proposed by item 5 and will allow an Official
Receiver to delegate powers to an ‘authorised
employee’.
Appointment of Inspector-General and Official
Receivers
71 Item 9 proposes the omission, from section 16 of the Act, of
the words ‘Secretary to the Department’ and the substitution of the
word ‘Minister’. The effect of this is that the Inspector-General
and each Official Receiver will be appointed by the Minister rather than, as
previously, by the Secretary to the Attorney-General’s Department. The
previous arrangement was appropriate when the Inspector-General headed a
Division of that Department and is inappropriate now that ITSA is an executive
agency. By transitional provision item 229, existing appointments will continue
in force after commencement.
72 Item 10 proposes to repeal existing
subsections 17(1) to 17(6) inclusive and to substitute new subsections.
Proposed subsection 17(1) will provide for the Minister to appoint a person to
act as Inspector-General. Similarly, by proposed subsection 17(2), the
Inspector-General may appoint persons to act as Official Receivers. Section 33
of the Acts Interpretation Act 1901 provides more details of how these
types of provisions apply and are to be interpreted.
73 Item 11 is a
drafting amendment made as a consequence of the changes effected by item 10. By
transitional provision item 202, existing appointments will continue in force
after commencement.
Duties of trustee
74 Item 12 makes a change
to paragraph 19(1)(i) which nominates the Inspector-General, in addition to
relevant law enforcement authorities, as a person to whom trustees are to refer
any evidence of an offence by a bankrupt against the Act. By transitional
provision item 199, this provision will apply to conduct at any time.
Official Trustee’s powers to investigate a bankrupt’s
affairs
75 Subsection 19AA(2) currently gives an Official Receiver the
power to investigate any bankrupt's conduct and examinable affairs, and
the books, accounts and records kept by the bankrupt, in relation to any
bankruptcy. These investigative powers are necessary and appropriate for the
trustee of a bankrupt estate, but not for an Official
Receiver.
76 Accordingly it is proposed by items 13 and 14 that
subsection 19AA(2) be repealed and subsection 19AA(1) amended to include the
Official Trustee (by changing the term "registered trustee" to
"trustee").
77 By transitional provision item 203, changes to section
19AA will apply to bankruptcies for which the date of the bankruptcy is after
commencement.
Alteration of filing date for statement of
affairs
78 Item 15 proposes to insert new section 33A into the Act. The
effect of this new section is to allow the Court to order that a statement of
affairs be treated as having been filed at a time before it was actually filed,
provided that the Court is satisfied that the bankrupt believed, on reasonable
grounds, that this statement had been filed at a time before it actually was
filed. Proposed subsection 33A(3) allows a period of grace of 30 days before
the order can take effect to allow the trustee to disengage from the role of
trustee. By transitional provision item 204, the change will apply to
statements of affairs filed at any time, whether before or after
commencement.
Acts of bankruptcy
79 By items 16 and 17, the
updating of terminology used in paragraphs 40(1)(ha) and (hb) of the Act is
proposed; references to ‘Official Trustee’ would be replaced by
references to ‘Official Receiver’. These changes are consistent
with terminology changes proposed by items 144 to 149 inclusive, items 151 and
153, and items 155 to 166 in recognition that the processing of debt agreement
proposals is more appropriately an Official Receiver function than an Official
Trustee function: see the notes on those items.
80 Item 18 proposes
the insertion of subparagraph 40(1)(daa) into the Act. The effect of this new
proposed provision will be to make the presentation of a debtor’s petition
an act of bankruptcy. Section 43 of the Act provides to the effect that where a
debtor has committed an act of bankruptcy the Court may, on a petition presented
by a creditor, make a sequestration order against the debtor’s estate. By
item 29, it is proposed to give Official Receivers discretion to reject a
debtor’s petition. Thus, if a petition is so rejected, a creditor will be
able to rely on the fact of its presentation as an act of bankruptcy which will
found a creditor’s petition for a sequestration order. The change
proposed by item 18 will apply to petitions presented after
commencement.
Bankruptcy notices
81 It is proposed by item 19
that subsection 41(1) be repealed and replaced by a new subsection to allow 2 or
more final judgments or final orders valued at $2,000 (rather than one as is
currently required) to support the issue of a bankruptcy notice. Item 20
proposes a consequential drafting change.
82 Items 21 and 22 propose
consequential amendments to paragraphs 41(6A)(a) and 41(6C)(a) to take account
of the fact that multiple final judgments or final orders may support the issue
of a bankruptcy notice. By transitional provision item 205, these changes will
apply to the issue of bankruptcy notices on applications that are made after
commencement.
83 The amendment proposed by item 23 omits a reference in
paragraph 43(2)(a) of the Act to Division 3 of Part VII because it is proposed
by this Bill to repeal that Part which, in specified circumstances, provides for
early discharge from bankruptcy after 6 months.
Taking control of
debtor’s property after a creditors’ petition is
presented
84 Item 24 proposes to amend subsection 50(1) of the Act to
allow a creditor who wishes to have a controlling trustee appointed over a
debtor’s property to apply to the Court for such an appointment after a
creditor’s petition has been presented, as well as after a bankruptcy
notice has been issued against the debtor. The amendment will restore to this
group of creditors a right inadvertently taken from them as an unintended
consequence of an amendment in 1996. By transitional provision item 207, this
change will apply to any creditor’s petition that is presented after
commencement.
85 A technical amendment to paragraph 54(1)(a) of the Act
is proposed by item 25 to make clear that a debtor against whom a sequestration
order has been made is to make out and file, ‘with the’ Official
Receiver a statement of his/her affairs. The present wording requiring that the
statement be filed ‘in the office of’ the Official Receiver has
proved confusing.
Copies of statements of affairs
86 Item 26
proposes an amendment to subsection 54(4) of the Act to give a person who
presently can ‘make copies of’ a statement of affairs the right to
‘obtain’ a copy of a statement of affairs. Administratively, this
arrangement will be far more convenient for debtors and ITSA
staff.
87 Item 27 would amend section 54 of the Act to allow a bankrupt
the same free access to his or her own statement of affairs as a creditor
enjoys. Also, the Official Receiver is given discretion to refuse to allow a
person access under section 54 to particular information in a statement of
affairs on the grounds that access would jeopardise, or be likely to jeopardise,
the safety of any person.
Petitioning debtor must have specified
connection with Australia
88 By proposed item 28, new subsection 55(2A)
will oblige the Official Receiver to reject a debtor’s petition unless the
debtor has an appropriate connection with Australia. Those connection
requirements already apply to petitions for a sequestration order.
Official Receiver may reject a debtor’s petition in particular
circumstances
89 Item 29 proposes the insertion of new subsections
55(3AA), (3AB) and (3AC) under which the Official Receiver may reject a
debtor’s petition if it appears from the information in the statement of
affairs and any additional information supplied by the debtor that, if the
debtor did not become a bankrupt, the debtor would be likely either immediately
or within a reasonable time to be able to pay all the debts specified in the
statement of affairs; and at least one of the following conditions
is satisfied:
- first, it appears from the information in the statement
of affairs and any additional information supplied by the debtor that the debtor
is unwilling to pay one or more debts to a particular creditor or creditors or
is unwilling to pay creditors in general; or
- secondly, before the
current petition was presented, the debtor previously became bankrupt on a
debtor’s petition at least three times or at least once in the period of 5
years before presentation of the current petition.
90 The purpose of
new subsection (3AA) is to give the Official Receiver discretion to reject a
debtor’s petition where it is plain to the Official Receiver that the
petition is an abuse of the bankruptcy system.
91 One key purpose of
the bankruptcy system is to allow people in a hopeless financial position to
rule a line under their debts and be given a fresh start. However, subsection
(3AB) makes clear that the Official Receiver is not required to
consider, in relation to any or every debtor’s petition, whether there is
discretion to reject it under subsection (3AA). The Official Receiver is not
required to apply an insolvency test to every debtor who petitions for
bankruptcy. Only the more blatant and obvious cases that might come to the
Official Receiver’s attention are likely to be considered as to the
possible exercise of the discretion.
92 By proposed new subsection
(3AC), a debtor whose petition is rejected under subsection (3AA) will be able
to apply to the Administrative Appeals Tribunal for a review of the Official
Receiver’s decision. By transitional provision item 208, the change
proposed by items 28 and 29 will apply to petitions presented after
commencement.
93 Item 30 proposes a drafting amendment to subsection
55(4) to cover the possibility that a Court may, under provisions of section 55
other than subsection (3), direct an Official Receiver to reject a
debtor’s petition.
94 Paragraph 55(8)(a) contains a reference to
Division 3 of Part VII. That Division, which deals with early discharge from
bankruptcy, is proposed to be repealed by this Bill, so item 31 proposes
omission of the reference.
95 Item 32 proposes to amend subsection 55(9)
to the same effect as the amendment proposed by item 26: see the notes on that
item. Similarly, item 33 would amend section 55 along the same lines as the
amendments to section 54 proposed by item 27.
96 Paragraph 56E(3)(a)
contains a reference to Division 3 of Part VII. That Division, which deals with
early discharge from bankruptcy, is proposed to be repealed by this Bill, so
item 34 proposes omission of the reference.
97 Item 35 proposes to amend
subsection 56F(3) of the Act by removing references to a trustee being a
registered trustee. This change would distinguish the role of the Official
Receiver from that of the Official Trustee and put the Official Trustee in the
same position as a registered trustee.
98 Items 36 and 37 make amendments
parallel to those made by item 26 and 32: see the notes on those items.
However, the amendment proposed to be made by item 38 to insert paragraph (aa)
in section 56G(2) of the Act has the effect that a person who is a member of a
partnership and who became bankrupt as a result of a petition may obtain a copy
of or take extracts from any statement of affairs that was given to the Official
Receiver in connection with a debtor’s petition against the partnership.
In other words, the petitioning debtor is able to obtain for no fee a copy of
his/her own debtor’s petition. Item 39 makes a consequential drafting
amendment as a result of item 38. Item 40 proposes a similar amendment of
section 56G in relation to partnerships as is proposed by item 27 to
section 54 in relation to individual debtors: see the notes on item
27.
Amendments regarding joint debtors
99 Items 41, 42, 43, 44
and 45 replicate, in relation to joint debtors, the provisions inserted in
relation to individual debtors regarding, respectively: the necessity for a
debtor to have a specified connection with Australia when petitioning; the
Official Receiver’s power to reject a debtor’s petition; the
omission of reference to Division 3 of Part VII (the early discharge provisions,
proposed to be repealed); and the inspection of a statement of affairs By
transitional provision item 208, the changes proposed by items 41 and 42 will
apply to petitions presented after commencement.
Convenience for the
creditors of proposed time and place for meeting
100 Item 46 proposes to
add a new subsection 54(3) to the Act which would require that, when a trustee
is convening a meeting of creditors, the trustee must consider whether the
proposed time and place is convenient for the creditors. This provision does
not replace the existing section 64M requirement for a motion on these very
issues at a meeting of creditors.
A note about proxies
101 Item
47 proposes the addition of a note at the end of subsection 64M(1) which deals
with proxy voting at meetings of creditors. The note points out that, under
proposed new subsection 64ZB(3) which deals with proxy voting at
creditors’ meetings, a proxy or attorney may vote at a meeting even though
the appointing instrument is lodged after the announcement of proxies: see the
separate notes on the amendment proposed by item 53.
Quorum at a
creditors’ meeting
102 Item 48 proposes an amendment of section 64N
by the insertion of a new replacement subsection (2) which provides that a
quorum is constituted by the presence of the trustee or the trustee’s
representative, and a creditor (or proxy or an attorney of a creditor)
participating in the meeting in person or by telephone. This is to overcome
difficulties in getting a quorum at creditors’ meetings because of the
existing requirement that, if there is more than one creditor, at least two
persons – each being a creditor or proxy or attorney of such a creditor
– must participate in the meeting in person or by telephone. However, the
note makes clear that, as a meeting requires at least two persons, the person
who is the trustee or the trustee’s representative cannot also be the
proxy or attorney of the creditor referred to in proposed paragraph 2(b). This
means that a trustee cannot hold a meeting with himself or herself but, for
example, could hold the meeting, as trustee, with a member of his/her staff who
holds a proxy for a creditor. By transitional provision item 209, the changes
proposed by items 46 to 48 will apply to meetings of which notice is given after
commencement.
Trustee to advise creditors about estimated remuneration
and its impact on dividends
103 Item 49 proposes to amend subsection
64U(5) of the Act by inserting new subsection (5A) under which the trustee
must include, in a statement under subsection (3), an estimate of the total
amount of his/her remuneration and an explanation of the likely impact of that
remuneration on the dividends (if any) to creditors. The purpose of this
provision is to ensure that, as far as possible when creditors are being asked
to consider and vote on the trustee’s proposed remuneration, they are
fully informed as to how much the trustee is likely to take from an estate as
remuneration and the extent to which this will have an effect on dividends, if
any, payable to creditors. For example, if it is clear to the trustee that
his/her likely remuneration will mean that there is no prospect of a dividend
being paid to creditors, the trustee must inform the creditors to that effect.
By transitional provision item 210, the change proposed by item 49 will apply to
meetings held after commencement.
104 The amendment proposed by item 50
is a consequential one flowing from ITSA’s change of status from being a
Division of the Attorney-Generals Department to being an executive agency under
the Public Service Act 1999: see the notes on item 5.
Voting by
secured creditors
105 Items 51 and 52 each propose a technical amendment
to substitute words in subsections 64Z(9) and 64ZA(5) respectively of the Act.
The changes would adopt the terminology ‘secured creditor’ rather
than refer, as now, to a creditor who ‘holds a security in respect
of’ a debt. A change made to the respective subsections in 1996
inadvertently has caused confusion about the creditors’ meeting voting
entitlements of creditors who hold a security in respect of a debt. The effect
of the proposed changes will be that a creditor who holds security over property
belonging to someone other than the debtor (eg, a creditor who holds a
mortgage over the debtor’s parents’ house), can vote for the full
amount of the debt. However, a creditor whose security is held solely over the
debtor’s property is a ‘secured creditor’ and can only vote if
the debt owed exceeds the estimated value of that security.
Holders
of proxies lodged ‘late’ may vote on subsequent
motions
106 Item 53 proposes the repeal of subsection 64ZB(3) and the
insertion of new subsections (3) and (3A). Proposed new subsection (3) allows
the President to accept new proxies after the formal announcement of initial
proxies under section 64M, thus allowing those new proxy holders to vote on
subsequent motions. Holders of proxies lodged with the President at a meeting
can vote on motions put after lodgment of the instrument of appointment.
107 The purpose of proposed new subsection (3A) is to allow the person
appointed as a proxy for the adjourned part of a meeting to be a person
different from the person appointed as proxy for the pre-adjournment part of
that meeting.
108 By transitional provision item 209, the changes
proposed by items 51 to 53 will apply to meetings of which notice is given after
commencement.
Creditors’ resolution without
meeting
109 Item 54 proposes the insertion of a new section, section
64ZBA, to allow a trustee to hold the meeting by post. The proposal addresses
the difficulty trustees often encounter in persuading creditors to attend, or
send a proxy in relation to, a creditors’ meeting. The provision is
restricted to single proposals and the notice must invite the creditor to vote
either yes or no on the proposal or to object to the proposal being resolved
without a meeting of creditors. Provided at least one creditor votes in writing
and no other creditor objects in writing to the proposal being resolved without
a meeting of creditors, the proposal is decided in accordance with the
majorities required for a special resolution or an ordinary
resolution.
110 A trustee’s signed certificate as to any matter
relating to a section 64ZBA proposal is to be prima facie evidence of the
matter.
Trustee may require surety for cost of
meeting
111 Items 55 and 57 propose a mechanism to discourage bankrupts
from making frivolous or vexatious requests to the trustee to call meetings to
consider a section 73 proposal for the annulment of a bankruptcy. This outcome
is to be achieved by the bankrupt being required to lodge with the trustee an
amount that is sufficient to cover the estimated costs incurred in arranging and
holding the meeting and the estimated fee that, if approved by the creditors,
will be payable to the trustee in respect of that meeting.
112 In
addition, proposed new subsection 73(2B) will allow a trustee to refuse to call
a section 73 meeting if the proposal to be put to the meeting does not make
adequate provision for the payment to the trustee of fees accrued in respect of
the trustee’s administration of the bankrupt’s estate, and that are
not able to be taken out of the bankrupt’s estate.
113 As an added
safeguard for trustees, subsection 73(3) is proposed by item 56 to be amended to
deny the creditors’ meeting power to amend the debtor’s proposal in
a way that reduces any provision for payment of fees referred to in proposed new
subsection (2B).
114 By transitional provision item 211, the changes
proposed by items 79 to 81 will apply to proposals lodged, after commencement,
under subsection 73(1) of the Act.
Variation of composition or scheme
of arrangement
115 Item 58 proposes the insertion of new section 74A into
the Act to provide for the variation of a composition or scheme of arrangement
that has been accepted in accordance with Division 6 of the Act provided the
debtor has consented in writing to the proposed variation. Currently, that
Division makes no provision for the variation of such a composition or scheme.
By transitional provision item 212, the change proposed by item 58 will apply to
section 73 compositions and schemes of arrangement made after commencement.
Further, by that transitional item, a Part X composition or scheme of
arrangement is made when it is accepted by creditors.
116 Proposed
subsections 74A(3) to (6) inclusive provide a means by which a variation
proposal can be made in writing by the trustee, with the debtor’s consent
and without calling a meeting. The proposed measure does not require that the
proposal be voted on by the creditors. It is a sufficient safeguard that any
one creditor who either opposes the proposal or objects to it being resolved
without a meeting has the power to challenge it by objecting in the specified
manner to it being so resolved. If at least one creditor lodges such a written
notice of objection, the proposal can only be considered in the ordinary way,
ie, by calling a formal meeting of creditors.
117 The proposed
amendments to be effected by items 59 to 61 are drafting amendments of a
technical nature only and do not affect the substantive law.
Duties
of bankrupt
118 Item 62 proposes the insertion in the Act of new
paragraphs 77(bb) and (bc), to impose on a bankrupt an additional duty, ie, to
advise the trustee of any material change in the particulars contained in the
bankrupt’s statement of affairs. By item 63, a material
change is to be defined by proposed subsection 77(2) to mean one which
could reasonably be expected to be relevant to the administration of the
bankrupt’s estate.
119 Items 64 to 66 are all drafting changes of
a minor technical nature and do not affect the substantive law.
Trustee powers to investigate
120 The amendments proposed by
items 67 to 70 to section 77A, and the repeal of section 77B proposed by item
71, are each a consequence of the fact that the Official Receiver’s
existing power under subsection 19AA(2) to conduct an investigation into the
affairs of a bankrupt is proposed by this Bill to be repealed because the
investigation function is one properly carried out by a trustee: see the notes
on item 14. Accordingly, items 67 to 70 propose to delete references to a
person called ‘the investigator’ and insert in their place a
reference to ‘a trustee’. This reflects the fact that it will be a
trustee, and not an Official Receiver, who conducts a section 19AA
investigation. By transitional provision item 203, all these changes will apply
to bankruptcies for which the date of the bankruptcy is after
commencement.
121 By item 72, subsection 80(1) of the Act is proposed to
be amended by replacing an obsolete reference to subparagraph 6A(2)(b)(i) (which
was repealed in 1996) with the requirement that a bankrupt notify his/her
trustee of a change of name or of address. An associated amendment is effected
by proposed new paragraph 77(bb): see the notes on item 62. By transitional
provision item 213, the amendment made by this item will apply to a change that
occurs after commencement.
Time limit for appeal against
trustee’s estimate of value of contingent debt or
liability
122 Item 73 provides to the effect that where, under subsection
82(4), a trustee estimates the value of a contingent debt or liability provable
in the bankruptcy, a person aggrieved by that estimate may appeal to the Court
within 28 days after the day on which the estimate is notified to that person.
The imposition of a time limit is to ensure that a trustee’s
administration of a bankruptcy is not unduly hindered by an aggrieved person
challenging the trustee’s valuation of a contingent liability at a time
unreasonably distant from when the person becomes aware of the trustee’s
estimate. By transitional provision item 214, the amendment made by this item
will apply to the review of trustee decisions made after
commencement.
123 Item 74 proposes the repeal of section 99. This
measure is connected with that proposed by item 76: see the notes on that item.
By transitional provision item 215, the amendment made by this item will apply
to trustee decisions made after commencement.
Debts to be rounded down
to nearest dollar
124 Item 75 would repeal existing section 103 and
replace it with a new section which provides for the rounding down, to the
nearest dollar, of all amounts in proofs of debts which include cents. By
transitional provision item 216, the amendment made by this item will apply to
proofs admitted after commencement.
Admission or rejection of proofs
of debt
125 The amendments proposed by items 74 and 76 would consolidate
two current provisions into one provision, the proposed new subsection 104(1).
By transitional provision item 215, the amendments made by these items will
apply to trustee decisions made after commencement.
Priority of unpaid
superannuation contributions
126 Section 109 of the Act provides an
order of priority for payments made by a trustee in relation to amounts realised
in the administration of a bankrupt’s estate. Under
paragraph 109(1)(e), the fifth priority in subsection 109(1) is payment of
amounts due to any employee of the bankrupt, whether remunerated by salary,
wages, commission or otherwise, in respect of services rendered to or for the
bankrupt before the date of bankruptcy. There is a limit per employee, being a
prescribed amount (as at January 2002, $3,300 (indexed)).
127 Any doubt
whether unpaid employer superannuation contributions are accorded any priority
at all by section 109 will be resolved by the amendment proposed by item
77. It makes it plain that they are. This proposed amendment will align the
bankruptcy law with the Corporations Law. By transitional provision item 217,
the amendment made by this item will apply to bankruptcies for which the date of
bankruptcy is after commencement.
128 Item 78 proposes an amendment to
subsection 109(7B) consequential upon the change of status of ITSA from a
Division of the Attorney-General’s Department to an executive agency. It
effects no change of substance to the Act.
Commencement of bankruptcy:
vexatious counter-claims, set-offs or cross-demands.
129 By lodging an
unmeritorious counter-claim, set-off or cross demand in relation to a bankruptcy
notice, an unscrupulous debtor who has no valid defence to the notice can
nonetheless extend the time for compliance with the notice and effectively defer
the date of his/her bankruptcy. A consequence of this deferral is to bring
forward the commencement of what otherwise would be the ‘relation
back’ period under section 115.
130 Item 79 therefore proposes to
amend section 115 by permitting the Court to find that the application under
subsection 41(7) to set aside the notice was frivolous, vexatious or otherwise
without substantial merit. If the Court so finds, the bankruptcy is to be taken
to have relation back to, and to have commenced, at the time that would have
applied under subsection 115(1) if the time for compliance had not been extended
under subsection 41(7).
Property divisible among creditors:
‘sentimental’ property
131 Subsection 116(2) of the Act
specifies property which is not divisible among the creditors of the bankrupt.
Non-divisible property includes ‘household property’. There has
been doubt, however, whether the term ‘household property’ is apt to
cover commercially valuable sporting medals and the like.
132 Under
proposed new paragraph 116(2)(ba) to be inserted by item 80, a bankrupt will be
able to retain personal property which has sentimental value to the bankrupt and
which is of a kind prescribed by the regulations, if creditors, by special
resolution, before the trustee realises the property, agree to permit the
bankrupt to keep it.
133 Relevant regulations have not yet been made: it
is intended that the type of property to be prescribed will include such items
as sporting medals, trophies, and civil and military awards, but not jewellery.
By transitional provision item 217, the amendment made by this item will apply
to bankruptcies for which the date of bankruptcy is after
commencement.
Time limit for realising property
134 Under
proposed new subsection 129AA, to be inserted by item 81, there will be an
initial period specified within which a trustee is to realise property.
135 The proposal specifies that, in relation to property disclosed by
the bankrupt on the statement of affairs, and to after-acquired property
disclosed within 14 days of the debtor becoming aware of it, the revesting time
will be 6 years from the date of discharge of the bankrupt (paragraph (3)(b)).
For after-acquired property disclosed after discharge, the revesting time will
be 6 years from the date on which the bankrupt discloses the property to the
trustee (paragraph (3)(c)).
136 The trustee readily will be able to
extend the revesting time by up to 3 years in cases where realising the property
is not practicable before the original revesting time. A simple example is the
case where a trustee is unable to sell an interest in a house property because
that interest is subject to a life tenancy; it will often be the case that the
trustee has no practical option but to wait for the life tenant to
die.
137 The new provisions will encourage trustees to realise
assets within a reasonable time frame and discourage undue delays in the
administration of an estate.
138 Proposed new subsection 129AA(7)
provides that section 127 (which allows a trustee to claim property for up to 20
years) will not apply in respect of any property that revests in the bankrupt
pursuant to section 129AA. This will ensure that the trustee cannot rely on
section 127 to claim particular property that has revested in the bankrupt.
Section 127 would still apply in respect of property which either was not
disclosed by the bankrupt on the statement of affairs or was
‘after-acquired’ property which was not disclosed, in writing, by
the bankrupt to the trustee.
139 By transitional provision item 219, the
amendment made by item 81 will apply to all bankruptcies, including those that
ended before commencement. However, for that latter group, the initial
revesting time is to start on the sixth anniversary of commencement, instead of
the sixth anniversary of the date of discharge.
Powers exercisable by
trustee
140 The amendments proposed by items 82 to 85 inclusive would
merge the provisions of sections 134 and 135 of the Act. They would repeal
section 135 (item 85) and transfer the remaining provisions of section 135 to
section 134, where they will be incorporated as new paragraphs 134(1)(aa), (ab),
(ac), (ia) and (ma) respectively. There is no change proposed to the powers of
a trustee: the opportunity is being taken to improve the layout of the
law.
Trustee’s power to assess liability of bankrupt to make
contributions from income
Definition of dependant
141 Item 86
proposes to change the definition of dependant in section 139K of
the Act to allow the dependant to earn up to an amount specified in the
Regulations (proposed to be $2,500). Under the current definition a person is
disqualified as a dependant if they earn ‘any income’. That is too
restrictive.
Income tax includes Medicare levy
142 Item 112
proposes An amendment to 139K of the Act is proposed by item 87 to include a
definition of income tax and to make clear that income tax
includes Medicare levy. This amendment is for the avoidance of doubt and does
not change the substantive law.
Definition of income
143 Item
88 proposes the repeal of subparagraph (b)(ii) of the definition of
income in section 139L of the Act.
144 Section 139L of
the Act provides a complex definition of income in relation to a
bankrupt for the purposes of the contribution scheme in Division 4B of Part VI
of the Act including for example that some payments under the Social Security
Act are income for contribution purposes and others are not income. The essence
of the subparagraph is to be transferred and reproduced, but in clearer form, in
the Bankruptcy Regulations. As the Social Security Act is amended frequently,
it is appropriate that these types of provisions be dealt with by the Bankruptcy
Regulations which can be more readily amended.
Tax
refunds
145 Items 89 and 90 propose to amend section 139N of the Act to
ensure that the amount of a bankrupt’s unpaid income tax (and which,
because of the bankruptcy, will not be payable) is not deducted from the
bankrupt’s income, and that a tax refund attributable to the period up to
the date of the debtor’s bankruptcy (and which is an asset in the
bankruptcy and thus vests in the trustee) is not added to the bankrupt’s
income, for the purposes of the contribution scheme.
146 Proposed new
subsection 139N(2) provides to that effect for income tax refunds in respect of
tax years of income that ended before the date of the bankruptcy. Proposed new
subsection 139N(3) relates to income tax refunds that relate to a tax year of
income that straddles the date of bankruptcy. In such a case, to the extent
that the refund relates to the period up to the date of bankruptcy, it is
excluded from the debtor’s income for contribution scheme purposes, and
that part which relates to the post-date of bankruptcy segment of the year of
income is treated as income for the purposes of that scheme. To simplify
calculations, refunds which relate to a straddle year are to be apportioned on a
time basis.
Determination of higher income threshold in cases of
hardship
147 Item 91 proposes a new section 139T, modelled on existing
section 139T, but providing for the trustee of a bankrupt estate rather than the
Official Receiver to assess hardship when deciding liability for income
contributions. The trustee is best placed to consider the initial application
for hardship. The trustee’s decision is reviewable by the
Inspector-General.
148 Items 92 to 94 propose amendments to section 139U
of the Act which requires a bankrupt to give the trustee particulars of all
income that was derived or is expected to be derived by each dependant of the
bankrupt during the relevant assessment periods.
149 These amendments are
consequential on that proposed by item 86 to be made to section 139K of the
Act to allow a bankrupt’s dependant to earn an income of up to a
prescribed amount and retain the status of dependant.
Trustee to
notify bankrupt of review rights regarding hardship decisions
150 Item 95
proposes to amend subsection 139W(4) to require the trustee to give written
notice to the bankrupt about the possibility of a variation, under section 139T
on the grounds of hardship, of the bankrupt’s assessed contribution
liability.
No time limit on making assessment
151 It is
proposed by item 96 to amend the contribution provisions by inserting a new
provision, section 139WA, under which it will be clear that there is no time
limit for the trustee to make an assessment under section 139W or a fresh
assessment under subsection 139W(2). In particular, such an assessment may be
made after the end of a contribution assessment period or after the bankrupt has
been discharged from bankruptcy. To avoid any doubt about the intended scope of
the word ‘bankrupt’ in applying new subsection 139WA(1), proposed
new subsection 139WA(2) provides that a reference in Division 4B of Part VI to
‘a bankrupt’ includes a reference to a former bankrupt. The
amending provision is intended to ensure that bankrupts gain no benefit from
hindering the trustee’s ability to make an accurate assessment of the
bankrupt’s liability to make a contribution under Division 4B of Part VI
of the Act.
152 By transitional provision item 220, the amendments made
by items 86 to 96 inclusive will apply to contribution assessment periods that
begin after commencement.
Time limit for applying for review of
assessment
153 Item 97 provides for a 60 day time limit on requests under
paragraph 139ZA(3)(a) for a review of a trustee’s assessment of a
contribution liability. This limit is to facilitate the trustee’s prompt
administration and finalisation of an estate. By transitional provision item
214, the amendment made by this item will apply to the review of decisions made
after commencement.
154 Item 98 proposes the amendment of subsection
139ZE(1) which requires the Inspector-General to notify both the bankrupt and
the (registered) trustee of the Inspector-General’s decision on the review
of an assessment made by a trustee. The amendment proposes to omit references
to a ‘registered’ trustee. The result will be that the provision
will apply both to a registered trustee and the Official Trustee. The amendment
recognises the Official Trustee as an entity quite separate from the
Inspector-General.
Review of assessment decisions
155 Item
99 proposes the repeal and replacement of section 139ZF with the effect of
requiring bankrupts to utilise the internal review mechanism, ie, review by the
Inspector-General, before seeking AAT review of a trustee’s contribution
assessment. Item 100 proposes an amendment consequential on the removal of that
right of direct access to the AAT. By transitional provision item 221, the
amendments made by these 2 items will apply to the review of decisions made
after commencement.
Repeal of Division 4C of Part VI
156 Item
101 provides for the repeal of Division 4C of Part VI of the Act. That Division
provides for a bankrupt who is liable to pay income contributions not to leave
Australia without permission of the Court. It is proposed to transfer the
primary decision making in relation to such matters from the Court to the
trustee of the bankrupt estate: see the notes on item 185. By transitional
provision item 222, the amendments made by this item will not affect the rights
of bankrupts in relation to permission for overseas travel granted before
commencement or sought before, but granted after, commencement.
157 Items
100 and 102 respectively propose minor drafting amendments of a technical nature
to paragraph 139ZG(2)(c) and subsection 145(3). No substantive change to
the law is proposed by these amendments.
158 Item 103 proposes an
amendment of subsection 149(1) to remove what will become an obsolete reference
upon the repeal of the early discharge provisions. By transitional provision
item 206, this change will apply to bankruptcies for which the date of the
bankruptcy is after commencement.
Bankruptcy extended when objection
filed
159 Item 104 proposes to amend subparagraph 149A(2)(a)(i) to
replace the subsection 149D(1)-based list of objection grounds which extend
a bankruptcy by 5 years. Each ground in the new list will constitute a
special ground of objection: see the notes on items 109 to
114.
160 Item 105 proposes a minor drafting amendment to correct a
drafting error. It will make no change to the substantive law.
161 By
item 106 an amendment is proposed to subsection 149A(3) of the Act, which sets
out the effect of an objection being withdrawn or cancelled. The amendment
proposes to repeal subparagraph (3)(b)(iii) to remove reference to the early
discharge provisions as their repeal will make them irrelevant in determining
the effect of the cancellation or withdrawal of an objection. By transitional
provision item 206, this change will apply to bankruptcies for which the date of
the bankruptcy is after commencement.
162 Item 107 proposes to amend
subsection 149B(1) to remove the Official Receiver’s power to file a
notice of objection to discharge. The filing of such an objection is not an
Official Receiver function but, rather, a function of the trustee. Item 108
proposes a consequential technical amendment.
Objections to
discharge
- Background
163 The objection-to-discharge
provisions of the Act allow a trustee to file an objection to the
bankrupt’s discharge from bankruptcy. A successful objection extends the
standard period of bankruptcy by either 2 years or 5 years, depending on the
grounds of the objection. The grounds are specified in the Act. They relate to
various means by which a bankrupt’s non-cooperation with the trustee can
frustrate the trustee’s efforts to administer the bankruptcy.
164 When filing an objection, the trustee must set out the ground of
objection, the facts relied on to support the ground and the reasons for filing
an objection. Case law establishes that punishing the bankrupt, of itself, is
not a lawful reason. The only valid reason for filing an objection has been
held to be to advance the trustee’s administration of the bankruptcy.
This approach does not encourage bankrupts to cooperate with trustees.
-
Special grounds of objection
165 The amendments propose to address
this weakness in the present law by identifying some existing grounds, and
adding some new grounds, as “special grounds”. In
these special ground cases, the trustee will not need to show that filing the
objection will advance the administration, only that the special ground existed.
Therefore, if the grounds of objection include a special ground, only the facts
supporting that special ground need to be established. The special grounds are
specified in paragraphs 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (k)
and (ma). Item 109 proposes that paragraph 149C(1)(c), which requires a trustee
to state the reasons for objection to discharge, not apply regarding objections
filed on special grounds.
- New grounds of objection, including
special grounds
166 Item 110 proposes the insertion of proposed new
grounds of objection in subsection 149D(1). They are: that any transfer is void
against the trustee in the bankruptcy because of section 120 or 122 (new
paragraph 149D(1)(aa)); and a new special ground - that any transfer is void
against the trustee because of section 121 (new paragraph 149D(1)(ab).
167 Items 111, 112 and 114 propose to add further, special grounds of
objection. Respectively, the items deal with the intentional provision by the
bankrupt, after the date of bankruptcy, of false or misleading information to
the trustee; and a bankrupt’s intentional failure to disclose to the
trustee either a liability or the bankrupt’s beneficial interest in any
property.
168 By item 113, failure to comply with the requirements of
paragraphs 77(1)(bb) or (bc) will be a ground (but not a special ground) of
objection. By transitional provision item 213, the amendment made by this item
will apply to failure to notify a change, referred to in those paragraphs, which
occurs after commencement.
169 The amendment proposed by item 115 would
amend subsection 149F(1) so that, when a notice of objection is filed by a
trustee, the trustee must give a copy of it to the bankrupt, together with a
notice to the effect that the bankrupt may request the Inspector-General to
review the decision of the trustee to file a notice. This removal of any
reference to the AAT reflects the proposed requirement that a bankrupt must
first access internal review before seeking external review.
170 The
amendments proposed by items 116 to 120 inclusive are consequential upon the
proposed withdrawal of the Official Receiver’s power to file an objection
to the discharge of a bankrupt: see the notes on item 107. By transitional
provision item 223, the amendments made by items 116 to 120 will apply to
objections filed after commencement.
171 Item 121 proposes the insertion
of a 60 day time limit in which a bankrupt may apply, under paragraph
149K(3)(a), for a review of the trustee’s decision to object to the
bankrupt’s discharge. By transitional provision item 214, the amendment
made by this item will apply to the review of decisions made after
commencement.
172 Item 122 proposes an amendment consequential on the
loss of the Official Receiver’s power to file an objection to the
discharge of a bankrupt: see the notes on item 107.
173 Item 123 proposes
a new subsection 149N(1A), under which an objection must not be cancelled if it
specifies at least one special ground and there is sufficient
evidence to support the existence of at least one such ground.
Bankrupt’s conduct after ground commenced to exist must be ignored
on review of objection
174 Trustees understandably are disconcerted when
an objection filed by them has been cancelled by the AAT or the Court because,
for example, immediately prior to a review hearing, the bankrupt has provided
information long sought by the trustee. By proposed new subsection 149N(1B), no
notice is to be taken by a review tribunal or the Court when applying proposed
new subsection 149N(1A), of any conduct of the bankrupt after the time when the
ground concerned first commenced to exist.
175 However, as a bankrupt
may fail, for reasons beyond the bankrupt’s control, to comply with a duty
imposed under the Act, the proposed amendment permits the Inspector-General to
cancel an objection made on a special ground if the bankrupt establishes that
there was a ‘reasonable excuse’ for the conduct or failure that
constituted a special ground.
176 By transitional provision item 252,
the amendments made by items 122 and 123 will apply to objections filed after
commencement.
Notifying Official Trustee of objection review
decision
177 Section 149P obliges the Inspector-General to notify the
bankrupt and the trustee about the outcome of the Inspector-General’s
review of an objection decision or the Inspector-General’s refusal of a
request for a review of the trustee’s decision to object to discharge.
Item 124 proposes an amendment to ensure that the provisions of subsection
149P(1) apply to the Official Trustee as well as to a registered trustee, by
extending the notification obligation to cases where the Official Trustee is the
trustee.
178 Item 125 proposes another amendment consequential on the
loss of the Official Receiver’s power to file an objection to the
discharge of a bankrupt: see the notes on item 133. By transitional provision
item 223, the amendment made by this item will apply to objections filed after
commencement.
Internal review of objection decision required before
external review accessible
179 Item 126 proposes the repeal and
substitution of section 149Q to make clear that applications to the
Administrative Appeals Tribunal can only be made for a review of a decision of
the Inspector-General on the decision of a trustee to file an objection or a
decision of the Inspector-General refusing a request to review a decision of the
trustee to file a notice of objection. This measure ensures that a bankrupt
dissatisfied with such a decision must first seek review of it by the
Inspector-General rather than seeking initial review of it by the Administrative
Appeals Tribunal. By transitional provision item 221, the amendment made by
this item will apply to the review of decisions made after
commencement.
Repeal of early discharge provisions
180 Item 127
proposes the repeal Division 3 of Part VII which is the division dealing with
the early discharge of bankrupts from bankruptcy. The effect of the amendment
will be to repeal the early discharge provisions under which some bankrupts can
obtain discharge from bankruptcy after 6 months. By transitional provision item
206, this change will apply to bankruptcies for which the date of the bankruptcy
is after commencement.
Annulment on payment of debts to include
payment of interest
181 Item 128 proposes an amendment to subsection
153A(1) of the Act to make clear that annulment on the ground of full payment of
the bankrupt’s debts requires, in relation to any debts that bear
interest, interest reckoned up to and including the date on which the debt,
including the interest, is paid.
Annulment of bankruptcy by Court
whether or not petitioning debtor insolvent
182 By item 129 insertion of
a new subsection in section 153B of the Act is proposed. That section gives the
Court power to annul a bankruptcy. There is at present no test for insolvency
in relation to a debtor’s petition filed under the Act and it is not
proposed that, in the ordinary case, there be one. However, the amendment will
enable the Court to annul a bankruptcy even if the debtor is insolvent.
183 Some debtors who petition for bankruptcy may be technically
insolvent but could make arrangements to repay their debts: they choose not to
while maintaining an expensive lifestyle. Section 153B, as proposed to be
amended, would make it quite clear that the Court can find that their petition
is an abuse of process.
184 A person, for example, might have an income
of $400,000, no assets and owe one creditor (eg, the ATO) $500,000. The
creditor in such a situation would be able to argue that the bankruptcy should
be annulled because the debtor has the capacity to pay the debt within a
reasonable time but appears to have chosen not to pay it while continuing to
enjoy a lifestyle which absorbs all of his or her (often) very substantial
income. The Court would not be able to rely on the person’s technical
insolvency (inability to pay debts as they become due and payable) to dismiss
the application.
185 Items 130, 135 and 137 all propose an amendment
which is consequential on the change of ITSA’s status from that of a
Division of the Attorney-General’s Department to that of an executive
agency under the Public Service Act 1999. Under the proposed changes, an
‘APS employee’ will be substituted for an ‘officer of the
Department’ as a person who may form part of the membership of a committee
convened to consider a person’s application for registration as a trustee
under the Act, or the conditions applying to a trustee’s registration or
whether or not a trustee should continue to be registered. Note that items 5,
8, 50, 70 and 141 all propose to replace references to ‘officer of the
Department’ with references to ‘authorised employee’. This is
to cater for the change of ITSA’s status. The use of the term ‘APS
employee’ rather than ‘authorised officer’ in the changes
proposed by items 130, 135 and 137 is to provide a wider group of government
officials from which a committee member can be drawn.
Registration of
trustees
186 Item 131 proposes an amendment to subsection 155A(1) of the
Act to allow a committee convened to decide whether an applicant should be
registered as a trustee to require the applicant to sit for an exam in addition
to the present compulsory interview.
187 Item 132 proposes to insert new
subsection 155A(4A) which provides that an applicant should not be registered if
the applicant does not have the ability (including knowledge) to perform
satisfactorily the duties of a registered trustee. An Administrative Appeals
Tribunal has held that the current law permits a person to be registered as a
trustee even if that person did not, at the time of registration, have that
ability. That decision was open to the Tribunal but the provision had not been
intended to have that outcome. Under the proposed amendment, it will be
insufficient for an applicant to satisfy a committee that the applicant has a
capacity to acquire the requisite ability and knowledge after they have been
registered.
188 By transitional provision item 226, the amendments made by
items 131 and 132 will apply to registration applications made after
commencement.
189 The effect of existing section 155D is that
Inspector-General must extend a trustee’s registration for three years
from the expiry of his or her current registration if the trustee applies in
writing before the expiry of the registration and the person has paid the charge
imposed by section 6 of the Bankruptcy (Registration Charges) Act 1997.
Items 133 and 134 propose to insert new subsections 155D(2) and (3) into the
Act and to amend paragraph 155(D)(b). Item 133 adds a further requirement to
existing paragraph 155D(b) which is that any late payment penalty under proposed
subsection 155D(3) has been paid. The amendments proposed by item 134 would
provide that the Inspector-General must not extend a trustee’s
registration if the trustee owes more than $50 of charge under the Bankruptcy
(Estate Charges) Act 1997 or of penalty under section 281 of the Act in
respect of that charge. This sanction can only be applied, however, if the
Inspector-General has notified the person of the unpaid charge at least 14 days
before the due date for payment of the charge under proposed new subsection
155D(3).
190 Proposed new subsection 155D(3) changes the current
arrangements in relation to the payment by trustees of their registration
charge, ie, the payment which ordinarily will renew their registration as
trustees for a further 3 years.
191 At present, if a trustee’s
payment is received after the expiry of the trustee’s current
registration, the trustee is unregistered and must apply to the Court for an
order that he or she be re-registered. Such applications are costly and
inconvenient for trustees.
192 To minimise the number and impact of such
cases, the Bill proposes a revised arrangement whereby the charge payable for
the extension of a trustee’s registration is to be due for payment one
month before the date of expiry of that registration. Further, if the charge is
not paid by the due date, an additional amount equal to 20% of the charge is
payable by the trustee by way of penalty.
193 It is proposed that ITSA
will alert trustees to the forthcoming expiry of their registration and, if the
charge is not then paid by the due date, send a reminder to affected trustees
that a 20% penalty has become applicable. If, ultimately, the trustee does not
pay the charge and the penalty before the expiry of his or her current
registration, the by then unregistered trustee will have no option but to apply
to the Court for re-registration.
194 By transitional provision item
227, the amendments made by items 133 and 134 will apply to extensions of
registration with an expiry date at least 3 months after
commencement.
195 Item 136 proposes to insert in section 155H an
additional ground for de-registration of a trustee. That ground will be that
the trustee no longer has the ability (including knowledge) to perform
satisfactorily the duties of a registered trustee. It is appropriate that this
ground be added to those already appearing in subsection 155H(1) because
trustees need to maintain their professional expertise so as to be able to
continue to perform satisfactorily their duties as registered trustees.
Minimum remuneration of registered
trustee
196 Items 138 and 139 propose amendments to subsection 161B(1) to
increase, by 8.4%, the minimum statutory trustee remuneration payable under the
Act to take account of the impact of the GST and associated tax changes under
the new tax system.
197 Item 140 proposes the insertion of new
subsection 162(6A) under which the trustee must, in relation to his/her
remuneration, give such notices to the bankrupt and creditors as are required by
the regulations. It is intended that the regulations will require that the
bankrupt and creditors be given adequate information about a trustees’
remuneration and also notified of the rights of the bankrupt and creditors to
seek to have that remuneration taxed if they are dissatisfied with its amount.
Remuneration of successive trustees
198 Item 141 amends
section 164 by substituting ‘authorised employee’ for ‘officer
of the Department’ to reflect ITSA becoming an executive
agency.
Time limit for review applications under section
178
199 Item 142 proposes an amendment to section 178 of the Act to
insert a 60 day time limit in which an application may be made to the Court for
a review of a trustee’s act, omission or decision. At present, no time
limit is specified: some bankrupt’s have applied to the Court for a review
many years after the act, omission or decision concerned. This is both
inconvenient and costly for trustees: setting a time limit will allow a
reasonable period for persons to seek review under section 178. By transitional
provision item 214, the amendment made by this item will apply to the review of
trustee decisions made after commencement.
Streamlined method for
replacing trustee
200 Item 143 proposes a streamlined method for
replacing a trustee under the Act. Proposed new section 181A will allow the
trustee of a bankrupt’s estate to notify creditors of a proposal to
replace the trustee, providing the new trustee has consented. If no creditor
lodges a written objection within the specified time, the change of trustee
takes place on the date specified in the notice. If a creditor does object, a
meeting will be called and the matter decided in accordance with current voting
rules. The new trustee is treated as having been appointed by the creditors and
therefore has the same powers as if he/she had been appointed by them under
section 157 of the Act.
201 The effect of proposed evidentiary provision
subsection 181A(6) is that a trustee’s signed certificate as to any matter
relating to a section 181A proposal is to be prima facie evidence of the
matter.
202 By transitional provision item 229, the amendments made by
item 143 will apply to all bankruptcies, including those for which the date of
bankruptcy is before commencement.
Official Receiver to process debt
agreement proposals
203 Items 144 to 149 inclusive, items 151 and 153,
and items 155 to 166 inclusive, all propose minor drafting changes to sections
in Part IX of the Act, ie, the Part which deals with debt agreements. The
proposed changes are a recognition that the processing of debt agreement
proposals is more appropriately an Official Receiver function than an Official
Trustee function. By transitional provision item 230, the amendments made by
all these items will apply to debt agreements in force at commencement and those
made thereafter. Item 167, which proposes to repeal a note to section 185Y,
will apply in the same way.
Raising the income threshold for debt
agreements by 50%
204 Item 150 proposes to raise the present income
threshold for debt agreement proposals by 50%. This measure will enable more
people to enter into an arrangement with creditors and thereby avoid bankruptcy.
By transitional provision item 231, the amendment made by this item will apply
to debt agreement proposals given after commencement.
205 Item 151
proposes to insert subsection 185D(2) to extend to debtors who make debt
agreement proposals the right that the Bill proposes that bankrupts will enjoy:
to access, for no fee, their own statement of affairs: see the notes on item
27.
Oversight of debt agreement administrators
206 Item 152
provides that the Official Receiver must refuse to accept a debt agreement
proposal for processing if the person nominated in it as administrator is
ineligible in accordance with the regulations to act as an administrator.
207 The debt agreement mechanism inserted in the Act in 1996, was
introduced as a low-cost, simple process under which a debt agreement
administrator could be any person, such as a debtor’s friend or family
member, and need hold no formal qualifications.
208 Whilst it is
desirable, as far as possible, to continue to maintain this informal approach,
the vast majority of debt agreements are administered by persons who do so as a
business. It therefore is appropriate for a regulatory regime - but less
detailed than that provided in the Act in relation to registered trustees - to
be established. It is proposed that the regulations will provide criteria under
which certain persons will be ineligible to be nominated as debt agreement
administrators in debt agreement proposals.
209 By transitional
provision item 232, the amendment made by this item will apply to debt agreement
proposals given after commencement.
Notification of death of
administrator
210 The Act requires that if a registered trustee dies,
the Official Receiver is to be notified of the death (subsection 182(4)) and
that the Official Trustee act as replacement trustee (section 160). However,
the Act is silent on what happens if a debt agreement administrator dies. Item
168 proposes the insertion of new sections 185ZA to 185ZD to rectify this
deficiency.
211 Proposed new section 185ZA would provide that, upon an
administrator’s death, the person administering their estate must promptly
and in writing notify the fact of death to the Official Receiver for the
District in which the debt agreement administrator was ordinarily resident. The
sanction for failure to notify is proposed to be one penalty unit, the same as
the sanction for failure to notify a registered trustee’s death.
Official Receiver to replace an administrator who
dies
212 Proposed new section 185ZB provides for an Official Receiver to
be appointed by the Inspector-General as the replacement administrator of the
unexpired debt agreements. The Official Receiver must notify the parties to
uncompleted debt agreements about the death, that the Official Receiver is the
replacement administrator and (if applicable) that the Official Receiver intends
to appoint another administrator.
Official Receiver may appoint a
new administrator
213 By proposed new section 185ZC, the appointed
Official Receiver will be able to appoint another person as the replacement
administrator. This proposed change would allow the Official Receiver to
transfer ‘inherited’ administrations to a debt agreement
administrator. This is expected to be the usual outcome, as the great majority
of agreements are administered by the private sector.
Remuneration of
administrator
214 Finally, proposed new section 185ZC would allow any
replacement private sector administrator to be remunerated according to the
terms of any ‘inherited’ agreement.
Oversight of
controlling trustees who are solicitors
215 In a similar vein to the
change proposed by item 154, item 169 proposes the insertion of subsections
188(2A) and (2B) under which the regulations may prescribe the circumstances in
which a person other than the Official Trustee or a registered trustee is
ineligible to act as a controlling trustee under Part X of the
Act.
216 There is evidence that some controlling trustees who are
solicitors have been performing that role in an unsatisfactory and
unprofessional manner. Taking court action against them is costly and
time-consuming. It therefore is intended by this measure that solicitor
controlling trustees will be subject to regulation by the Inspector-General,
just as registered trustees and the Official Trustee already are. A controlling
trustee solicitor’s failure to meet eligibility conditions prescribed in
the regulations will make him or her ineligible to act as a controlling trustee.
By transitional provision item 233, the amendment made by this item will apply
to section 188 authorities signed after commencement and which appoint a
solicitor as a controlling trustree.
Notification of cessation of
control as controlling trustee
217 Item 170 proposes an amendment to
section 189 of the Act so that a trustee will be required to notify the Official
Receiver in writing within 7 days after becoming aware that his or her control
has ended because of an event specified in subsection 189(1A). The purpose of
this amendment is to ensure that the National Personal Insolvency Index can be
kept up-to-date. By transitional provision item 234, the amendment made by this
item will apply where the control ends after commencement.
218 The
amendments proposed by items 171 and 172 delete redundant references to
section 198, a section repealed in 1996. Similarly, item 173 proposes to
correct an incorrect reference to subsection 188(2) in paragraph 222(4)(b) of
the Act by substituting a correct reference to section 188A.
Validation of acts of Part X trustee acting in good
faith
219 Section 224 of the Act validates the acts of trustees or any
other persons who have entered into transactions in good faith under a Part X
arrangement without being aware that the arrangement has been voided or
terminated under the provisions of the Act. The amendments proposed by items
174 and 175 will extend references in paragraphs 224(c) and 224(d) to include
references to proposed new sections under which Part X arrangements can be
terminated: see the notes on items 177 and 178 for an explanation of the new
proposed provisions referred to in items 174 and 175. By transitional provision
item 212, the changes proposed by all these 4 items will apply to Part X
arrangements made after commencement. Also, by that transitional item, a Part X
composition or scheme of arrangement will be made when it is accepted by
creditors, and a deed of arrangement will be made when it is executed.
220 Item 176 would amend an incorrect reference in subsections 226(1)
and (2) of the Act to subsection 188(2) and substitute a correct reference to
section 188A.
Variation of deed of arrangement
221 Item 177
proposes the insertion of new sections 234A and 234B into the Act. Under those
sections, it will be possible for a Part X deed of arrangement to be varied by a
special resolution of creditors or by the trustee (new section 234A) or for a
deed of arrangement to be terminated by the trustee (new section 234B).
222 The variation of deeds of arrangement may be effected by the
creditors, with the written consent of the debtor, by special resolution at a
meeting called for the purpose (new subsection 234A(1)).
223 Similarly,
with the debtor’s written consent, a trustee may in writing propose a
variation of a deed of arrangement (new subsection 234A). The trustee would
give notice of the proposed variation to the creditors, state why the variation
is being proposed and what its likely impact on creditors will be if it is
approved. If no creditor lodges a written notice of objection, the proposed
variation takes effect on the date specified in the notice. No vote of
creditors is required. A creditor who objects to the proposal, or to it being
dealt with other than by a creditors’ meeting, can lodge with the trustee
a written notice of objection.
224 The effect of proposed evidentiary
provision subsection 234A(6) will be that a trustee’s signed certificate
as to any matter relating to a section 234A proposal is to be prima facie
evidence of the matter.
Termination of deed of arrangement by
trustee
225 Proposed new section 234B provides a comparable mechanism for
terminations of deeds of arrangement. The notification procedure is the same as
in subsections 234A(2) to (4), except that it requires that the debtor be in
default under the deed of arrangement before a termination can take place. By
subsection 234B(5), the debtor is in default if the debtor has
failed to carry out or failed to comply with a provision of the deed or, if the
debtor has died, the debtor or the person administering the deceased estate of
the debtor has failed to carry out or comply with a provision of the deed.
Subsection 234B(5) is modelled on existing paragraph 236(1)(a) of the Act.
226 The effect of proposed evidentiary provision subsection 234B(6) will
be that a trustee’s signed certificate as to any matter relating to a
section 234B proposal is to be prima facie evidence of the
matter.
Variation of composition
227 Item 178 proposes the
insertion of new sections 240A and 240B which would deal with the variation of a
Part X composition or the termination, at the instigation of the trustee, of a
Part X composition.
228 The provisions of proposed new section 240A
parallel, in relation to the variation of a composition, the provisions proposed
to be inserted by new section 234A in relation to the variation of a deed of
arrangement: see the notes on item 177.
Termination of composition
by trustee
229 Similarly, the provisions of proposed new section 240B
parallel, in relation to the termination of a composition by a trustee, the
procedure set out in proposed new section 234B regarding the termination of a
deed of arrangement by a trustee: see the notes on item 177 as they relate to
proposed new section 234B. In relation to the termination of a composition by a
trustee, proposed subsection 240B(5) sets out when a debtor is to be regarded as
in default. However, in this case new subsection 240B(5) is
modelled on paragraph 242(1)(a) of the Act.
Offence of incurring
further debts: threshold amount repealed
230 Item 179 proposes to amend
subsection 265(8) of the Act to omit the words ‘of an amount of $500 or
upwards’. This amendment has the effect of removing any threshold for the
commission of the offence of incurring debts within 2 years before bankruptcy
without having, at the time of contracting the debts, any reasonable or probable
ground of expectation, after taking into consideration the debtor’s other
liabilities (if any), of being able to pay the debt.
231 The removal of
the $500 threshold for this offence aligns the bankruptcy law with the
Corporations Law which has no such threshold regarding a comparable offence. By
transitional provision item 235, the amendment made by this item will apply to
debts contracted after commencement.
232 Each of the amendments proposed
by items 180 to 182 proposes to omit a reference to section 77B in the offence
provisions in section 265A of the Act. These omissions are consequential on the
repeal of section 77B of the Act proposed by item 71 of the Bill. By
transitional provision item 203, these changes will apply to bankruptcies for
which the date of the bankruptcy is after commencement.
233 Item 183
proposes the repeal of paragraph 272(ba) because of the repeal of Division 4C
Part VI (see item 127), and item 184 proposes an amendment consequential upon
the proposed repeal of paragraph 272(ba) of the Act.
234 Consistently
with the effective transfer from the Court to the trustee of the power to permit
a debtor or bankrupt to travel overseas, item 185 proposes to insert new
subsections 272(2) and (3). By those subsections, if a bankrupt is liable
to make a contribution to the trustee under the contribution scheme, the trustee
may impose written conditions when permitting the bankrupt’s to travel
overseas. A contravention by the bankrupt of any conditions imposed by the
trustee is an offence and, under subsection (3), is punishable on conviction by
imprisonment for a period not exceeding 1 year. By transitional provision item
222, the amendments made by items 184 to 185 will not affect the
rights of bankrupts in relation to permission for overseas travel granted before
commencement or sought before, but granted after,
commencement.
Applications for more time to pay charge
amounts
235 Item 186 proposes an amendment to paragraph 282(2)(b) of the
Act to require that a person who seeks an extension of time to pay interest
charge or realisations charge is to apply for that extension before the original
time for payment. By transitional provision item 236, the amendment made by
this item will apply to applications made after commencement.
Hardship
test to become ‘undue hardship’
236 Item 187 proposes an
amendment of paragraph 283(1)(a) of the Act to insert the word
“undue” before “hardship” so that the Inspector-General,
when considering whether to remit an amount of interest charge, realisations
charge or late payment penalty that is payable but has not been paid, may
consider both whether failure to remit the amount would cause a person undue
hardship and whether it is appropriate to remit the amount. The existing test
of “hardship” in paragraph 283(1)(a) has been distinguished by the
Administrative Appeals Tribunal (AAT) from the test of “undue
hardship” set out in regulation 16.10(2)(a) of the Bankruptcy Regulations.
The AAT took the view that the section 283 test was more liberal than that
called for by the regulations. It is considered appropriate that the Act and
the regulations use an identical test of hardship in this context and that it be
the test of “undue hardship” rather than simply
“hardship”. By transitional provision item 237, the amendment made
by this item will apply where the application for remission is made to the
Inspector-General after commencement.
237 Items 188 and 189 propose
amendments which are consequential on the repeal of the early discharge
provisions of the Act. References in section 304A to provisions within those
early discharge provisions will become redundant and are proposed to be omitted.
By transitional provision item 206, these changes will apply to bankruptcies for
which the date of the bankruptcy is after commencement.
Scope of
section 305 extended to Part X arrangements
238 Section 305 of the Act
sets out a scheme where trustees of a bankrupt estate may seek Commonwealth
assistance, if monies in the estate are insufficient for the purpose, to
institute, continue or defend proceedings in relation to the estate of the
bankrupt, the examinable affairs of the bankrupt or other matters specified in
the section. Trustees from time to time have made representations that the
scope of the section should be extended to trustees under Part X of the
Act.
239 The amendment proposed by item 190 would remove the capacity
of an Official Receiver to seek assistance under section 305 and allow a new
category of trustee, ie, a trustee under Part X in relation to a debtor, to seek
assistance under the section.
240 The amendments proposed by items 191
to 196 inclusive make consequential drafting amendments following that
proposed by item 190 and to reflect the fact that, in a Part X matter, the
trustee is handling the affairs of a debtor and not the affairs of a
bankrupt.
241 Item 197 proposes an amendment to section 305 to define
what is to constitute an estate in section 305. By proposed paragraph
305(4)(a), estate, in relation to a Part X deed of assignment,
will mean the property that is vested in the trustee under the deed; in relation
to a Part X deed of arrangement, the term will have the same meaning but will
extend also to property that is available or may become available to the trustee
under the deed; and, in relation to a Part X composition, it will mean the
property that is available or may become available to the trustee under the
composition.
Part 2—Transitional provisions.
242 As
noted in relation to section 3 of the Bill, the notes on the Schedule items in
Part 1 include notes on the transitional and application items. These items
extend from item 198 to item 237 inclusive.
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