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2004
THE PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
SENATE
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 5).
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) address longstanding issues concerning the
interaction between family law and bankruptcy;
(b) prevent the misuse of
financial agreements as a means of avoiding payment to creditors; and
(c)
provide a more effective means of collecting income contributions from bankrupts
who do not receive their income as a salary or wage.
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.
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Financial Impact Statement
6. The amendments proposed by
this Bill will have no significant financial impact.
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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 creditors
and non-bankrupt spouses.
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 result 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 under 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 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 law
Part 1 -
Amendments
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
Item 1: Section 27
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.
Item 2: After
section 34A
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 provides 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.
Item 3: After section 59
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).
Item 4: Paragraph 116(2)(n) and Item 5:
Paragraph 116(2)(p)
27. Items 4 and 5 are proposed technical
amendments relating to Item 6.
Item 6: At the end of subsection
116(2)
28. Item 6 proposes to insert new paragraph 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.
Item 7: At the end of section
140
29. Item 7 proposes to insert new subsection 140(11). By virtue
of this proposed amendment, the declaration and distribution of dividends will
be subject to any interlocutory injunction under section 114 of the Family Law
Act (refer item 59).
Item 8: At the end of section
161
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
Bankruptcy 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
Item 9: Subsection
4(1)
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.
Item 10:
Subsection 4(1)
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 Family Law Act
which is inserted by item 18.
Item 11: Subsection 4(1) (after
paragraph (c) of the definition of matrimonial cause)
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.
Item 12: Subsection 4(1) (after paragraph (ca) of the
definition of matrimonial cause)
34. Item 12 would insert a
new paragraph (cb) in the definition of matrimonial cause to include proceedings
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.
Item 13: Subsection 4(1)
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.
Item 14: Subsection
4(1)
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.
Item 15: Subsection 4(1) (after paragraph (a) of the definition of
property settlement or spousal maintenance
proceedings)
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.
Item 16: Subsection 4(1)
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 in the Bankruptcy
Act.
Item 17: Subsection 4(1)
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 in the Bankruptcy Act.
Item 18: After section
4A
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.
Item 19:
Subsections 44(3), (3A) and (3B)
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.
Item 20: After subsection
45(1)
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.
Item 21: At the end of
section 71A
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.
Item 22: At the end of section 72
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.
Item 23: At the end of section 74
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.
Item 24: After
paragraph 75(2)(h)
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 (relating to spousal maintenance) 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 spousal maintenance order on
the ability of the creditor to recover any such debt.
50. By virtue
of paragraph 79(4)(e), the matters referred to in subsection 75(2) are also
matters that the court is required to take into account, so far as they are
relevant, in considering what property adjustment order should be made under
section 79. New paragraph 75(2)(ha) will therefore become a matter to be
taken into account in family property proceedings, so far as that matter is
relevant to those proceedings.
Item 25: At the end of paragraph
75(2)(n)
51. 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.
Item
26: At the end of section 75
52. 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.
Item 27: Subsection 79(1)
53. 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.
Item 28:
Subsection 79(1A)
54. 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.
Item
29: Subsection 79(1A)
55. 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.
Item 30: Subsection 79(1B)
56. 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.
Item 31: Subsection
79(1B)
57. 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.
Item 32: Subsection 79(1C)
58. 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.
Item 33: Paragraph
79(1C)(a)
59. 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).
Item 34: Paragraph
79(1C)(c)
60. 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.
Item 35: Subsection 79(1C)
61. 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.
Item 36: Subsection 79(4)
62. Item 36 would
amend subsection 79(4) so that it refers to the concept of property settlement
proceedings, which is defined at item 14.
Item 37: At the end of
paragraphs 79(4)(a), (b), (c), (d) and (e)
63. 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.
Item 38: Subsection 79(5)
64. Item 38
proposes to amend subsection 79(5) so that it refers to the concept of property
settlement proceedings, which is defined at item 14.
Item 39:
Paragraph 79(5)(b)
65. Item 39 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.
Item 40:
Subsection 79(5)
66. Item 40 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.
Item
41: Subsection 79(5)
67. Item 41 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.
Item 42:
Subsection 79(6)
68. Item 42 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).
Item 43: Subsection
79(8)
69. Item 43 would amend subsection 79(8) so that it refers to
the concept of property settlement proceedings, which is defined at item
14.
Item 44: Subsection 79(8)
70. Item 44 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.
Item 45: Paragraph 79(8)(b)
71. Item 45 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.
Item 46: Subsection 79(9)
72. Item 46 would
amend subsection 79(9) so that it refers to the concept of property settlement
proceedings, which is defined at item 14.
Item 47: At the end of
section 79
73. Item 47 proposes to insert new subsections (11) to
(17) after section 79. These amendments provide the circumstances for the
bankruptcy trustee or the trustee of a personal insolvency agreement to be made
a party to proceedings to alter property interests under the Family Law
Act where a party to the marriage is bankrupt. The effect of this is that the
bankruptcy trustee or trustee of a personal insolvency agreement steps into the
shoes of the bankrupt spouse in making submissions to the court about vested
bankruptcy property. Where the bankrupt trustee has become a party the bankrupt
spouse can only make submissions in relation to this property in exceptional
circumstances. This reflects the reality that the bankrupt spouse no longer
has ownership of property that has vested in the bankruptcy trustee or trustee
of a personal insolvency agreement.
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 Bankruptcy 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.
Item 48: Subsections 79A(1) and (1A)
78. Item 48 would
amend subsections 79A(1) and (1A) so that they refer to the concept of property
settlement proceedings, which is defined at item 14.
Item 49:
Subsection 79A(1B)
79. Item 49 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.
Item 50: Subsection
79A(1B)
80. Item 50 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.
Item 51: At the end of section
79A
81. Item 51 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.
Item 52: Before section
80
84. Item 52 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), section 78 (declaration of interests in
property), section 79 (alternation of property interests) or section 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 a 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.
Item
53: At the end of section 80
94. Item 53 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).
Item 54: Subsection
83(1)
98. Item 54 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.
Item 55: After subsection
83(1)
99. Item 55 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.
Item 56: Subsection 83(5A)
100. Item 56 proposes
to make a minor amendment to subsection 83(5A) to include the bankruptcy trustee
of a party to the marriage.
Item 57: After subsection
106B(1)
101. Item 57 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.
Item 58: Subsection 106B(2)
104. Item 58 is a technical
amendment to subsection 106B(2) consequent on the inclusion of new subsections
106B(1A) and 106B(1B) by item 57.
Item 59: At the end of section
114
105. Item 59 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
Item 60: Application of amendments
110. Item 60 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. The exceptions
to this rule are set out in sub items (2) and (3). The proposed amendments
apply to personal insolvency agreements executed before, at or after the
commencement of the Bill. But as is the case with sub items (2) and (3) in
relation to bankruptcies the amendments will only apply where the family law
proceedings are commenced after the commencement of the Bill. This will allow
the bankruptcy and family law proceedings to be brought together which is the
intention of the Bill.
112. Sub item (2) provides that for the
provisions set out in the sub item (which relate to spousal maintenance), they
apply to family law 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. This is appropriate given the intention of the
provision is to allow bankruptcy and family law proceedings to be brought
together so that all issues can be dealt with at the same time.
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 family law 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. This is appropriate given the intention of the provision is to
allow bankruptcy and family law proceedings to be brought together so that all
issues can be dealt with at the same time.
Schedule
2—Amendments relating to income
contributions
Bankruptcy Act
1966
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.
Item 1:
After subsection 125(2) and Item 2: Subsection 125(3)
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.
Item
3: At the end of section 139L
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
Item 4: After section 139ZI
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 or 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.
Item 5:
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—Amendment relating to maintenance
agreements
Bankruptcy Act 1966
Item 1:
Subsection 5(1) (definition of maintenance
agreement)
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.
Item 2: Application of amendment
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
Bankruptcy Act 1966
Item 1: At
the end of subsection 40(1)
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.
Item 2: After subsection 40(7)
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.
Item 3: Application of
amendments
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.
-------------------------------