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2002-2003-2004
THE PARLIAMENT OF THE
COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
BANKRUPTCY AND FAMILY LAW LEGISLATION
AMENDMENT BILL 2004
EXPLANATORY
MEMORANDUM
(Circulated by authority of the
Attorney-General,
the Honourable Philip Ruddock
MP)
Readers’ Guide
This Explanatory Memorandum is divided
into three main sections: a general outline of the main provisions of the
Bankruptcy and Family Law Legislation Amendment Bill 2004 (the Bill)
(Section 1); a discussion of the main policy objectives the Bill seeks to
achieve (Section 2, commencing at page 3); and a detailed discussion of
each provision, item by item (Section 3, commencing at page 6).
BANKRUPTCY AND FAMILY LAW LEGISLATION AMENDMENT BILL
2004
Section 1 - General Outline
1. The Bill will make a number of
significant changes to the Bankruptcy Act 1966 (the Act) and the
Family Law Act 1975 (the Family Law Act). These changes will implement a
number of key recommendations made in the Joint Taskforce Report on the Use of
Bankruptcy and Family Law Schemes to Avoid Payment of Tax.
2. The objects
of this Bill are to:
(a) provide a more effective means of collecting
income contributions from bankrupts who do not receive their income as a salary
or wage;
(b) prevent the misuse of financial agreements as a means of
avoiding payment to creditors; and
(c) address longstanding issues concerning
the interaction between family law and bankruptcy.
3. Schedule 1 contains
amendments designed to clarify the interaction between family law and
bankruptcy.
4. Schedule 2 introduces a new supervised account regime to
improve the bankruptcy trustee’s ability to collect assessed income
contributions.
5. Schedules 3 and 4 contain amendments designed to
prevent people using financial agreements under Part VIIIA of the Family Law Act
to defeat the claims of creditors.
Financial Impact
Statement
6. The amendments proposed by this Bill will have no
significant financial impact.
-------------------------------
Section 2 - Policy objectives
7. The amendments will address
longstanding issues concerning the interaction between bankruptcy and family law
which have created uncertainty as to the competing rights of creditors and the
non-bankrupt spouse. The amendments will also improve the ability of bankruptcy
trustees to collect income contributions and prevent the use of family law
financial agreements as a means of avoiding payment to creditors.
8. The
amendments have been developed following the Joint Taskforce Report on the Use
of Bankruptcy and Family Law Schemes to Avoid Payment of Tax. The Taskforce
consisted of officers from the Attorney-General’s Department, Insolvency
and Trustee Service Australia, the Australian Taxation Office and
Treasury.
Interaction between family law and
bankruptcy
9. There are a number of difficulties which can arise when
bankruptcy and family law issues and/or proceedings exist at the same time.
There are inconsistencies between family law and bankruptcy law which create
uncertainty for all involved and can cause hardship for either or both of the
creditors and non-bankrupt spouse.
10. From a bankruptcy perspective,
trustees can find themselves in an uncertain position when having to resolve or
reconcile competing claims. Creditors unaware of the potential property
interest of a non-bankrupt spouse also suffer from a lack of
certainty.
11. From a family law perspective, the legal ownership of
property does not always reflect the non-financial contribution of the parties
to the marriage. The special interest of the non-bankrupt spouse in the marital
property created through both financial and non-financial contributions, which
may be recognised by the Family Court in exercising its discretion to alter
property interests, is not expressly recognised under the
Act.
12. Different outcomes arise depending upon the order in which
events occur (those events including separation, bankruptcy and distribution of
property by the trustee in bankruptcy).
13. The amendments proposed in
this Bill will address these issues by clarifying the rights of the bankruptcy
trustee and the non-bankrupt spouse. Generally, the amendments will enable
concurrent bankruptcy and family law proceedings to be brought together to
ensure all the issues are dealt with at the same time.
Collection of
income contributions
14. Where a bankrupt is employed and has been
assessed as liable to pay contributions from his or her income, the Official
Receiver can issue a notice to the employer garnisheeing the bankrupt’s
wages to collect the amount assessed. The Official Receiver can also issue a
garnishee notice to a bank or other financial institution to collect
contributions.
15. Some bankrupts (including some high-income
professionals) are not ‘employed’ as such and do not operate bank
accounts in their own names. The existing contribution collection scheme is not
effective in these cases where the bankrupt chooses not to
comply.
16. These deficiencies will be addressed by the supervised
account regime to be introduced by this Bill. The amendments will allow the
trustee to have access to all of the bankrupt’s income before it reaches
the bankrupt. This will enable the trustee to use the existing methods for
collecting income contributions by ensuring that the bankrupt operates a bank
account (into which all income must be deposited) under the trustee’s
supervision.
Family law financial agreements
17. The Bill
also proposes amendments to ensure that a bankrupt cannot use financial
agreements under Part VIIIA of the Family Law Act to defeat the claims of
creditors. One amendment will exclude financial agreements from the definition
of ‘maintenance agreement’ in the Bankruptcy Act to ensure that
trustees can use that Act’s ‘clawback’ provisions to recover
property transferred prior to bankruptcy pursuant to such an agreement. A
further amendment will introduce a new act of bankruptcy which will occur when a
person is rendered insolvent as a result of assets being transferred under a
financial agreement – this will mean that the person’s bankruptcy
will be taken to have commenced at the time of that transfer which will extend
the ‘relation back’ period. This will allow the trustee to claim
property transferred under the agreement as divisible property in the
bankrupt’s estate.
-------------------------------
Section 3 - Notes on sections and Schedule
items
Section 1 - Short Title
18. The Bankruptcy and
Family Law Legislation Amendment Bill 2004 (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 and Family Law
Legislation Amendment Act 2004.
Section 2 -
Commencement
19. 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 which the Bill receives the Royal Assent.
Proposed Schedule 1 will commence on a single day to be fixed by proclamation.
However, if any of the provisions in Schedule 1 do not commence within the
period of 6 months beginning on the day on which the Bill receives the Royal
Assent, they commence on the first day after the end of that period. This delay
in commencement will allow for such things as Rules of Court to be developed
that are necessary for the operation of a number of provisions of this Schedule.
Proposed Schedule 2 will commence on the day which the Bill receives the Royal
Assent. Proposed Schedules 3 and 4 will commence the 28th day after
the day on which the Bill receives the Royal Assent. This is to allow time for
relevant stakeholders to become aware of the new provisions prior to their
commencement.
Section 3 - Schedules
20. Proposed section 3
is a drafting device to allow all the amendments proposed to be made to the
Act to be set out in Schedules (each dealing with a different subject area).
The items in the Schedules will amend the Acts referred to and will have effect
according to their terms. Notes on the Schedule items
follow.
Schedule 1—Amendments relating to the
interaction between family law and bankruptcy
21. Schedule 1
proposes amendments to both the Bankruptcy Act 1966 (the Bankruptcy Act)
and the Family Law Act 1975 (the Family Law Act).
Bankruptcy
Act 1966
22. The amendments proposed in this Schedule will give
the Family Court additional jurisdiction to deal with bankruptcy matters where
those matters run concurrently with matters under the Family Law Act. Item 1
proposes to amend section 27 to make it clear that the Federal Court and Federal
Magistrates Court do not have exclusive jurisdiction in relation to bankruptcy
in such cases.
23. Item 2 proposes to facilitate the trustee’s
involvement in Family Court proceedings. This is to ensure that, where
bankruptcy and family law matters are running concurrently, they can be dealt
with together. By virtue of proposed new section 35, the Family Court has
jurisdiction in bankruptcy in relation to any matter connected with, or arising
out of, the bankruptcy of the bankrupt where a party to a marriage is a
bankrupt, and the trustee of the bankrupt’s estate is:
(a) a party to
property settlement proceedings in relation to either or both of the parties to
the marriage; or
(b) an applicant under section 79A of the Family Law Act
for the variation or setting aside of an order made under section 79 of that Act
in property settlement proceedings in relation to either or both of the parties
to the marriage; or
(c) a party to spousal maintenance proceedings in
relation to the maintenance of a party to the marriage.
24. Proposed
subsection 35(2) provides that subsection 35(1) does not limit the Family
Court’s jurisdiction under section 35A (that section providing for the
transfer of bankruptcy proceedings from the Federal Court to the Family Court in
certain circumstances).
25. Proposed subsection 35(3) provides that
‘property settlement proceedings’ has the same meaning as in the
Family Law Act and that ‘spousal maintenance proceedings’ means
proceedings under the Family Law Act with respect to the maintenance of a party
to a marriage.
26. Item 3 proposes to insert new section 59A. This
proposed new section provides that sections 58 and 59, dealing with the vesting
of property upon bankruptcy and in a second or subsequent bankruptcy
respectively, have effect subject to an order under Part VIII of the Family Law
Act (which deals with property, spousal maintenance and maintenance agreements).
27. Items 4 and 5 are proposed technical amendments relating to Item 6.
28. Item 6 proposes to insert new subparagraph 116(2)(q). The effect of
this proposed amendment is that property will not be divisible amongst creditors
of the bankrupt where the trustee is required to transfer such property to the
spouse of the bankrupt under an order under Part VIII of the Family Law Act.
29. Item 7 proposes to insert new subsection 140(11). By virtue of this
proposed amendment, the declaration and distribution of dividends will by
subject to any interlocutory injunction under section 114 of the Family Law Act
(refer paragraph 106).
30. Item 8 inserts new subsections (3) and (4) in
section 161, to deal with the impact on proceedings under the Family Law Act
where a trustee who is party to those proceedings ceases to be the trustee and
is replaced by another person. Proposed new subsection 161(3) provides that
section 161 of the Act (dealing with the circumstances where a trustee may act
in the official name of trustee), applies to proceedings under the Family Law
Act in a corresponding way to the way it applies to a suit. Proposed new
subsection 161(4) provides that where a trustee (the first trustee) who is a
party to proceedings under the Family Law Act ceases to be the trustee of the
bankrupt’s estate and another person becomes the first trustee’s
successor in office (the second trustee), the second trustee will be substituted
for the first trustee in the relevant proceedings. This is to ensure that
proceedings are not interrupted where there is a change of
trustee.
Family Law Act 1975
31. Item 9 would
introduce a new definition in subsection 4(1) of what is a bankruptcy trustee.
The bankruptcy trustee, in relation to a bankrupt, means the trustee of the
bankrupt’s estate.
32. Item 10 proposes to insert a definition in
subsection 4(1) of what is meant by a debtor subject to a personal insolvency
agreement. This definition refers to the new section 5 of the Act which is
inserted by item 18.
33. Item 11 proposes to insert a new paragraph (caa)
in the definition of matrimonial cause. The new paragraph expands the
definition, the effect of which is that a court can deal with a matrimonial
cause which is proceedings between a party to a marriage and the bankruptcy
trustee with respect to the maintenance of that party.
34. Item 12 would
insert a new paragraph (cb) in the definition of matrimonial cause to include a
proceeding between a party to a marriage and the bankruptcy trustee with respect
to the vested bankruptcy property (defined in item 17) of the bankrupt
spouse.
35. Item 13 proposes to insert a new definition of personal
insolvency agreement. This definition provides a cross-reference to the
Bankruptcy Act which contains the relevant operative provisions. Such
agreements would be recognised for the first time in the Family Law Act as a
result of these proposed amendments. Personal insolvency agreements are
agreements entered into by a debtor and creditors. This is different from when
the debtor becomes a bankrupt. These agreements are dealt with under Part X of
the Bankruptcy Act.
36. Item 14 proposes to insert a definition in
subsection 4(1) of property settlement proceedings. Under the proposed
amendment it is defined as proceedings with respect to the property of the
parties to the marriage or with respect to vested bankruptcy property (this is
defined in item 17 as ‘property of the bankrupt that has vested in the
bankruptcy trustee under the Bankruptcy Act’) in relation to a bankrupt
party to a marriage.
37. Item 15 would insert a new paragraph (aa) in
the definition of property settlement and spousal maintenance proceedings to
include vested bankruptcy property in relation to a bankrupt party to a
marriage.
38. Item 16 proposes to insert a definition of trustee, in
relation to a personal insolvency agreement, which provides that it has the same
meaning as the Bankruptcy Act.
39. Item 17 proposes to insert a new
definition of vested bankruptcy property. This concept means property of the
bankrupt that has vested in the bankruptcy trustee under the Bankruptcy Act.
The definition also provides that, when determining whether the bankrupt
spouse’s property has vested in the bankruptcy trustee, property has the
same meaning as the Bankruptcy Act.
40. Item 18 would insert a new
section 5 after section 4A which defines what a debtor subject to a personal
insolvency agreement is. The proposed section provides that a person is a
debtor subject to a personal insolvency agreement under the Family Law Act if a
debtor executes a personal insolvency agreement and that agreement has not
ended. Personal insolvency agreements are dealt with in Part X of the
Bankruptcy Act.
41. Item 19 would amend subsections 44(3), (3A) and (3B)
to substitute reference to “(ca)” with “(caa), (ca) or
(cb)”. Paragraphs 4(1)(caa) (refer item 11) and (cb) (refer item 12) are
new paragraphs in the definition of matrimonial cause which are inserted by this
Bill.
42. Item 20 proposes to insert a new subsection (1A) in section 45
which is intended to extend a court’s power to stay or transfer
proceedings where a bankruptcy trustee applies for an order under section 139A
of the Bankruptcy Act. Proceedings relating to that application are taken to be
proceedings in relation to the marriage.
43. Item 21 proposes to add a
new subsection (2) to section 71A to make clear that the amendments contained in
this Bill to various sections in Part VIII of the Family Law Act are to apply to
proceedings under the new proposed paragraphs 4(1)(caa) and (cb) in the
definition of matrimonial cause, notwithstanding the provisions of Part VIIIA of
the Family Law Act dealing with financial agreements. This means that it is not
possible for parties to use a binding financial agreement relating to property
or financial resources that is the subject of those proceedings to prevent a
court dealing with that property or financial resource in accordance with these
amendments.
44. Item 22 would add a new subsection (2) to section 72
providing that the liability of a bankrupt party to a marriage to maintain the
other party may be satisfied, in whole or in part, by way of transfer of vested
bankruptcy property in relation to the bankrupt party if the court makes an
order under Part VIII of the Family Law Act.
45. Item 23 proposes to
amend section 74 which provides a court with the power to make spousal
maintenance orders. Proposed new subsection (2) provides that the bankruptcy
trustee must be joined as a party to the proceeding where the court is satisfied
that the interests of the bankrupt’s creditors may be affected by an order
and the application for spousal maintenance was made whilst the party was a
bankrupt or the party became a bankrupt after the application was made but
before the proceedings were finally determined. The bankruptcy trustee must
apply to become a party before the court can join the trustee as a
party.
46. Proposed new subsection 74 (3) provides that if the bankruptcy
trustee is joined as a party under subsection (2) then the bankrupt is not
entitled to make submissions to the court in the course of the spousal
maintenance proceedings in connection with any of the vested bankruptcy
property, except with the leave of the court. The reason for this is that the
property that used to belong to the bankrupt has vested in the bankruptcy
trustee in accordance with the Bankruptcy Act. It is therefore appropriate
that the bankruptcy trustee make submissions to the court rather than the
bankrupt. Proposed subsection (4) provides that the court may only
grant leave to the bankrupt under subsection (3) to make submissions where there
are exceptional circumstances, which would typically arise when the bankrupt has
exclusive knowledge of facts or matters that are relevant to the
proceedings.
47. Proposed new subsection (5) deals with a situation in
which one of the parties to spousal maintenance proceedings is a debtor subject
to a personal insolvency agreement. This subsection provides that a court must
join the trustee of the agreement as a party to the proceedings where the
trustee applies to be joined and where the court is satisfied that the interests
of the debtor’s creditors may be affected and: (a) when the application
was made for an order under section 74, the party was a debtor subject to a
personal insolvency agreement or (b) the party became a debtor after application
was made but before it was finally determined. The new subsections (6) and (7)
mirror the effect of subsections (3) and (4) in relation to debtors who are
subject to personal insolvency agreements.
48. Proposed new subsection
(8) states that an application for an order for spousal maintenance is taken to
be finally determined for the purposes of subsections (2) and (5) when: (a) the
application is withdrawn or dismissed or (b) an order (other than an interim
order) is made as a result of the application.
49. Item 24 would insert a
new paragraph (ha) after paragraph 75(2)(h). This provides that a court
making an order under section 74 must consider the effect of any proposed order
on the ability of a creditor of a party to recover the creditor's debts.
This is intended to require the court specifically to consider any monies owed
by a party to a creditor that the party has disclosed to the court in the
proceedings, and the impact of any proposed order on the ability of the creditor
to recover any such debt.
50. Item 25 proposes to amend paragraph
75(2)(n) to require a court to consider, before making orders for spousal
maintenance as well as any order made or proposed to be made under section 79 in
relation to the property of the parties as is currently the case, to also
consider any order made in relation to vested bankruptcy property of the
bankrupt spouse.
51. Item 26 proposes to insert a new subsection (4) in
section 75 to clarify that reference to a party for the purposes of the section
means a party to the marriage concerned and does not include a bankruptcy
trustee or trustee of a personal insolvency agreement.
52. Item 27
proposes to amend subsection 79(1). Paragraph (a) replicates the existing law.
Paragraph (b) provides that a court can alter the interests of the bankruptcy
trustee in the vested bankruptcy property. Paragraphs (c) and (d) largely
replicate the existing law, although a new paragraph (d)(ii) provides that a
court can make an order against the relevant bankruptcy trustee (if any) to make
such settlement or transfer of property as the court determines for the benefit
of either party to the marriage, or child of the marriage.
53. Item 28
would amend subsection 79(1A) to refer to the new definition of property
settlement proceedings (refer item 14) which includes proceedings with respect
to vested bankruptcy property.
54. Item 29 proposes to amend subsection
79(1A) to make clear that an order made under subsection (1) may be enforced
after the death of a party to the marriage. It is appropriate to omit
‘party to the proceedings’ because, under these amendments, a
bankruptcy trustee could be a party. The Bankruptcy Act deals with the position
of a bankruptcy trustee who dies.
55. Item 30 would amend subsection
79(1B) to refer to the expanded definition of property settlement proceedings
(refer item 14) which includes proceedings with respect to vested bankruptcy
property.
56. Item 31 proposes to amend subsection 79(1B) to omit
‘parties to the proceedings’ and replace (wherever occurring) with
‘parties to the marriage’ because under these amendments, a
bankruptcy trustee could be a party and the proceedings referred to in
paragraphs (a), (b) and (c) of the subsection are intended to apply only to
parties to a marriage.
57. Item 32 proposes to amend subsection 79(1C)
to refer to the expanded definition of property settlement proceedings (refer
item 14) which includes proceedings with respect to vested bankruptcy
property.
58. Item 33 would narrow the reference in paragraph 79(1C)(a)
to ‘the parties to the marriage’ because a bankruptcy trustee would
not be a party to proceedings for principal relief (or divorce and validity of
marriage proceedings).
59. Item 34 proposes to narrow the reference in
paragraph 79(1C)(c) to the parties ‘to the marriage’ because a
bankruptcy trustee would not be a party to proceedings for a legal separation
under a law of an overseas country.
60. Item 35 would expand the
reference in subsection 79(1C) to ‘a party’ to provide a neutral
reference to a party to proceedings. This is to allow for the possibility that
a bankruptcy trustee maybe a party to proceedings.
61. Item 36 would
amend subsection 79(4) so that it refers to the concept of property settlement
proceedings, which is defined at item 14.
62. Item 37 proposes to add
‘and’ at the end of paragraphs 79(4)(a), (b), (c), (d) and (e) to
make clear that these paragraphs are to be considered
conjunctively.
63. Item 38 would insert a new paragraph (ea) after
paragraph 79(4)(e) to provide that a court shall take into account in making an
order under section 79 the effect of any proposed order on the ability of a
creditor of a party to the marriage to recover the creditor's debt. It is
intended to require the court specifically to consider, when making an order in
property settlement proceedings, any monies owed by a party to a creditor that
the party has disclosed to the court in the proceedings, and the impact of any
proposed order on the ability of the creditor to recover any such debt.
This provision mirrors the proposed new paragraph 75(2)(ha) (see item 24)
that applies in spousal maintenance proceedings.
64. Item 39 proposes to
amend subsection 79(5) so that it refers to the concept of property settlement
proceedings, which is defined at item 14.
65. Item 40 proposes to insert
a new paragraph 79(5)(b). The new paragraph is a restructured version of the
old paragraph, but contains new references in subparagraphs (ii) and (iv) to the
vested bankruptcy property in relation to a bankrupt party to the
marriage.
66. Item 41 would insert a reference to the relevant bankruptcy
trustee (if any) in subsection 79(5) to make clear that he or she may be a party
to an application under section 79 and thus have standing, alongside either
party to the marriage, to seek an adjournment.
67. Item 42 would insert a
reference to the relevant bankruptcy trustee in subsection 79(5) to make clear
that he or she may be a party to an application under section 79 and thus have
standing, alongside either party to the marriage, to seek an
adjournment.
68. Item 43 proposes to add the concept of vested bankruptcy
property as being a category of property about which a court may make interim
orders under subsection 79(6).
69. Item 44 would amend subsection 79(8)
so that it refers to the concept of property settlement proceedings, which is
defined at item 14.
70. Item 45 proposes to amend subsection 79(8) to
make clear that it applies to a party to a marriage, and not more generally to a
party to the proceedings which could include a bankruptcy
trustee.
71. Item 46 proposes to add the concept of vested bankruptcy
property to subsection 79(8) as being a category of property about which a court
may make orders where one of the parties to a marriage dies before property
settlement proceedings are completed.
72. Item 47 would amend subsection
79(9) so that it refers to the concept of property settlement proceedings, which
is defined at item 14.
73. Item 48 proposes to insert new subsections
(10A) to (17) after section 79. The proposed new subsection (10A) qualifies the
operation of subsection (10) (which is contained in item 143 in Part 19 of
Schedule 1 to the Family Law Amendment Bill 2004 – the FLA Bill 2004).
Proposed subsection (10) of the FLA Bill 2004 provides that a creditor of a
party to property proceedings under section 79, or any other person whose
interests would be affected by the making of the order, may apply to become a
party to those proceedings. Proposed subsection (10A) provides that
subsection (10) will not apply to allow a creditor to become a party to the
proceedings if his or her debt is a provable debt against a party who is
bankrupt, or if the debt is covered by a personal insolvency
agreement. In those circumstances, the creditor has remedies for
recovery of his or her debt as a bankruptcy matter under the Bankruptcy Act.
These amendments provide a process for the bankruptcy trustee to be a party to
financial proceedings under the Family Law Act to represent the
interests of all creditors in those proceedings.
74. The proposed new
subsection 79(11) provides that the bankruptcy trustee must be joined as a party
to the proceeding upon application by the bankruptcy trustee where the court is
satisfied that the interests of the bankrupt’s creditors may be affected
by an order and the application was made whilst the party was a bankrupt or the
party became a bankrupt after the application was made but before the
proceedings were finally determined.
75. Proposed subsection 79(12)
provides that if the bankruptcy trustee is joined as a party under subsection
(11) then the bankrupt is not entitled to make submissions to the court in the
course of the property proceedings in connection with any of the vested
bankruptcy property, except with the leave of the court. The reason for this
is that the property that used to belong to the bankrupt has vested in the
bankruptcy trustee in accordance with the Act. It is therefore appropriate that
the bankruptcy trustee make submissions to the court rather than the bankrupt.
Proposed subsection 79(13) provides that the court may only grant leave under
subsection (12) where there are exceptional circumstances, which would
typically arise when the bankrupt has exclusive knowledge of facts or matters
that are relevant to the proceedings.
76. The proposed new subsections
79(14) to (16) mirror the provisions described above in relation to debtors who
are subject to personal insolvency agreements.
77. Proposed subsection
79(17) provides a meaning of what is an application which is finally determined
for the purposes of the new subsections (11) and (14), which is the same meaning
as item 23.
78. Item 49 would amend subsections 79A(1) and (1A) so that
they refer to the concept of property settlement proceedings, which is defined
at item 14.
79. Item 50 proposes to amend subsection 79A(1B) to make
clear that the reference to the death of a party to the proceedings is a
reference only to the parties to the marriage and does not include a reference
to the bankruptcy trustee.
80. Item 51 proposes to amend subsection
79A(1C) to make clear that the reference to the death of a party to the
proceedings is a reference only to the parties to the marriage and does not
include a reference to the bankruptcy trustee.
81. Item 52 proposes to
insert new subsections (5) to (7) in section 79A. Proposed subsection (5) makes
clear that a bankruptcy trustee is a person whose interests are affected by an
order under section 79 where either a party to the marriage was a bankrupt at
the time the order was made or the party became a bankrupt after the order was
made. On establishing this, the bankruptcy trustee will have standing under
section 79A to make an application to the court to vary the order, set aside the
order or make another order.
82. Proposed subsection (6) makes clear that
the bankruptcy trustee is a person whose interests are affected by an order
under section 79 where (a) a party is bankrupt and (b) the order was made with
respect to vested bankruptcy property. On establishing this, the bankruptcy
trustee will have standing under section 79A to make an application to the court
to vary the order, set aside the order or make another
order.
83. Proposed subsection (7) replicates the effect of subsections
(5) and (6) in relation to debtors subject to a personal insolvency agreement.
This subsection gives the trustee standing to make an application to the court
to vary the order, set aside the order or make another order.
84. Item 53
proposes to insert 3 new notification sections: section 79G, section 79H and
section 79J.
85. Proposed subsection 79G(1) provides that the Rules of
Court for courts exercising jurisdiction under these provisions (called the
‘applicable Rules of Court’ and defined in section 4 of the Family
Law Act) may make provision for a bankrupt who becomes a party to a proceeding
for an application under section 74 (power of court in spousal maintenance
proceedings), 78 (declaration of interests in property), 79 (alternation of
property interests) or 79A (setting aside of orders altering property interests)
to give notice of the application to the bankruptcy trustee.
86. Similarly, proposed subsection (2) provides that the applicable
Rules of Court may also make provision for a debtor subject to a personal
insolvency agreement who becomes party to a proceeding for an application under
section 74, 78, 79 or 79A to give notice of the application to the trustee of
the agreement.
87. Proposed section 79H provides that the applicable
Rules of Court may make provision to notify a court exercising jurisdiction
under the Family Law Act that a person has become a bankrupt (subsection (1)) or
where a person has become a debtor subject to a personal insolvency agreement
(subsection (2)).
88. The circumstances in which the bankrupt or debtor
subject to the personal insolvency agreement may be required by the applicable
Rules of Court to notify the court is where that person:
(a) is a party to a
marriage, and
(b) is a party to a proceeding for an application under
section 74, 78, 79 or 79A, and
(c) becomes a bankrupt or debtor subject to a
personal insolvency agreement before that application is finally
determined.
89. Proposed subsection (3) provides that the applicable
Rules of Court may make provision for notification where a person who is a party
to a marriage and is a party to proceedings for an application under section 74,
78, 79 or 79A and before the application is finally determined, becomes a party
to proceeding before the Federal Court or the Federal Magistrates Court under
the Bankruptcy Act that relates to the bankruptcy of the person or the
person’s capacity as a debtor subject to a personal insolvency agreement.
The applicable Rules of Court may provide that person must notify a court
exercising jurisdiction under the Family Law Act of those
proceedings.
90. Proposed subsection (4) provides that the applicable
Rules of Court may make provision for the bankruptcy trustee of a bankrupt party
to a marriage to notify a court exercising jurisdiction under the Family Law Act
of the making of an application under section 139A of the Bankruptcy Act.
91. Proposed subsection (5) defines ‘finally determined’ for
the purposes of this section as being when the application is withdrawn or
dismissed, or an order (but not an interim order) is made as a result of the
application.
92. Proposed subsection (6) defines ‘finally
determined’ for the purposes of this section in relation to an application
for a declaration under section 78, as when the application for a declaration
under section 78 is withdrawn or dismissed, or a declaration is made as a result
of the application.
93. Proposed section 79J provides that the applicable
Rules of Court may provide for a bankruptcy trustee to notify the non-bankrupt
spouse about an application under section 139A of the Bankruptcy
Act.
94. Item 54 proposes to add in new subsections (4) – (6) to
section 80. Section 80 sets out the general powers of courts exercising
jurisdiction under the Family Law Act when exercising its powers under Part VIII
of the Act. Paragraph 80(1)(d) provides that the court may make an order to
execute any necessary deed or instrument that is necessary to carry out an order
made by the court under this Part.
95. Proposed subsection (4) provides
that if the bankruptcy trustee is a party to a proceeding before a court, a
court may make an order under paragraph 80(1)(d) directed to the bankrupt.
96. Proposed subsection (5) provides that if the trustee of a personal
insolvency agreement is a party to a proceeding before the court, the court may
make an order under paragraph 80(1)(d) directed to the debtor subject to the
agreement.
97. For the avoidance of doubt, proposed subsection (6)
provides that proposed subsection (4) and (5) do not limit paragraph
80(1)(d).
98. Item 55 would amend subsection 83(1). Section 83 provides
for the modification of spousal maintenance orders. The wording of subsection
(1) is amended to reflect that this Bill provides for the bankruptcy trustee to
be a party to spousal maintenance proceedings and that the proceedings may not
just be between the parties to the marriage.
99. Item 56 would insert
proposed subsection 83(1A). This proposed provision sets out the circumstances
in which the court’s jurisdiction to modify spousal maintenance orders
under subsection 83(1) may be exercised, that is:
(a) in any case where there
are proceedings with respect to the maintenance of a party to the marriage, or
(b) on the application of the bankruptcy trustee where there is a bankrupt
party to the marriage, or
(c) where a party to the marriage is a debtor
subject to a personal insolvency agreement - on the application of the trustee
of the agreement.
100. Item 57 proposes to make a minor amendment to
subsection 83(5A) to include the bankruptcy trustee of a party to the
marriage.
101. Item 58 proposes to insert new subsections 106B(1A) and
(1B). Section 106B currently deals with the power of the court to make orders
to prevent transactions to defeat an existing or anticipated
order.
102. Proposed subsection 106B(1A) extends the court’s power
where one party to the marriage is a bankrupt. It provides that where a party
to a marriage is a bankrupt and the bankruptcy trustee is a party to
proceedings, the court may set aside or restrain the making of an instrument or
a disposition designed to defeat an existing or anticipated order (whether
intentionally or not) which is made or proposed to be made by or on behalf of,
or by direction or in the interest, of the bankrupt.
103. Similarly,
proposed subsection 106B(1B) extends the court’s power where one party to
a marriage is a debtor subject to a personal insolvency agreement. It provides
that where a party to a marriage is a debtor subject to a personal insolvency
agreement and the trustee of the agreement is a party to proceedings, the court
may set aside or restrain the making of an instrument or disposition to defeat
an existing or anticipated order (whether intentionally or not) which is made by
or on behalf of, or by direction or in the interest of, the debtor.
104. Item 59 is a technical amendment to subsection 106B(2) consequent
on the inclusion of new subsections 106B(1A) and 106B(1B) by item
58.
105. Item 60 would insert new subsections 114(4) to (7). Section 114
deals with injunctions. These provisions deal with the court’s power to
grant injunctions to prevent the distribution of dividends amongst a
bankrupt’s creditors and to restrain the trustee of a personal insolvency
agreement disposing of property subject to that agreement.
106. Proposed
subsection (4) provides that where a party to a marriage is a bankrupt, a court
may, on the application of the other party to the marriage, grant an injunction
under subsection (3) restraining the bankruptcy trustee from declaring and
distributing dividends amongst the bankrupt’s creditors.
107. For
the avoidance of doubt, proposed subsection (5) provides that new subsection (4)
does not limit subsection (3).
108. Proposed subsection (6) provides that
where a party to a marriage is a debtor subject to a personal insolvency
agreement, a court may on the application of the other party to the marriage
grant an injunction restraining the trustee of the agreement from disposing of
property subject to the agreement.
109. For the avoidance of doubt,
proposed subsection (7) provides that new subsection (6) does not limit
subsection (3).
Part 2 – Application
provisions
110. Item 61 sets out when the proposed amendments
made by this Schedule apply.
111. Generally, the proposed amendments
apply to bankruptcies for which the date of the bankruptcy is after the
commencement of the item and to personal insolvency agreements executed before,
at or after the commencement of the item. The exceptions are set out in sub
items (2) and (3).
112. Sub item (2) provides that for the provisions
set out in the sub item (which relate to spousal maintenance), they apply to
proceedings instituted after the commencement of the item, whether the date of
the bankruptcy is before, on or after the date of commencement of the
item.
113. Sub item (3) provides that for the provisions set out in the
sub item (which relate to joining the bankruptcy trustee as a party to
proceedings for alteration of property interests under section 79), they apply
to proceedings instituted after the commencement of the item, whether the date
of the bankruptcy is before, on or after the date of the commencement of the
item.
Schedule 2—Amendments relating to income
contributions
114. The amendments contained in this Schedule
will introduce the supervised account regime for bankrupts liable to pay income
contributions. These amendments are designed to ensure that the trustee has
access to the bankrupt’s income to the extent necessary to collect
assessed income contributions. Generally, this will be achieved by allowing the
trustee, where necessary, to require the bankrupt to deposit all of his or her
income into a new account to be supervised by the trustee.
115. Items 1
and 2 propose to amend section 125 of the Bankruptcy Act 1966 (the Act)
to ensure it does not apply to accounts opened by a bankrupt who becomes subject
to the new regime. Section 125 provides that, where a prescribed organisation
(a bank, co-operative society or other financial institution of a kind
prescribed by the regulations for the purposes of this definition) which becomes
aware that an undischarged bankrupt has an account with it, the organisation
must notify the trustee of the account’s existence and must not make
further payments out of the account without a Court order or instructions from
the trustee. It would be inappropriate for this requirement to apply to a new
account opened for the purposes of the supervised account
regime.
116. Item 3 proposes to amend the meaning of
‘bankrupt’ for the purposes of the definition of
‘income’ in section 139L so that it includes a discharged bankrupt
who remains subject to the supervised account regime.
Supervised
account regime
117. Item 4 proposes to insert new Subdivision HA in
Division 4B of Part VI of the Act. The new Subdivision will establish the
supervised account regime for collection of income
contributions.
118. The objects of the Subdivision are set out in
proposed section 139ZIA
119. Proposed section 139ZIB provides definitions
of a number of terms for the purposes of the new
Subdivision.
120. Proposed subsection 139ZIC(1) will provide that a
trustee may determine that the supervised account regime applies to a bankrupt.
Where the trustee makes that determination, the trustee must give written notice
to the bankrupt.
121. Proposed subsection 139ZIC(2) will provide that the
trustee must not make a determination unless, at the time of making the
determination, the bankrupt is liable to pay an income contribution and
either:
- if the contribution is payable by installments, the bankrupt
has not paid the whole of an instalment when it became payable, or
- if the
contribution is payable at a specified time, the bankrupt has not paid the whole
of the contribution at that time.
122. It is intended that the bankrupt
should have an opportunity to comply voluntarily with the obligation to pay
contributions on time and that the trustee should apply the supervised account
regime in cases in which it would appear to be the most effective method of
ensuring that contributions are paid.
123. The notice given under
subsection (1) must be in the approved form (defined in subsection 5(1) to be a
form approved by the Inspector-General) – proposed subsection 139ZIC(3).
Proposed subsection 139ZIC(4) will provide that the notice must also be
accompanied by:
- a supervised account notice relating to the bankrupt
(defined in subsection 139ZIE(1)), and
- a statement setting out the effect
of sections 139ZIE to 139ZIT and any other information specified in the
regulations.
124. Proposed subsection 139ZID(1) will allow the trustee to
revoke a determination made under section 139ZIC. The trustee must not revoke
the determination unless satisfied that the bankrupt will pay current and future
contributions on time. In forming that view, the trustee, under proposed
subsection 139ZID(2), is to have regard to the bankrupt’s past payment
record and any other relevant matters (which may include the bankrupt’s
explanation for failing to make payments on time, changes in the
bankrupt’s employment situation and other factors affecting the
bankrupt’s ability and willingness to make payments on
time).
125. The trustee may revoke a determination on his or her own
initiative or on application by the bankrupt – proposed subsection
139ZID(3). Where the bankrupt applies for revocation and the trustee refuses,
the trustee must give the bankrupt written notice of the refusal –
proposed subsection 139ZID(4). A notice of revocation must be in the approved
form – proposed subsection 139ZID(5). A trustee’s refusal to revoke
a determination will be a decision reviewable by the Inspector-General
(‘reviewable decision’ is defined in proposed section
139ZIB).
126. Proposed section 139ZIDA describes the circumstances in
which the trustee’s determination ceases to be in force. These
circumstances are the annulment of the bankruptcy and discharge from bankruptcy
where there is no further liability to pay a contribution. Where the bankrupt
is discharged from bankruptcy and has an outstanding contributions liability,
the determination will cease to be in force only when the bankrupt is no longer
liable to pay a contribution.
Supervised account
notice
127. Proposed section 139ZIE describes the requirements of a
supervised account notice and the bankrupt’s obligations upon receiving
such a notice. The notice must be in the approved form and will require the
bankrupt to open an account that complies with the features listed in proposed
subsection 139ZIE(1). These features are designed to ensure that the trustee
has access to the account (including for the purposes of issuing a notice under
section 139ZL requiring payment of contributions from the account) – for
example, the account must be kept with an ADI (authorized deposit-taking
institution as defined in subsection 5(1)) and be kept in Australia. The
features are also designed to maximize the balance in the account – for
example, the account must be designed not to have a debit balance (so that it
cannot include an overdraft or similar facility). .
128. The notice will
require the bankrupt to open the account within 10 working days after the notice
is given. The trustee may specify a longer period in the notice – that
may be appropriate where, for example, the bankrupt’s affairs are
particularly complex and it will take longer than 10 working days to rearrange
those affairs and comply with the notice.
129. Proposed subsection
139ZIE(3) will require the bankrupt to comply with a supervised account notice.
Proposed subsection 139ZIE(5) will require the bankrupt, where the supervised
account regime applies, to notify the trustee in writing of details of the
account – that notice must be given within 2 working days after opening
the account. Pursuant to proposed subsection 139ZIE(6), failure to comply with
either subsection (3) or (5) will be an offence.
New supervised
account
130. Proposed section 139ZIEA will allow the trustee to
revoke a supervised account notice, issue a fresh supervised account notice and
require the bankrupt to transfer the balance of an existing supervised account
to the account opened in accordance with the fresh notice. The earlier notice
will remain in force until the bankrupt complies with the fresh notice by
opening a new supervised account. This power is to cover circumstances in which
the financial institution with which the original account is held changes the
rules relating to that account so that the trustee considers that account is no
longer suitable for the purposes of this regime – for example, the
institution may increase the fees payable for operating or making withdrawals
from that account which will have the effect of reducing the amount available to
collect the bankrupt’s contributions liability.
131. A decision to
issue a revocation notice and issue a fresh notice may be made by the trustee on
his or her own initiative or on application by the bankrupt. If the bankrupt
applies to the trustee to exercise this power and the trustee refuses, the
trustee must give written notice of that refusal to the bankrupt. A decision by
the trustee to refuse to exercise this power upon application by the bankrupt
will be reviewable by the Inspector-General.
132. Failure to comply with
the requirements of a notice issued under this section will be an
offence.
Bankrupt’s monetary income to be deposited to
supervised account
133. Proposed section 139ZIF will require a
bankrupt to whom the supervised account regime applies to ensure that all
monetary income actually received by the bankrupt after the account is opened in
deposited into the account. Income received in the form of cash of cheque must
be deposited to the account within 5 working days of its receipt. In any other
case, the income must be deposited upon its receipt. Income received as cash
which is used to make a refund is not required to be deposited to the
account.
134. A person who fails to comply with these requirements will
be guilty of an offence.
Trustee to supervise withdrawals from
supervised account
135. Proposed section 139ZIG deals with
withdrawals from the supervised account. Subsection (1) will impose a general
prohibition on withdrawals by the bankrupt. Subsection (2) will provide
exceptions to this general prohibition.
136. The first of these
exceptions relates to withdrawals made with the consent of the trustee.
Subsection (3) will allow the trustee to consent to withdrawals. The trustee
will be required to give written notice of this consent to the bankrupt. That
consent can be given to any of the following withdrawals:
- a specified
withdrawal;
- withdrawals included in a specified class of
withdrawals;
- withdrawals up to a daily, weekly, fortnightly or monthly
limit ascertained in accordance with the notice.
137. The purpose of
these provisions is to allow the trustee to come to an arrangement with the
bankrupt allowing for regular withdrawals from the account to meet the
bankrupt’s living expenses while ensuring that the balance of the account
remains sufficient to meet the bankrupt’s liability to pay contributions.
Generally, it is intended that the trustee would consent to regular or periodic
withdrawals from the account and that the trustee would consent to the bankrupt
withdrawing amounts in excess of that required to meet the contributions
liability. In addition to this ongoing consent to meet living expenses, the
trustee may also consent to additional withdrawals to meet unexpected
liabilities or where a balance has accumulated in the account which exceeds the
amount required to meet the bankrupt’s contributions
liability.
138. The trustee will be able to vary or revoke a consent as
the circumstances require. The power to issue a consent notice or to vary or
revoke that consent may be exercised by the trustee on his or her own initiative
or upon application of the bankrupt. If the bankrupt applies to the trustee to
exercise this power and the trustee refuses, the trustee must give written
notice of that refusal to the bankrupt. A decision by the trustee to refuse to
exercise this power upon application by the bankrupt will be reviewable by the
Inspector-General.
139. In addition to withdrawals made with the consent
of the trustee, subsection (2) will also provide a range of other exceptions to
the general prohibition on withdrawals by the bankrupt. These will include
withdrawals to meet the bankrupt’s tax obligations and to make payments of
fees and charges imposed by the financial institution in connection with the
operation of the account.
140. A bankrupt who makes unauthorized
withdrawals from the account will be guilty of an offence.
141. This
provision will not affect the operation of other garnishee powers (such as those
available to trustees under section 139ZL and to the Commissioner of Taxation
under the Taxation Administration Act 1953).
Constructive
income receipt arrangements
142. Proposed section 139ZIH will
restrict the bankrupt’s ability to enter into, or continue participating
in, constructive receipt arrangements. A constructive receipt arrangement, as
defined in proposed section 139ZIB, is an arrangement the effect of which is
that income derived by a bankrupt is not actually received by the bankrupt
because it is:
(a) reinvested, accumulated or capitalized;
or
(b) dealt with on behalf of the bankrupt or as the bankrupt
directs.
143. This provision is designed to ensure that income derived by
the bankrupt is actually received by the bankrupt in monetary form so that the
supervised account regime can apply effectively and the amount available for
payment of the bankrupt’s contributions liability is
maximized.
144. Where the supervised account regime applies, the bankrupt
will be prohibited from entering into any new constructive receipt arrangement
without the consent of the trustee. If the bankrupt was participating in such
an arrangement immediately before becoming subject to the supervised account
regime, the bankrupt will be required to cease participating in that arrangement
as soon as practicable after becoming subject to the regime. The bankrupt will
be able to enter into such arrangements, or continue to participate in such
arrangements, with the consent of the trustee. The trustee will be required to
give written notice of any such consent to the bankrupt and may, by further
written notice, vary or revoke that consent.
145. The power to issue a
consent notice or to vary or revoke that consent may be exercised by the trustee
on his or her own initiative or upon application of the bankrupt. If the
bankrupt applies to the trustee to exercise this power and the trustee refuses,
the trustee must give written notice of that refusal to the bankrupt. A
decision by the trustee to refuse to exercise this power upon application by the
bankrupt will be reviewable by the Inspector-General.
146. A bankrupt who
fails to comply with the requirements of this provision will be guilty of an
offence.
Non-monetary income receipt
arrangements
147. Proposed section 139ZIHA will restrict the
bankrupt’s ability to enter into, or continue participating in,
non-monetary income receipt arrangements. A non-monetary income receipt
arrangement, as defined in proposed section 139ZIB, is an arrangement the effect
of which is that income derived by a bankrupt is not actually received by the
bankrupt in monetary form because it is derived in a non-monetary
form.
148. This provision is designed to ensure that income derived by
the bankrupt is actually received by the bankrupt in monetary form so that the
supervised account regime can apply effectively and the amount available for
payment of the bankrupt’s contributions liability is
maximized.
149. Where the supervised account regime applies, the bankrupt
will be prohibited from entering into any new non-monetary income receipt
arrangement without the consent of the trustee. If the bankrupt was
participating in such an arrangement immediately before becoming subject to the
supervised account regime, the bankrupt will be required to cease participating
in that arrangement as soon as practicable after becoming subject to the regime.
The bankrupt will be able to enter into such arrangements, or continue to
participate in such arrangements, with the consent of the trustee. The trustee
will be required to give written notice of any such consent to the bankrupt and
may, by further written notice, vary or revoke that consent.
150. The
power to issue a consent notice or to vary or revoke that consent may be
exercised by the trustee on his or her own initiative or upon application of the
bankrupt. If the bankrupt applies to the trustee to exercise this power and the
trustee refuses, the trustee must give written notice of that refusal to the
bankrupt. A decision by the trustee to refuse to exercise this power upon
application by the bankrupt will be reviewable by the
Inspector-General.
151. A bankrupt who fails to comply with the
requirements of this provision will be guilty of an offence.
Cash
income
152. Proposed section 139ZII will restrict the
bankrupt’s ability to receive income in the form of cash. This provision
is designed to ensure that income received by the bankrupt is able to be
identified by the trustee and deposited into the supervised
account.
153. The bankrupt will be able to receive income in the form of
cash with the consent of the trustee. The trustee will be required to give
written notice of any such consent to the bankrupt and may, by further written
notice, vary or revoke that consent.
154. The power to issue a consent
notice or to vary or revoke that consent may be exercised by the trustee on his
or her own initiative or upon application of the bankrupt. If the bankrupt
applies to the trustee to exercise this power and the trustee refuses, the
trustee must give written notice of that refusal to the bankrupt. A decision by
the trustee to refuse to exercise this power upon application by the bankrupt
will be reviewable by the Inspector-General.
155. A bankrupt who fails to
comply with the requirements of this provision will be guilty of an
offence.
Keeping of books
156. Proposed section 139ZIIA
modifies the offence contained in section 277A (keeping of books in respect of
period of bankruptcy) in relation to a discharged bankrupt who is subject to the
supervised account regime. Under section 277A, a bankrupt is required to keep
books until discharged from bankruptcy. The supervised account regime may
continue to apply after discharge (until the bankrupt no longer has a liability
to pay contributions). Therefore, where a bankrupt is subject to the supervised
account regime, the obligation imposed by section 277A will continue until that
regime ceases to apply to the
bankrupt.
Injunctions
157. Proposed sections 139ZIJ to
139ZIN give the trustee power to apply for a range of injunctions to ensure that
a bankrupt who is subject to the supervised account regime complies with his or
her obligations under that regime.
Review of trustees’
decisions
158. Proposed sections 139ZIO to 139ZIT deal with review of
trustees’ decisions. ‘Reviewable decision’ will be defined in
section 139ZIB and covers all decisions made by trustees under the provisions
relating to the supervised account regime. These decisions are subject to
review by the Inspector-General and the review process and requirements for
requesting a review are based on those already in the Act which relate to other
decisions reviewable by the Inspector-General.
159. A bankrupt or trustee
who is dissatisfied with the Inspector-General’s decision may apply to the
Administrative Appeals Tribunal for a review of that
decision.
Application
160. Item 5 provides that the
proposed amendments made in this Schedule will apply in relation to a bankrupt
who is liable to pay a contribution whether the liability arose before, at or
after the commencement of this Item. This means the amendments will apply to
existing and future bankruptcies as long as the bankrupt is liable to pay an
income contribution when the amendments
commence.
Schedule 3—Amendments relating to
maintenance agreements
161. Item 1 proposes to amend the
definition of ‘maintenance agreement’ at subsection 5(1) of the
Bankruptcy Act 1966 (the Act) to exclude financial agreements entered
into under Part VIIIA of the Family Law Act 1975 (the Family Law Act).
This will allow trustees to use the provisions in Division 3 of Part VI of the
Act to recover property transferred by the bankrupt prior to the commencement of
bankruptcy.
162. Division 3 of Part VI includes provisions which allow
trustees to recover certain property transferred by the bankrupt prior to the
commencement of his or her bankruptcy. These provisions do not apply to
transactions arising from the bankrupt’s liability under a
‘maintenance agreement’ or ‘maintenance order’. A
financial agreement made under Part VIIIA of the Family Law Act is a
‘maintenance agreement’ for the purposes of the Act.
163. A
financial agreement can be made before or during the marriage or following
separation. It is a binding agreement dealing with the distribution of property
in the event of the marriage breaking down. It may also provide for the
maintenance of either party to the marriage or their children. Financial
agreements do not require approval by a court. Nor do they have to be
registered with the court. They can only be set aside by the court in
circumstances similar to those applying in contract law (such a fraud and undue
influence). For these reasons, it is not appropriate that property transferred
pursuant to such an agreement is excluded from the property available to pay
creditors.
164. Item 2 provides that the amendment made by Item 1 will
apply to all bankruptcies current on or after the commencement of the
amendment.
Schedule 4—Amendments relating to
financial agreements under the Family Law Act 1975
165. Item 1
proposes to insert a new act of bankruptcy, in paragraph 40(1)(o) of the
Bankruptcy Act 1966 (the Act), to apply where a person is rendered
insolvent as a result of assets being transferred pursuant to a financial
agreement under Part VIIIA of the Family Law Act 1975 (the Family Law
Act).
166. The new act of bankruptcy will apply only where the transfer
under the financial agreement has the effect of rendering the person insolvent.
This would apply only to transfers pursuant to financial agreements and not to
other property distributions (for example, property settlements under section 79
of the Family Law Act).
167. Subsection 115(1) of the Act provides that
the bankruptcy of a person shall relate back to, and be deemed to have commenced
at, the time of the commission of the earliest act of bankruptcy within a period
of six months before the presentation of the petition leading to the
person’s bankruptcy. This amendment will allow the trustee to claim the
property transferred pursuant to the financial agreement as divisible property
in the estate.
168. Item 2 proposes to insert new subsection 40(7A) which
makes it clear that, for the purposes of paragraph 40(1)(o), a transfer of
property includes a payment of money and that a person who does something that
results in another person becoming the owner of property that did not previously
exist is taken to have transferred the property to that other
person.
169. Item 3 provides that the amendments made by this Schedule
apply in relation to financial agreements entered into after the commencement of
this amendment.
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