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1998-1999-2000-2001
THE PARLIAMENT OF THE
COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
BANKRUPTCY LEGISLATION AMENDMENT BILL
2001
EXPLANATORY
MEMORANDUM
(Circulated by authority of the
Attorney-General,
the Honourable Daryl Williams AM QC
MP)
ISBN: 0642 45860X
Readers’ Guide
This Explanatory Memorandum is divided
into three main sections: a general outline of the main provisions of the
Bankruptcy Legislation Amendment Bill 2001 (the Bill) (Section 1); a
discussion of the main policy objectives underlying each of the provisions
(Section 2); and a detailed discussion of each provision, item by item
(Section 3).
Section 1 - General Outline
2 The Bankruptcy Legislation
Amendment Bill 2001 (the Bill) will make a number of significant changes to
bankruptcy law. The changes address concerns that the bankruptcy system is
biased toward the debtor and that debtors are not encouraged to think seriously
about the decision to declare themselves bankrupt. The changes also address
unfairness and anomalies, particularly in relation to the operation of the early
discharge arrangements and the lack of effective sanctions on unco-operative
bankrupts. Finally, the changes will streamline the administration of
bankruptcies by trustees.
3 The objects of this Bill are
to:
(a) introduce, in relation to most debtors, a mandatory 30 day
cooling-off period under which the debtor may withdraw the petition within 30
days of the Official Receiver accepting it; and repeal the existing optional 7
day cooling-off period;
(b) give Official Receivers a discretion to
reject a debtor’s petition where it appears that, within a reasonable
time, the debtor could pay all the debts listed in the debtor’s statement
of affairs and that the debtor’s petition is an abuse of the bankruptcy
system;
(c) abolish early discharge from
bankruptcy;
(d) strengthen the objection-to-discharge provisions of the
Bankruptcy Act 1966 (the Act) by making it easier for trustees to lodge
objections to a person’s discharge from bankruptcy and harder for
bankrupts to sustain challenges to objections;
(e) make clear that a
bankruptcy can be annulled by the Court whether or not the bankrupt was
insolvent when a debtor’s petition for bankruptcy was accepted; and
(f) double the current income threshold for debt agreements, to allow
and encourage many more debtors to choose this particular alternative to
bankruptcy.
4 Other changes proposed by the Bill are consequential on
the above measures, streamline the operation of the Act or are a consequence of
the Insolvency and Trustee Service of Australia (ITSA) having become an
executive agency.
Financial Impact Statement
5 It is expected that the main
changes proposed by the Bill will have an unquantifiable but minimal financial
impact. The repeal of the early discharge provisions should slightly reduce
ITSA’s costs after a 6 month phasing-out period. However, any reduction
will be at least offset by the cost of handling substantially more debt
agreement proposals due to the doubling of the income threshold for such
proposals. Other measures in the Bill are expected to have no significant
financial impact.
Regulation Impact Statement
PROPOSED AMENDMENTS TO THE
BANKRUPTCY ACT AND REGULATIONS APPLYING TO THE REGISTRATION OF BANKRUPTCY
TRUSTEES.
Background: The present trustee registration scheme
6 The
Bankruptcy Act 1966 (the Act) makes provision for the registration
of private sector trustees to administer bankrupt estates. Trustees are
registered for an initial period of 3 years and can apply for re-registration
after that time. Re-registration is automatic on application and payment of a
fee (currently $1,000). The fee partially recovers the costs of administering
the registration system. The provisions of the Act require applicants to hold
certain qualifications and to have relevant experience and prescribes the duties
of a trustee.
7 On receiving an application a Committee is convened to
consider it. The Committee comprises the Inspector-General, an officer of the
Attorney-General’s Department and a member chosen by the Insolvency
Practitioners Association of Australia (IPAA). The Inspector-General must act
in accordance with the Committee’s recommendation.
8 A person who
applies to become a trustee is registered if they meet criteria set out in
section 155A of the Act. The Committee assesses the suitability of the
applicant using criteria relating to minimum academic qualifications,
experience, knowledge and abilities, insurance coverage, and moral and business
conduct.
9 Section 155A(3) of the Regulations provides the Committee with
some discretion to register a trustee who does not meet all the requirements
(defined in Regulation 8.02) prescribed by the regulations.
10 There are
about 200 trustees registered, of which 165 are active. An inactive trustee is
one who has not taken on any new estates in the past year. He or she may still
be working on older estates, as an estate can take several years to finalise.
11 There are no limits to the number of trustees registered at any time.
In the past, where there were insufficient trustees in a particular area, staff
of ITSA encouraged qualified people to apply for registration.
12 Qualifications and experience are tested not only at initial
registration. Continued eligibility is tested through ITSA investigations of
complaints about specific conduct of trustees, its periodic inspections of the
trustees’ practices and regular reporting to the Inspector-General in
Bankruptcy.
13 If ITSA considers a trustee is not performing
satisfactorily, the Inspector-General may call upon a Committee to determine
whether the trustee should be de-registered or have conditions imposed on his or
her further practice as a registered trustee.
14 There is a right of
review to the Administrative Appeals Tribunal (the AAT) of all the
Inspector-General’s decisions regarding
registration.
Problems
15 Two issues needed to be
addressed:
(a) In November 1998, the AAT made a decision that two
applicants who did not meet the specific criteria could nonetheless be
registered because, in its opinion, they had the capacity to become trustees.
The Tribunal members relied, as they were entitled to, upon a strict view of
subsection 155A(3). That provision was intended to allow registration of
otherwise qualified applicants who may have had international qualifications
that did not exactly fit those prescribed. However, it was cast in wider terms
and the applicants fell within them.
Following the AAT decision, senior
counsel advised that, in his view, it was a real threat to the continued
efficacy of the registration scheme, particularly if applied in future
registration review matters before the AAT. Counsel also recommended that the
Committee be able to require applicants to sit an exam.
(b) Unrelated
issues have been the lateness of applications by some trustees to extend their
registrations and the delay by some in paying estate charge due by trustees
under the Bankruptcy (Estate Charges) Act
1997.
Objectives
16 The objectives of the current trustee
registration system are:
(a) that only competent and adequately qualified
practitioners work as bankruptcy trustees; and
(b) that registration
extension applications be lodged before the expiry of current registration and
that charge debts be paid by the due date.
Options
-
initial registration
17 As to objective (a), there were only two options
available. Option one, doing nothing, was undesirable because, first, it would
not achieve the outcome required of the registration system and, secondly,
applicants would be left unsure about the standard of knowledge required of
them.
18 Option 2 was to recast section 155A to ensure that applicants
cannot be registered if the Committee is not satisfied that they have the
ability (including knowledge) to perform satisfactorily the duties of a
registered trustee. In that regard, the proposed insertion of a provision
empowering a Committee to require applicants to sit for an exam will assist the
Committee’s decision making.
19 In parallel, the involuntary
termination provisions in section 155H are proposed to be amended to extend the
grounds on which a trustee can be asked to give the Inspector-General a written
explanation why he or she should continue to be registered. Under the proposal,
an explanation can be sought if the Inspector-General believes that the trustee
no longer has the ability (including knowledge) to perform satisfactorily the
duties of a registered trustee. Regulations would also be amended to support
this course of action.
- re-registration
20 As to objective
(b), again, one option would have been to do nothing. However, this was
unacceptable, as trustee re-registration applications should be lodged before
the relevant expiry date, and charge payments should be made by the due date for
payment. Option 2 was to make the necessary changes to address these
issues.
21 To encourage trustees to apply and pay for re-registration on
time, it is proposed to add a provision prohibiting re-registration if the
person owes more than $50 of notified charge, or of penalty in relation to it.
It is also proposed to bring forward the due date for applications and payment
of fees to a month before current registration expires.
22 Payment of
the fee late, but before the current registration expiry date, will attract a
20% penalty. If the fee and the penalty are not paid before the current
registration expiry date, the trustee will be unregistered and will need to
apply to the Court to become registered again.
Costs imposed by the
new regulatory measures
23 Under both proposed measures, there ordinarily
will be no additional registration costs to the Government or trustees. The
assessment of a trustee for initial registration will continue to be made by a
Committee using standards applied before the AAT decision, but with the
Committee also having the proposed new option of requiring the applicant to sit
an exam.
24 Trustees will re-register, as, as at present, by application.
By encouraging on-time payment this proposal is expected to reduce trustee
applications to the Court for registration and the associated
expense.
25 Additional costs will be incurred if a trustee has failed to
perform in a satisfactory manner in the preceding 3 year period. This will be
assessed by ITSA periodically and the trustee given advice after each
inspection. If a trustee falls short of the standards, he or she will be asked
prior to the date for re-registration to explain why he or she should continue
to be registered. If the response is unsatisfactory, a Committee will be
convened to assess the application for re-registration.
26 The proposed
amendments will impose a small additional cost on ITSA, which must evaluate
trustee performance. This is consistent with the regulatory role already
performed and in line with planned enhancements to regulatory procedures in
other areas.
27 It is anticipated that the need to convene the Committee
would be rare, as most trustees respond to reports made following annual
inspections. The costs of convening Committees are about
$3,000.
Consultation
28 The consultants who reviewed the
trustee registration provisions consulted key stakeholders in the personal
insolvency system, including registered trustees, creditors, and financial
counsellors, the Bankruptcy Reform Consultative Forum and a bankruptcy
discussion group in Melbourne. Public submissions were called for but no
submissions were received.
29 The parties affected are the trustees. The
IPAA has agreed that regulation of trustees is desirable and should continue in
its present form. It has indicated that it is desirable to have an effective
mechanism for weeding out non-performers.
30 Without competent trustees,
creditors and bankrupts could be affected adversely and costs to government in
dealing with complaints would escalate. Eventually, creditor confidence in the
bankruptcy system as a whole would be affected adversely.
31 The
Bankruptcy Reform Consultative Forum and a reasonable sample of active trustees
in each State were consulted by ITSA about the proposed registration extension
procedures. No objections were raised.
Conclusion
32 The
amendments proposed clarify and strengthen the registration provisions to enable
the registration Committee to recommend for registration only those applicants
who have the necessary qualifications, experience and practical expertise to
undertake satisfactorily the duties of a trustee. They encourage trustees to
lodge and pay for re-registration on time.
33 The proposed amendments
will have little financial impact while enhancing the Inspector-General’s
capacity to ensure the desired outcome that only those individuals who are
competent are registered and remain registered
Implementation
34 The proposals are to be implemented by
amendments to Division 1 of Part VIII of the Act and by amendments to the
Bankruptcy Regulations.
Review
35 The registration scheme and
the inspections of trustees are reviewed regularly to ensure they are meeting
their objectives. The Inspector-General reports annually to Parliament on both
the outcomes achieved by regulation of trustees and the registration
process.
------------------------------
Section 2 - Policy objectives
Cooling-off period
36 The Bill proposes that the majority of debtors petitioning for their own bankruptcy will be subject to a 30 day cooling-off period after their petition is accepted. Most debtors will not become bankrupt until 30 days after presenting their petition. Only individual and jointly-petitioning debtors will be able to access the cooling-off period. Partnership debtors and deceased estates which petition for bankruptcy will be excluded from access.
37 The delay afforded by the cooling-off period will allow debtors who have acted too hastily in petitioning for bankruptcy to reconsider their decision. If satisfied that bankruptcy is not the best option for them, they will be able to withdraw their petition by giving written notice to the Official Receiver.
38 The cooling-off period also will allow the creditors the opportunity to consider whether a debtor’s bankruptcy is in the creditors’ best interests. Within a few days of a petition being presented, creditors will be informed of that fact and given other material information by the Official Receiver. Creditors then will have the opportunity to negotiate with the debtor during the remainder of the 30 day period. For example, they may reach agreement with the debtor on a fresh repayment schedule or, perhaps, arrange a consolidation loan. A debtor can then choose to withdraw his or her petition and avoid bankruptcy.
39 Some debtors will not be able to access the cooling-off period. One group is those who, in the 12 months before petitioning, attempted unsuccessfully to make alternative arrangements under the Bankruptcy Act. For example, a debtor will be ineligible for the cooling-off period if, in that 12 months, his or her creditors rejected a Part IX debt agreement proposal, an arrangement under Part X was terminated, or a post-bankruptcy composition or scheme was annulled under subsection 75(4).
40 Also, because of the possible prejudice to creditors in some cases if a trustee is not appointed immediately a petition is presented, the Bill proposes that the petitioning debtor be ineligible for the cooling-off period if he or she:
(a) has been carrying on a business at any time in the 30 days beforehand; or
(b) is the subject of a creditor’s petition or of a specified legal proceeding against him or her which is scheduled for substantive hearing on a day that is less than 60 days after the day on which the debtor's petition is presented.
41 A legal proceeding for these purposes will mean one for recovery of an amount that would be a provable debt if the debtor becomes bankrupt as a result of presenting the petition, being either a claim against the debtor for a debt of at least $2,000, or for unliquidated damages.
42 These 2 measures to deny particular debtor groups access to a cooling-off period offer protection to creditors against possible debtor abuse of the cooling-off period. First, it can be important that a trustee take immediate control of business assets to facilitate the sale of a business as a going concern or to prevent the possible loss of valuable stock, plant and equipment through deterioration or dissipation. Also, without the second measure, a debtor
could file a petition to gain the cooling-off period’s protection from a creditor’s existing or scheduled proceedings against the debtor, but then withdraw the petition and avoid bankruptcy. In that circumstance, the creditor might then be unable to restart proceedings for some time, or to have a de-listed proceeding re-listed for hearing for some 12 to 18 months.
43 Importantly, even if the Official Receiver is unaware of the debtor’s ineligibility for the cooling-off period, so that such a period apparently is in place, the debtor will in fact be bankrupt from the time of presenting his/her petition if the facts exist.
44 A further protection for creditors lies in the proposal that an Official Receiver have a discretion to deny a cooling-off period to a debtor if he or she believes, on reasonable grounds, that having the cooling-off period would be likely to result in a reduction in the dividend to creditors, eg, due to the likely dispersion, concealment, dissipation or diminution in value of assets during the cooling-off period.
Official Receiver’s discretion to reject a debtor’s petition
45 There has never been an insolvency test for petitioning debtors and this basic principle will remain largely undisturbed by the Bill. However, some debtors petition for bankruptcy for the wrong reasons: their petitions are an abuse of laws intended to protect debtors who cannot pay their debts, and to give them a fresh start.
46 Accordingly, in quite limited circumstances, Official Receivers will be able to reject a debtor’s petition. The Bill proposes that, where it appears to the Official Receiver, from information in the statement of affairs (or from other information supplied by the debtor) that, if the debtor did not become a bankrupt, the debtor would be likely to be able to pay the debts, within a reasonable time, the Official Receiver may reject the petition.
47 However, the discretion can only be exercised if, in addition to the above:
(a) it is evident to the Official Receiver that the debtor is petitioning because of an unwillingness (and not an incapacity) to pay; or
(b) the debtor has been bankrupt previously, on his or her own petition, either at least three times in all or at least once in the last 5 years.
48 This measure is directed only at the most blatant abuses of the system. It is not envisaged that any petition will be rejected under this proposed measure without personal or telephone contact first being made with the debtor by senior, experienced ITSA staff.
49 Importantly, the Bill proposes that the Official Receiver will not be bound in every instance to consider whether to exercise the discretion. This means that, as now, the vast majority of petitions will be accepted without any enquiry into the debtor’s solvency.
50 A debtor whose petition is rejected through the exercise of the Official
Receiver’s discretion will be able to have that decision reviewed by the
Administrative Appeals Tribunal (the AAT.)
Abolition of early
discharge
51 The Bill proposes the abolition of the early discharge
provisions of the Act. They are most often cited as the cause of concern that
bankruptcy is too easy. The reduced period of bankruptcy is seen to discourage
debtors from trying to enter formal or informal arrangements with their
creditors to settle debts, and provides little opportunity for debtors to become
better financial managers.
52 Also, when introduced, early discharge was
described as applying to those whose bankruptcy was brought about by misfortune
rather than misdeed. The provisions were targeted at a new category of bankrupt
- consumer debtors with low asset-backing who over-extend and then cannot repay
their debts. However, many believe that bankruptcy in this group is due more to
lack of financial responsibility than to misfortune.
53 There is no
intrinsic reason why bankrupts who have assets available for distribution or
income sufficient to make a contribution to the estate (which disqualifies them
for early discharge) are less worthy of early discharge than those who do not.
In addition, allowing only those whose debts exceed 150% of income to apply,
discriminates against women who have joint debts with, and generally a lower
income than, their spouse. In other words, the provisions operate in quite
discriminatory ways.
Objection-to-discharge provisions
strengthened
54 The objection-to-discharge provisions allow bankruptcy
trustees to lodge an objection to the bankrupt’s automatic discharge at
the end of the 3 year standard period of bankruptcy. Depending on the
grounds of objection, the standard bankruptcy period can be extended by
2 years or, in more serious cases, by 5 years.
55 Under the
present regime a notice of objection must set out the ground(s) of objection,
refer to the evidence that, in the trustee’s opinion, establishes the
ground(s) and state the trustee’s reasons for objecting to discharge on
the ground(s) specified in the notice.
56 In practice, trustees often
have found it difficult to maintain objections. Frequently, objections have
been cancelled on review by the Inspector-General, the Administrative Appeals
Tribunal (AAT) or the Federal Court. The reasons for cancellation vary. Some
trustees have found it difficult to differentiate clearly the ground(s)
of an objection and the reason for filing the objection. Moreover, on
occasions, the AAT has upheld a bankrupt’s challenge to an objection
simply because, either during an AAT hearing or just before it occurs, the
bankrupt eventually has provided information long sought by the trustee and the
non-supply of which information was the ground of the trustee’s objection.
Such decisions undermine a prime purpose of the objection regime which is to
induce a bankrupt to co-operate, promptly, with the trustee of the bankrupt
estate.
57 The Full Federal Court decision in Inspector-General in
Bankruptcy v Nelson (1998) 168 ALR 340 establishes that a sufficient reason
for filing an objection under the current provisions is that doing so will
advance the trustee’s administration of the bankrupt estate. However,
conversely, punishment of the bankrupt for failure to co-operate was found to be
an impermissible reason for filing an objection.
58 To address these
deficiencies in the present law which have hampered a trustee’s capacity
to elicit co-operation from some bankrupts, and to strengthen the
trustee’s hand, the Bill proposes a tougher objection-to-discharge regime
under which it is expected that more objections will withstand the review
process.
59 It is proposed that trustee objections will fall into one of
two groups, namely, those which specify at least one ‘special
ground’ and those which specify none. In the first group, the
trustee’s notice of objection still will have to set out the ground(s) of
objection and the evidence relied on to establish it or them, but need not state
the reasons for filing an objection to the bankrupt’s discharge from
bankruptcy. For objections which contain no ‘special ground’, the
trustee will be obliged, as now, to provide in the notice his or her reasons for
filing an objection.
60 The bankrupt’s pre-objection conduct,
rather than the trustee’s capacity to show that an objection will advance
the conduct of the administration, will determine whether an objection is lodged
and whether reasons will have to be given in the notice. For example, the
special grounds listed in the notice and regarding which no reasons are required
will include:
(a) the bankrupt, when requested in writing by the trustee
to provide written information about the bankrupt’s property, income or
expected income, failed to comply with the request; and
(b) the bankrupt
failed to pay to the trustee an amount that the bankrupt was liable to pay under
section 139ZG (ie, an amount payable under the contribution
scheme).
61 In addition, proposed new paragraphs 149D(1)(ab), (da), (ha)
and (ma) will constitute special grounds under proposed new subsection 149N(1A).
Three of those paragraphs specify types of intentional behaviour by bankrupts
which can disrupt a trustee’s administration; the fourth specifies
transfers of property with the intention of defeating creditors, ie, transfers
covered by section 121 of the Bankruptcy Act 1966, as conduct which can
attract an objection on a special ground. While it can be difficult to infer
intention, in each instance the burden of proof which the trustee will bear if
an objection is challenged is the civil onus, ie, proof on the balance of
probabilities.
62 Further, by proposed subsection 149N(1B), a reviewer
will not be able to cancel an objection by taking into account any conduct of
the bankrupt after the time when the ground first commenced to exist.
Objections on special grounds will be reviewable only as to whether the
ground(s) and evidence are made out, unless the reviewer is satisfied by the
bankrupt that the facts supporting the objection arose without any fault on the
bankrupt’s part.
63 While a trustee’s hand is strengthened
greatly by the proposed new provisions, it remains the case that a trustee does
not have to file an objection unless subsection 149B(2) applies, and a trustee
can cease to object on a particular ground (section 149H) or withdraw an
objection at any time (section 149J).
Annulment of bankruptcy by
Court whether or not petitioning debtor insolvent
64 Section 153B of the
Act gives the Court power to annul a bankruptcy if it is satisfied that a
petition ought not to have been presented. The Bill proposes an amendment to
make clear that the Court can so decide, even if the debtor is insolvent.
65 High-income debtors who are maintaining an expensive lifestyle and
petition for bankruptcy with the aim of avoiding paying a particular creditor
(eg, the ATO) will be among those targeted by this proposed amendment. If the
Court believes that the debtor could make arrangements to pay the creditor it
could annul the bankruptcy as an abuse of process.
Doubling of the
current income threshold for debt agreements
66 Debt agreements were
introduced in 1996 as a low-cost alternative to bankruptcy, available to
low-income debtors with assets and debts below specified thresholds. Debtors
cannot access the provisions if they have an after-tax income of more than
$30,530 (if there are no dependants) and either their assets or debts exceed
$61,061 (March 2001 figures, subject to 6 monthly indexation). The
comparatively low income threshold has been criticised as denying a large group
of debtors any realistic alternative to bankruptcy.
67 It has been
noted that debtors who were ‘too poor’ to be required, under one
Part of the Act, to make contributions from income for the benefit of their
creditors were nonetheless invited, under another part of the Act, to make a
debt agreement proposal to creditors. Despite this criticism, nearly 1200 debt
agreement proposals were lodged with ITSA for processing in 1999-2000. Doubling
the threshold will increase substantially the number of debtors who will be able
to make a debt agreement proposal to their creditors as an alternative to
bankruptcy. It is consistent with an important theme of the reform measures -
to encourage debtors to consider the alternatives seriously before choosing
bankruptcy.
---------------------------
Section 3 - Notes on sections and Schedule
items
Section 1 - Short Title
68 The Bankruptcy
Legislation Bill Amendment 2001 (the Bill) proposes amendments to the
Bankruptcy Act 1966 (the Act). By proposed section 1, when the Bill has
been enacted, it will be known as the Bankruptcy Legislation Amendment Act 2001.
Section 2 - Commencement
69 Proposed section 2 contains
the commencement provisions of the Bill. If enacted, the Bill, which by
Schedule 1 makes amendments to the Act, will commence on a day to be proclaimed
by the Governor-General. If the proclaimed day has a date more than 6 months
after the date of Royal Assent, the Act will commence 6 months after Assent.
70 However, by subsection 2(3) of the commencement provision, special
commencement rules will apply to Schedule 1 items 41, 61, 125 and 153 (the
deferred items), all of which will commence at the earlier of:
(a) if Parts 4 and 10 of the Administrative Review Tribunal Act 2001
have not commenced before the day that applies under subsections 2(1) and (2) of
the commencement provision, immediately after the commencement of those
Parts; and
(b) immediately after the commencement time of all
other Schedule 1 items, as determined under subsections 2(1) and (2) of the
commencement provision.
Section 3 - Schedule
71 Proposed
section 3 is a drafting device to allow all the amendments proposed to be made
to the Bankruptcy Act 1966 to be set out in a Schedule. The items in the
Schedule will amend the Act and will have effect according to their terms.
Notes on the Schedule items follow and include notes on transitional and
application items.
Schedule 1—Amendments to the Bankruptcy
Act 1966
(This schedule sets out all of the amendments proposed
to be made to the Bankruptcy Act 1966.)
Part
1—Amendments
Definitions
72 Items 1 to 11 inclusive
propose amendments to subsection 5(1) of the Act which contains a number of
definitions of terms used in the Act.
73 Item 1 proposes to insert a
definition of administrator by which a person authorised under
paragraph 185C(2)(c) of the Act to deal with property under a debt agreement is
an administrator. The definition is relevant for proposed provisions relating
to the Inspector-General’s proposed powers in relation to debt agreement
administrators.
74 Item 2 inserts a definition of cooling-off
period, in relation to a debtor’s petition, as meaning the period
of 30 days referred to in proposed subsections 55(4B) or 57(5A) as the case
requires. The cooling-off period is the period in which a debtor can reconsider
his/her decision to petition for bankruptcy and may withdraw that petition.
Equally, during the cooling-off period, creditors may attempt to negotiate a
solution other than bankruptcy for the debtor’s financial
difficulties.
75 Item 3 replaces an incorrect reference to ‘section
56’ in the subsection 5(1) definition of debtor’s
petition with a correct reference to ‘section 56A’.
76 Items 4 to 7 inclusive, respectively repeal the definitions of
declaration of intention, declared debtor,
enforcement process, and frozen debt, contained in
subsection 5(1). Each of these definitions was relevant to the 7 day
‘freeze’ of a creditor’s actions against a debtor under
Division 2A of Part IV of the Act. The definitions become redundant with the
proposed repeal of that Division: see the notes on item 38.
77 By
transitional provision item 226, the amendments proposed by items 4 to 7, item
11 and associated items 27 and 38 will not apply to notices of intention that
were lodged before the time when section 1 commences. In other words,
notices lodged before commencement will still have effect.
78 Item 8
proposes to insert in the Act a definition of ITSA as meaning the
Insolvency and Trustee Service Australia which is established as an executive
agency under section 65 of the Public Service Act 1999. This definition
facilitates references to that Service throughout the Act.
79 Item 9
inserts a definition of offence against this Act as including an
offence against section 137.1 or 137.2 of the Criminal Code and being an offence
that relates to this Act. The purpose of inserting this definition is to ensure
that the expression ‘offence against this Act’ picks up offences
which were contained in the Bankruptcy Act but have been consolidated into the
Criminal Code. By transitional provision item 227, this provision will apply to
conduct which constitutes an offence at any time.
80 Item 10 inserts a
definition of officer of ITSA as meaning an APS employee in ITSA
and as including the Inspector-General. This expression is used throughout the
Act in cases where, previously, the expression ‘officer of the
Department’ was used. That latter term was appropriate while ITSA was a
Division of the Attorney-General’s Department but is inappropriate now
that ITSA has become an executive agency and is no longer a part of that
Department.
81 Item 11 proposes the repeal of the subsection 5(1)
definition of stay period, consequent upon the proposed repeal of
Division 2A of Part IV which provides for a 7 day ‘freeze’ of a
creditor’s actions against a debtor. Its repeal makes the definition
redundant.
82 Item 12 proposes to insert references to sections 55B and
57AB into item 3 in the table in subsection 5AA(1) of the Act. The effect of
this is that, where control of a debtor’s property occurs under those
sections, the place of origin of the matter is the Bankruptcy District in which
the Court made an order directing a trustee to take control of a debtor’s
property. By transitional provision item 237, the change proposed by item 12
will apply in relation to petitions presented after commencement.
83 Item
13 proposes to replace the words ‘officer of the Department’ in
subsection 11(4) of the Act with the words ‘officer of ITSA’. Since
ITSA became an executive agency on 1 July 2000, it no longer is a part
of the Attorney-General’s Department and nor are its staff. This change
will enable the Inspector-General to continue to delegate powers to the same
persons as previously, ie, individual ITSA staff members, but in their capacity
as an ‘officer of ITSA’ rather than as an ‘officer of the
Department’.
Enquiry powers regarding controlling
trustees
84 Item 14 proposes the insertion of the words ‘(including
a controlling trustee)’ after the words ‘conduct of a trustee’
in paragraph 12(1)(b) of the Act. This proposed amendment will empower the
Inspector-General to inquire into and investigate the conduct of a controlling
trustee just as he or she may now do regarding a trustee.
85 The
amendment proposed by item 15 is consequential upon the proposed extension of
the Court’s power to appoint a controlling trustee under proposed new
sections 55B or 57AB, ie, during a cooling-off period. By transitional
provision item 237, the change proposed by item 15 will apply to petitions
presented after commencement.
Enquiry powers regarding debt agreement
administrators
86 Item 16 proposes an amendment to subsection 12(1) to
extend the Inspector-General’s regulation powers over trustees to debt
agreement administrators.
87 Item 17 is an amendment consequential on
that proposed by item 10 and will allow an Official Receiver to delegate powers
to an officer of ITSA.
Appointment of Inspector-General and Official
Receivers
88 Item 18 proposes the omission, from section 16 of the Act,
of the words ‘Secretary to the Department’ and the substitution of
the word ‘Minister’. The effect of this is that the
Inspector-General and each Official Receiver will be appointed by the Minister
rather than, as previously, by the Secretary to the Attorney-General’s
Department. The previous arrangement was appropriate when the Inspector-General
headed a Division of that Department and is inappropriate now that ITSA is an
executive agency. By transitional provision item 229, existing appointments
will continue in force after commencement.
89 Item 19 proposes to repeal
existing subsections 17(1) to 17(6) inclusive and to substitute new subsections.
Proposed subsection 17(1) will provide for the Minister to appoint a person to
act as Inspector-General. Similarly, by proposed subsection 17(2), the
Inspector-General may appoint persons to act as Official Receivers. Section 33
of the Acts Interpretation Act 1901 provides more details of how these
types of provisions apply and are to be interpreted.
90 Item 20 is a
drafting amendment made as a consequence of the changes effected by item 19. By
transitional provision item 230, existing appointments will continue in force
after commencement.
91 Item 21 makes a drafting change consequential upon
that made by item 12. It extends, to a Court order under proposed new sections
55B and 57AB, the indemnity provided by the Commonwealth to the Official Trustee
for any personal liability for actions or omissions in carrying out a Court
order under section 50. By transitional provision item 237, the change proposed
by item 21 will apply to petitions presented after
commencement.
Duties of trustee
92 Item 22 makes a change to
paragraph 19(1)(i) which nominates the Inspector-General, in addition to
relevant law enforcement authorities, as a person to whom trustees are to refer
any evidence of an offence by a bankrupt against the Act. By transitional
provision item 227, this provision will apply to conduct at any time.
Official Trustee’s powers to investigate a bankrupt’s
affairs
93 Subsection 19AA(2) currently gives an Official Receiver the
power to investigate any bankrupt's conduct and examinable affairs, and
the books, accounts and records kept by the bankrupt, in relation to any
bankruptcy. These investigative powers are necessary and appropriate for the
trustee of a bankrupt estate, but not for an Official
Receiver.
94 Accordingly it is proposed by items 23 and 24 that
subsection 19AA(2) be repealed and subsection 19AA(1) amended to include the
Official Trustee (by changing the term "registered trustee" to
"trustee").
95 By transitional provision item 231, changes to section
19AA will apply to bankruptcies for which the date of the bankruptcy is after
commencement.
The Common Investment Fund
96 Item 25 makes a
change consequential on that made by item 12. It extends the section 20B
accountability obligations of the Official Trustee, for moneys received when
acting as a controlling trustee under Division 2 of Part X, to apply to moneys
received if the Official Trustee is appointed under proposed new sections 55B
and 57AB. By transitional provision item 237, the change proposed by item 25
will apply to petitions presented after commencement.
Alteration of
filing date for statement of affairs
97 Item 26 proposes to insert new
section 33A into the Act. The effect of this new section is to allow the Court
to order that a statement of affairs be treated as having been filed at a time
before it was actually filed, provided that the Court is satisfied that the
bankrupt believed, on reasonable grounds, that this statement had been filed at
a time before it actually was filed.
98 Proposed subsection 33A(3)
allows a period of grace of 30 days before the order can take effect to allow
the trustee to disengage from the role of trustee.
99 By transitional
provision item 232, the change will apply to statements of affairs filed at any
time, whether before or after commencement.
Acts of
bankruptcy
100 Items 27 and 28 propose the repeal of paragraph 40(1)(da)
and the insertion of paragraph 40(1)(daa) dealing with acts of bankruptcy.
These are consequential on the proposed repeal of the current 7 day cooling-off
period and the introduction of a new mandatory 30 day cooling-off period. By
transitional provision item 237, the change proposed by item 28 will apply to
petitions presented after commencement.
Bankruptcy
notices
101 Item 29 proposes that subsection 41(1) be repealed and
replaced by a new subsection to allow 2 or more final judgments or final orders
valued at $2,000 (rather than one as is currently required) to support the issue
of a bankruptcy notice. Item 30 proposes a consequential drafting
change.
102 Item 31 and item 32 propose consequential amendments to
paragraphs 41(6A)(a) and 41(6C)(a) to take account of the fact that multiple
final judgments or final orders may support the issue of a bankruptcy
notice.
103 By transitional provision item 233, these changes will apply
to the issue of bankruptcy notices on applications that are made after
commencement.
104 The amendment proposed by item 33 omits a reference in
paragraph 43(2)(a) of the Act to Division 3 of Part VII because it is proposed
by this Bill to repeal that Part which, in specified circumstances, provides for
early discharge from bankruptcy after 6 months.
Taking control of
debtor’s property after a creditors’ petition is
presented
105 Item 34 proposes to amend subsection 50(1) of the Act to
allow a creditor who wishes to have a controlling trustee appointed over a
debtor’s property to apply to the Court for such an appointment after a
creditor’s petition has been presented, as well as after a bankruptcy
notice has been issued against the debtor. The amendment will restore to this
group of creditors a right inadvertently taken from them as an unintended
consequence of an amendment in 1996. By transitional provision item 235, this
change will apply to any creditor’s petition that is presented after
commencement.
106 Item 35 proposes a technical amendment to paragraph
54(1)(a) of the Act to make clear that a debtor against whom a sequestration
order has been made is to make out and file, ‘with the’ Official
Receiver a statement of his/her affairs. The present wording requiring that the
statement be filed ‘in the office of’ the Official Receiver has
proved confusing.
Copies of statements of affairs
107 Item 36
proposes an amendment to subsection 54(4) of the Act to give a person who
presently can ‘make copies of’ a statement of affairs the right to
‘obtain’ a copy of a statement of affairs. Administratively, this
arrangement will be far more convenient for debtors and ITSA
staff.
108 Item 37 amends existing section 54 of the Act to allow a
bankrupt the same free access to his or her own statement of affairs as a
creditor. Also, the Official Receiver is given a discretion to refuse to allow
a person access under section 54 to particular information in a statement of
affairs on the grounds that access to that information would jeopardise, or be
likely to jeopardise, the safety of any person.
Repeal of Division 2A
of Part IV: notice of declaration of intent
109 Item 38 proposes the
repeal of Division 2A of Part 1V of the Act reflecting the proposed repeal of
the optional 7 day cooling-off period and introduction of a mandatory 30 day
cooling-off period. It is not appropriate that there be 2 parallel or
successive cooling-off periods in the Act.
Petitioning debtor must
have specified connection with Australia
110 By proposed item 39, new
subsection 55(2A) will oblige the Official Receiver to reject a debtor’s
petition unless the debtor has an appropriate connection with Australia. Those
requirements are specified already in the Act before a sequestration order can
be made.
Official Receiver may reject a debtor’s petition in
particular circumstances
111 Item 40 proposes the insertion of new
subsections 55(3AA), (3AB) and (3AC) under which the Official Receiver may
reject a debtor’s petition if it appears from the information in the
statement of affairs and any additional information supplied by the debtor that,
if the debtor did not become a bankrupt, the debtor would be likely either
immediately or within a reasonable time to be able to pay all the debts
specified in the statement of affairs; and at least one of the
following conditions is satisfied:
- first, it appears from the
information in the statement of affairs and any additional information supplied
by the debtor that the debtor is unwilling to pay one or more debts to a
particular creditor or creditors or is unwilling to pay creditors in general;
or
- secondly, before the current petition was presented, the debtor
previously became bankrupt on a debtor’s petition at least three times or
at least once in the period of 5 years before presentation of the current
petition.
112 The purpose of new subsection (3AA) is to give the
Official Receiver a discretion to reject a debtor’s petition where it is
plain to the Official Receiver that the petition is an abuse of the bankruptcy
system.
113 One key purpose of the bankruptcy system is to allow people
in a hopeless financial position to rule a line under their debts and be given a
fresh start. However, subsection (3AB) makes clear that the Official Receiver
is not required to consider, in relation to any or every debtor’s
petition, whether there is a discretion to reject it under subsection (3AA).
The Official Receiver is not required to apply an insolvency test to every
debtor who petitions for bankruptcy. Only the more blatant and obvious cases
that might come to the Official Receiver’s attention are likely to be
considered as to the possible exercise of the discretion.
114 By
proposed new subsection (3AC), a debtor whose petition is rejected under
subsection (3AA) will be able to apply to the Administrative Appeals Tribunal
for a review of the Official Receiver’s decision. By transitional
provision item 236, the change proposed by item 39 and item 40 will apply to
petitions presented after commencement.
Tribunal undertaking
review
115 Item 41 proposes an amendment of proposed new subsection
(3AC). It is one of 4 deferred items in the Bill proposed to allow for
the possibility that proposed legislation to replace the Administrative Appeals
Tribunal with an Administrative Review Tribunal might not become law at all, or
might become law either before or after this Bill is enacted (if it is enacted).
Special commencement rules will apply to item 41 (and the 3 other deferred
items in this Bill, ie, items 61, 125 and 153) as follows:
If Parts 4
and 10 of the proposed Administrative Appeals Tribunal Act 2001 have commenced
before Schedule 1 of the Bill, the amendment proposed by item 41 will come into
force immediately after the commencement of the non-deferred items and
immediately will amend new subsection (3AC) to omit the reference to the
‘Administrative Appeals Tribunal’ and substitute a reference to the
‘Administrative Review Tribunal’.
If Parts 4 and 10 of the
proposed Administrative Appeals Tribunal Act 2001 have not commenced before
Schedule 1 of the Bill, but do come into effect subsequently, the amendment
proposed by item 41 will come into force immediately after the commencement of
Parts 4 and 10 of that proposed Act. The amendment would have the same effect
of omitting the reference to the ‘Administrative Appeals Tribunal’
and substituting a reference to the ‘Administrative Review
Tribunal’.
116 The other deferred items, ie, items 61, 125
and 153 all provide to the same effect and the same commencement rules will
apply in relation to them.
117 Item 42 proposes a drafting amendment to
subsection 55(4) to cover the possibility that a Court may, under provisions of
section 55 other than subsection (3), direct an Official Receiver to reject a
debtor’s petition.
New 30 day cooling-off period regarding a
debtor’s petition
118 Item 43 contains one of the main policy
changes proposed by the Bill. It proposes to repeal subsection 55(4A) and
substitute new subsections (4A) to (4G) inclusive. Those new subsections
provide that, where the Official Receiver accepts a debtor's petition presented
under section 55, he/she must endorse the petition accordingly. The petition is
subject to a cooling-off period of 30 days starting on the day after the day on
which the petition is endorsed unless any of the exclusion provisions in
subsection (4B) applies. By transitional provision item 237, the change
proposed by item 43 will apply to petitions presented after
commencement.
Some debtor petitions cannot be eligible for the
cooling-off period
119 Proposed paragraphs 55(4B)(a) to (e) inclusive
(item 43) and section 55B (item 49) list a series of criteria that deny a debtor
access to the cooling-off period.
• If any of the following things
happen to the debtor or persons including the debtor in the 12 months before the
petition is presented:
- a debtor's petition under section 55 or section 57
was withdrawn by the debtor;
- a composition or scheme was annulled under
subsection 75(4);
- a debt agreement proposal was rejected by creditors;
- a debt agreement was terminated; or various Part X arrangements were
terminated or declared void or set aside.
• A creditor’s
petition is pending against the debtor or a substantive hearing of a legal
proceeding against the debtor is scheduled for a day less than 60 days after the
day on which the petition is presented. The disqualifying legal proceeding must
be for recovery of an amount that would be a provable debt if the debtor becomes
bankrupt as a result of presenting the petition and must involve a claim against
the debtor for a debt of at least $2,000 or a claim against the debtor for
unliquidated damages.
• The debtor carried on a business (with or
without another person) at any time in the 30 days before presenting his or her
petition. This addresses concerns about the possible dissipation of assets by a
debtor, or deterioration of assets, during the cooling-off period, or that the
opportunity to continue the business as a going concern could be
lost.
• The Official Receiver determines, on reasonable grounds,
that having the cooling-off period would be likely to result in a reduction in
the dividend to creditors.
• The Court directs, on application
from a creditor, that a debtor’s property be taken under the control of a
trustee. The creditor may approach the Court during a cooling-off period but
only before the debtor becomes a bankrupt or withdraws the petition. To protect
a creditor who has applied for a direction under this section, a debtor will
not, without leave of the Court, be able to withdraw his/her debtor’s
petition after an application under this section has been made. The Court may
summon the debtor or an examinable person in relation to the debtor for
examination under section 55B.
120 The thrust of the provisions which
deny a cooling-off period in relation to a debtor’s petition is that an
arrangement other than bankruptcy has been tried by the debtor and failed in the
preceding 12 months, that the debtor currently is being pursued by way of a
creditor’s petition or there are business or other assets which could be
dissipated. Creditors who are in such a position as against the debtor are
entitled to know that the debtor will become bankrupt and that a trustee will be
appointed immediately the debtor’s petition is accepted.
When
debtor becomes a bankrupt if cooling-off period does not
apply
121 Proposed new subsection 55(4D) provides that, if the
cooling-off period does not apply, the debtor becomes a bankrupt at the
beginning of the day on which the debtor’s petition is endorsed.
Debtor may withdraw petition during cooling-off
period
122 Proposed new subsection 55(4E) provides that, if the
cooling-off period applies, the debtor may, by notice in the approved form given
to the Official Receiver, withdraw the petition at any time during the
cooling-off period. However, this general rule is modified if a creditor has
made an application under section 55B for the appointment of a controlling
trustee, in which case leave of the Court will be required for withdrawal of the
petition. The effect of a withdrawal is that the debtor does not become a
bankrupt by virtue of presenting the petition.
When the debtor becomes
a bankrupt
123 Finally, proposed subsection 55(4G) provides that, if the
cooling-off period applies and the debtor does not withdraw the petition, the
debtor becomes a bankrupt ‘at the beginning of the day’ after the
cooling-off period. This terminology is derived from section 57A which is
proposed to be repealed.
Debtors avoiding the cooling-off
period
124 Item 44 proposes the insertion of new subsection 55(6B) under
which a debtor, without the leave of the Court, will not be entitled to present
a petition during a cooling-off period that applies in relation to a previous
petition presented by the debtor under section 55 or under section 57. This
will prevent a debtor avoiding the cooling-off period by withdrawing a petition
and immediately lodging a fresh debtor’s petition.
125 Item 45
proposes an amendment consequential on the insertion of new
subsection 55(6B).
126 By transitional provision item 236, the
change proposed by items 44 and 45 will apply to petitions presented after
commencement.
127 Item 46 proposes the omission, in paragraph 55(8)(a),
of references to Division 3 of Part VII because that Division, which deals with
early discharge from bankruptcy, is proposed to be repealed by this
Bill.
128 Item 47 proposes to amend subsection 55(9) to the same effect
as the amendment proposed by item 36: see the notes on that item. Similarly,
item 48 would amend section 55 along the same lines as the amendments to section
54 proposed by item 37.
Protection of debtor during cooling-off
period
129 Item 49 proposes the insertion of a new section, section
55(A), to protect the debtor from action by creditors in relation to a frozen
debt during the cooling-off period. A frozen debt is to be
defined to mean a debt that will be a provable debt if the debtor becomes a
bankrupt as a result of presenting the petition. The term therefore does not
include debts incurred by the debtor after the petition has been presented:
those debts will not be provable in a bankruptcy which results from the
presentation of the petition.
130 In relation to a frozen debt, the
creditor cannot apply for enforcement of, or enforce, a remedy against the
debtor’s personal property; a sheriff cannot take action to execute or
sell property under any process issued by a Court to enforce payment of such a
debt owed by the debtor; and a person who is entitled under a law of the
Commonwealth, or of a State or Territory, to retain or deduct money from money
that is or will be owing or payable to the debtor must not retain or deduct that
money. Therefore, for example, writs of execution cannot be used by a creditor
during the cooling-off period in relation to a frozen debt.
Creditors may take some proceedings during cooling-off
period
131 However, by proposed subsection 55A(2) the restrictions do not
prevent a creditor from starting a legal proceeding in respect of a frozen debt
or from taking a fresh step in such a proceeding (except to enforce a judgment).
Neither, by subsection 55A(3), is the right of a secured creditor to realise or
otherwise deal with his, her or its security affected.
Time at which
person becomes bankrupt
132 Section 57A of the Act specifies the time at
which a person becomes bankrupt on a debtor’s petition. However, the
introduction of a cooling-off period means that there can no longer be a
universal rule for when that is to happen: separate rules need to be specified
in the various sections of the Act which deal with particular circumstances in
which a debtor’s petition is lodged. Therefore, item 50 proposes to amend
subsection 56E(1) to provide that, where a debtor’s petition against a
partnership has been referred to the Court but has not been amended under a
direction of the Court, each member of the partnership becomes bankrupt at the
beginning of the day on which the Official Receiver accepted the petition. Item
51 makes a similar amendment in relation to the case where the Court has
directed that the petition be amended.
133 By transitional provision item
237, the changes proposed by items 49 to 51 will apply to petitions presented
after commencement.
134 Item 52 proposes to amend paragraph 56E(3)(a) to
omit a reference to Division 3 of Part VII because that Division, which deals
with early discharge from bankruptcy, is proposed by this Bill to be repealed.
135 Item 53 proposes to amend subsection 56F(3) of the Act by removing
references to a trustee being a registered trustee. This distinguishes the role
of the Official Receiver from that of the Official Trustee and puts the Official
Trustee in the same position as a registered trustee.
136 Items 54 and 55
make amendments parallel to those made by item 36 and 47: see the notes on those
items. However, the amendment proposed to be made by item 56 to insert
paragraph (aa) in section 56G(2) of the Act has the effect that a person who is
a member of a partnership and who became bankrupt as a result of a petition may
obtain a copy of or take extracts from any statement of affairs that was given
to the Official Receiver in connection with a debtor’s petition against
the partnership. In other words, the petitioning debtor is able to obtain for
no fee a copy of his/her own debtor’s petition. Item 57 makes a
consequential drafting amendment as a result of item 56. Item 58 proposes a
similar amendment of section 56G in relation to partnerships as is proposed
by item 37 to section 54 in relation to individual debtors: see the notes on
item 37.
Amendments regarding joint debtors
137 Items 59 to 68
inclusive replicate, in relation to joint debtors, the provisions inserted in
relation to individual debtors regarding, respectively: the necessity for a
debtor to have a specified connection with Australia when petitioning: the
Official Receiver’s power to reject a debtor’s petition; the
cooling-off period and the exclusions from access to it; the inspection of a
statement of affairs; the protection of a petitioning debtor during the
cooling-off period; and the taking of control of a debtor’s property
during the cooling-off period. By transitional provision items 236 and 237, the
changes proposed by items 59 to 68 (other than item 61) will apply to petitions
presented after commencement. Item 61 is a deferred item: see the notes
on item 41.
138 Item 69 proposes the repeal of section 57A because it
is no longer appropriate to specify, in only one provision, just when it is that
a debtor’s petition results in bankruptcy. If a cooling-off period
applies and the petition is not withdrawn, bankruptcy results at the end of the
cooling-off period. If no cooling-off period applies, bankruptcy occurs
immediately the petition is accepted.
Convenience for the creditors of
proposed time and place for meeting
139 Item 70 proposes to add a new
subsection 54(3) to the Act which would require that, when a trustee is
convening a meeting of creditors, the trustee must consider whether the proposed
time and place is convenient for the creditors. This provision does not replace
the existing section 64M requirement for a motion on these very issues at a
meeting of creditors.
A note about proxies
140 Item 71 proposes
the addition of a note at the end of subsection 64M(1) which deals with proxy
voting at meetings of creditors. The note points out that, under proposed new
subsection 64ZB(3) which deals with proxy voting at creditors’ meetings, a
proxy or attorney may vote at a meeting even though the appointing instrument is
lodged after the announcement of proxies: see the separate notes on the
amendment proposed by item 77.
Quorum at a creditors’
meeting
141 Item 72 proposes an amendment of section 64N by the insertion
of a new replacement subsection (2) which provides that a quorum is constituted
by the presence of the trustee or the trustee’s representative, and a
creditor (or proxy or an attorney of a creditor) participating in the meeting in
person or by telephone. However, the note makes clear that, as a meeting
requires at least two persons, the person who is the trustee or the
trustee’s representative cannot also be the proxy or attorney of the
creditor referred to in proposed paragraph 2(b). This means that a trustee
cannot hold a meeting with himself or herself but, for example, could hold the
meeting, as trustee, with a member of his/her staff who holds a proxy for a
creditor.
142 By transitional provision item 238, the changes proposed by
items 70 to 72 will apply to meetings of which notice is given after
commencement.
Trustee to advise creditors about estimated remuneration
and its impact on dividends
143 Item 73 proposes to amend subsection
64U(5) of the Act by inserting new subsection (5A) under which the trustee
must include, in a statement under subsection (3), an estimate of the total
amount of his/her remuneration and an explanation of the likely impact of that
remuneration on the dividends (if any) to creditors. The purpose of this
provision is to ensure that, as far as possible when creditors are being asked
to consider and vote on the trustee’s proposed remuneration, they are
fully informed as to how much the trustee is likely to take from an estate as
remuneration and the extent to which this will have an effect on dividends, if
any, payable to creditors. For example, if it is clear to the trustee that
his/her likely remuneration will mean that there is no prospect of a dividend
being paid to creditors, the trustee must inform the creditors to that effect.
By transitional provision item 239, the change proposed by item 73 will apply to
meetings held after commencement.
144 The amendment proposed by item 74
is a consequential one flowing from ITSA’s change of status from being a
Division of the Attorney-Generals Department to being an executive agency under
the Public Service Act 1999: see the notes on item 10.
Voting
by secured creditors
145 Items 75 and 76 each propose a technical
amendment. Each will substitute words, in subsections 64Z(9) and 64ZA(5)
respectively of the Act, with the effect that a creditor holding security can
vote for the full amount of it if the security is held over property other than
that of the debtor. Where, however, the security is held over the property of
the debtor, a secured creditor can only vote to the extent of the shortfall in
that security. This technical amendment is to be made to adopt the terminology
‘secured creditor’ rather than have the subsections refer to a
creditor who ‘holds a security in respect of a debt’. A change made
to the respective subsections in 1996 inadvertently has caused confusion amongst
creditors who hold a security.
Holders of proxies lodged
‘late’ may vote on subsequent motions
146 Item 77 proposes
the repeal of subsection 64ZB(3) and the insertion of new subsections (3) and
(3A). Proposed new subsection (3) allows the President to accept new proxies
after the formal announcement of initial proxies under section 64M, thus
allowing those new proxy holders to vote on subsequent motions. Holders of
proxies lodged with the President at a meeting can vote on motions put after
lodgment of the instrument of appointment.
147 Proposed new subsection
(3A) is to allow the person appointed as a proxy for the adjourned part of a
meeting to be a person different from the person appointed as proxy for the
pre-adjournment part of that meeting.
148 By transitional provision item
238, the changes proposed by items 75 to 77 will apply to meetings of which
notice is given after commencement.
Creditors’ resolution
without meeting
149 Item 78 proposes the insertion of a new section,
section 64ZBA, to allow a trustee to hold the meeting by post. The proposal
addresses the difficulty trustees often encounter in persuading creditors to
attend, or send a proxy in relation to, a creditors’
meeting.
150 The provision is restricted to single proposals and the
notice must invite the creditor to vote either yes or no on the proposal or to
object to the proposal being resolved without a meeting of
creditors.
151 Provided at least one creditor votes in writing and no
other creditor objects in writing to the proposal being resolved without a
meeting of creditors, the proposal is decided in accordance with the majorities
required for a special resolution or an ordinary resolution.
152 A
trustee’s signed certificate as to any matter relating to a section 64ZBA
proposal is to be prima facie evidence of the matter.
Trustee may
require surety for cost of meeting
153 Items 79 and 81 propose a
mechanism to discourage bankrupts from making frivolous or vexatious requests to
the trustee to call meetings to consider a section 73 proposal for the annulment
of a bankruptcy. This outcome is to be achieved by the bankrupt being required
to lodge with the trustee an amount that is sufficient to cover the estimated
costs incurred in arranging and holding the meeting and the estimated fee that,
if approved by the creditors, will be payable to the trustee in respect of that
meeting.
154 In addition, proposed new subsection 73(2B) will allow a
trustee to refuse to call a section 73 meeting if the proposal to be put to the
meeting does not make adequate provision for the payment to the trustee of fees
accrued in respect of the trustee’s administration of the bankrupt’s
estate, and that are not able to be taken out of the bankrupt’s
estate.
155 As an added safeguard for trustees, subsection 73(3) is
proposed by item 80 to be amended to deny the opportunity of a creditors’
meeting to amend the debtor’s proposal in a way that reduces any provision
for payment of fees referred to in proposed new subsection (2B).
156 By
transitional provision item 240, the changes proposed by items 79 to 81 will
apply to proposals lodged, after commencement, under subsection 73(1) of the
Act.
Variation of composition or scheme of arrangement
157 Item
82 proposes the insertion of new section 74A into the Act to provide for the
variation of a composition or scheme of arrangement that has been accepted in
accordance with Division 6 of the Act provided the debtor has consented in
writing to the proposed variation. Currently, that Division makes no provision
for the variation of such a composition or scheme. By transitional provision
item 241, the change proposed by item 82 will apply to section 73 compositions
and schemes of arrangement made after commencement. Further, by that
transitional item, a Part X composition or scheme of arrangement is made when it
is accepted by creditors.
158 Proposed subsections 74A(3) to (6)
inclusive provide a means by which a variation proposal can be made in writing
by the trustee, with the debtor’s consent and without calling a meeting.
The proposed measure does not require that the proposal be voted on by the
creditors. It is a sufficient safeguard that any one creditor who either
opposes the proposal or objects to it being resolved without a meeting has the
power to challenge it by objecting in the specified manner to it being so
resolved. If at least one creditor lodges such a written notice of objection,
the proposal can only be considered in the ordinary way, ie, by calling a formal
meeting of creditors.
159 The amendments effected by items 83 to 85 are
drafting amendments of a technical nature only and do not affect the substantive
law. By transitional provision item 242, they will apply to changes that occur
after commencement.
Duties of bankrupt
160 Item 86 proposes the
insertion in the Act of new paragraphs 77(bb) and (bc), to impose on a bankrupt
an additional duty, ie, to advise the trustee of any material change in the
particulars contained in the bankrupt’s statement of affairs. By item 87,
a material change is to be defined by proposed subsection 77(2) to
mean one which could reasonably be expected to be relevant to the administration
of the bankrupt’s estate.
161 Items 88 to 90 are all drafting
changes of a minor technical nature and do not affect the substantive law. By
transitional provision item 242, they will apply to changes that occur after
commencement.
Trustee powers to investigate
162 The amendments
proposed by items 91 to 94 to section 77A, and the repeal of section 77B
proposed by item 95, are each a consequence of the fact that the Official
Receiver’s existing power under subsection 19AA(2) to conduct an
investigation into the affairs of a
bankrupt is proposed by this Bill to be
repealed because the investigation function is one properly carried out by a
trustee: see the notes on item 24. Accordingly, items 91 to 94 propose to
delete references to a person called ‘the investigator’ and insert
in their place a reference to ‘a trustee’. This reflects the fact
that it will be a trustee, and not an Official Receiver, who conducts a section
19AA investigation. By transitional provision item 231, all these changes will
apply to bankruptcies for which the date of the bankruptcy is after
commencement.
163 By item 96, subsection 80(1) of the Act is proposed to
be amended by replacing an obsolete reference to subparagraph 6A(2)(b)(i) (which
was repealed in 1996) with the requirement that a bankrupt notify his/her
trustee of a change of name or of address. An associated amendment is effected
by proposed new paragraph 77(bb): see the notes on item 86. By transitional
provision item 242, the amendment made by this item will apply to a change that
occurs after commencement.
Debts incurred in cooling-off period are
not provable in the bankruptcy
164 Section 82 of the Act specifies what
debts are, and are not, provable in a bankruptcy. Item 97 proposes to insert
new subsection 82(2A). In recognition of the fact that debts might be incurred
during a cooling-off period by a debtor who has lodged a debtor’s
petition, and to ensure that such debts remain the responsibility of the debtor
notwithstanding any resulting bankruptcy, the proposed subsection makes clear
that debts so incurred in that period are not provable in the bankruptcy. In
other words, they survive the bankruptcy. This puts such debts in the same
category as current post-bankruptcy debts. By transitional provision item 237,
the change proposed by item 97 will apply to petitions presented after
commencement.
Time limit for appeal against trustee’s estimate
of value of contingent debt or liability
165 Item 98 provides to the
effect that where, under subsection 82(4), a trustee estimates the value of a
contingent debt or liability provable in the bankruptcy, a person aggrieved by
that estimate may appeal to the Court within 28 days after the day on which the
estimate is notified to that person. The imposition of a time limit is to
ensure that a trustee’s administration of a bankruptcy is not unduly
hindered by an aggrieved person challenging the trustee’s valuation of a
contingent liability at a time unreasonably distant from when the person becomes
aware of the trustee’s estimate. By transitional provision item 243, the
amendment made by this item will apply to the review of trustee decisions made
after commencement.
166 Item 99 proposes the repeal of section 99. This
measure is connected with that proposed by item 101: see the notes on that item.
By transitional provision item 244, the amendment made by this item will apply
to trustee decisions made after commencement.
Debts to be rounded down
to nearest dollar
167 Item 100 would repeal existing section 103 and
replace it with a new section which provides for the rounding down, to the
nearest dollar, of all amounts in proofs of debts which include cents. By
transitional provision item 244, the amendment made by this item will apply to
proofs admitted after commencement.
Admission or rejection of proofs
of debt
168 The amendments proposed by items 99 and 101 are a
consolidation of two current provisions into one provision, the proposed new
subsection 104(1). By transitional provision item 244, the amendments made by
this item will apply to trustee decisions made after
commencement.
Priority of unpaid superannuation contributions
169 Section 109 of the Act provides an order of priority for payments
made by a trustee in relation to amounts realised in the administration of a
bankrupt’s estate. Under paragraph 109(1)(e), the fifth priority in
subsection 109(1) is payment of amounts due to any employee of the bankrupt,
whether remunerated by salary, wages, commission or otherwise, in respect of
services rendered to or for the bankrupt before the date of bankruptcy. There
is a limit per employee, being a prescribed amount (as at March 2001, $3,100
(indexed)).
170 Current doubts about whether unpaid employer
superannuation contributions are accorded any priority at all by
section 109 will be resolved by the amendment proposed by item 102. It
makes it plain that they are. This proposed amendment will align the bankruptcy
law with the Corporations Law. By transitional provision item 246, the
amendment made by this item will apply to bankruptcies for which the date of
bankruptcy is after commencement.
171 Item 103 proposes an amendment to
subsection 109(7B) consequential upon the change of status of ITSA from a
Division of the Attorney-General’s Department to an executive agency. It
effects no change of substance to the Act.
Commencement of bankruptcy:
vexatious counter-claims, set-offs or cross-demands.
172 By lodging an
unmeritorious counter-claim, set-off or cross demand in relation to a bankruptcy
notice, an unscrupulous debtor who has no valid defence to the notice can
nonetheless extend the time for compliance with the notice and effectively defer
the date of his/her bankruptcy. A consequence of this deferral is to bring
forward the commencement of what otherwise would be the ‘relation
back’ period under section 115.
173 Item 104 therefore proposes
to amend section 115 by permitting the Court to find that the application under
subsection 41(7) to set aside the notice was frivolous, vexatious or otherwise
without substantial merit. If the Court so finds, the bankruptcy is to be taken
to have relation back to, and to have commenced, at the time that would have
applied under subsection 115(1) if the time for compliance had not been extended
under subsection 41(7).
Property divisible among creditors:
‘sentimental’ property
174 Subsection 116(2) of the Act
specifies property which is not divisible among the creditors of the bankrupt.
Non-divisible property includes ‘household property’. There has
been doubt, however, whether the term ‘household property’ is apt to
cover commercially valuable sporting medals and the like.
175 Under
proposed new paragraph 116(2)(ba) to be inserted by item 105, a bankrupt will be
able to retain personal property which has sentimental value to the bankrupt and
which is of a kind prescribed by the regulations, if creditors, by special
resolution, before the trustee realises the property, agree to permit the
bankrupt to keep it.
176 Relevant regulations have not yet been made: it
is intended that the type of property to be prescribed will include such items
as sporting medals, trophies, and civil and military awards, but not jewellery.
By transitional provision item 246, the amendment made by this item will apply
to bankruptcies for which the date of bankruptcy is after
commencement.
Time limit for realising property
177 Under
proposed new subsection 129AA, to be inserted by item 106, there will be an
initial period specified within which a trustee is to realise property.
178 The proposal specifies that, in relation to property disclosed by
the bankrupt on the statement of affairs, and to after-acquired property
disclosed within 14 days of the debtor becoming aware of it, the revesting time
will be 6 years from the date of discharge of the bankrupt (paragraph (3)(b)).
For after-acquired property disclosed after discharge, the revesting time will
be 6 years from the date on which the bankrupt discloses the property to the
trustee (paragraph (3)(c)).
179 The trustee readily will be able to
extend the revesting time by up to 3 years in cases where realising the property
is not practicable before the original revesting time. A simple example is the
case where a trustee is unable to sell an interest in a house property because
that interest is subject to a life tenancy; it will often be the case that the
trustee has no practical option but to wait for the life tenant to
die.
180 The new provisions will encourage trustees to realise
assets within a reasonable time frame and discourage undue delays in the
administration of an estate.
181 Proposed new subsection 129AA(7)
provides that section 127 (which allows a trustee to claim property for up to 20
years) will not apply in respect of any property that revests in the bankrupt
pursuant to section 129AA. This will ensure that the trustee cannot rely on
section 127 to claim particular property that has revested in the bankrupt.
Section 127 would still apply in respect of property which either was not
disclosed by the bankrupt on the statement of affairs or was
‘after-acquired’ property which was not disclosed, in writing, by
the bankrupt to the trustee.
182 By transitional provision item 248, the
amendment made by item 106 will apply to all bankruptcies, including those that
ended before commencement. However, for that latter group, the initial
revesting time is to start on the sixth anniversary of commencement, instead of
the sixth anniversary of the date of discharge.
Powers exercisable by
trustee
183 The amendments proposed by items 107 to 110 inclusive would
merge the provisions of sections 134 and 135 of the Act. They would repeal
section 135 (item 110) and transfer the remaining provisions of section 135 to
section 134, where they will be incorporated as new paragraphs 134(1)(aa), (ab),
(ac), (ia) and (ma) respectively. There is no change proposed to the powers of
a trustee: the opportunity is being taken to improve the layout of the
law.
Trustee’s power to assess liability of bankrupt to make
contributions from income
Definition of dependant
184 Item 111
proposes to change the definition of dependant in section 139K of
the Act to allow the dependant to earn up to an amount specified in the
Regulations (proposed to be $2,500). Under the current definition a person is
disqualified as a dependant if they earn ‘any income’. That is too
restrictive.
Income tax includes Medicare levy
185 Item 112
proposes an amendment to 139K of the Act to include a definition of income
tax and to make clear that income tax includes Medicare levy. This
amendment is for the avoidance of doubt and does not change the substantive law.
Definition of income
186 Item 113 proposes the repeal of
subparagraph (b)(ii) of the definition of income in section 139L
of the Act.
187 Section 139L of the Act provides a complex definition
of income in relation to a bankrupt for the purposes of the
contribution scheme in Division 4B of Part VI of the Act including for example
that some payments under the Social Security Act are income for contribution
purposes and others are not income. The essence of the subparagraph is to be
transferred and reproduced, but in clearer form, in the Bankruptcy
Regulations.
188 As the Social Security Act is amended frequently, it is
appropriate that these types of provisions be dealt with by the Bankruptcy
Regulations which can be more readily amended.
Tax
refunds
189 Items 114 and 115 propose to amend section 139N of the Act to
ensure that the amount of a bankrupt’s unpaid income tax (and which,
because of the bankruptcy, will not be payable) is not deducted from the
bankrupt’s income, and that a tax refund attributable to the period up to
the date of the debtor’s bankruptcy (and which is an asset in the
bankruptcy and thus vests in the trustee) is not added to the bankrupt’s
income, for the purposes of the contribution scheme.
190 Proposed new
subsection 139N(2) provides to that effect for income tax refunds in respect of
tax years of income that ended before the date of the bankruptcy. Proposed new
subsection 139N(3) relates to income tax refunds that relate to a tax year of
income that straddles the date of bankruptcy. In such a case, to the extent
that the refund relates to the period up to the date of bankruptcy, it is
excluded from the debtor’s income for contribution
scheme purposes,
and that part which relates to the post-date of bankruptcy segment of the year
of income is treated as income for the purposes of that scheme. To simplify
calculations, refunds which relate to a straddle year are to be apportioned on a
time basis.
Determination of higher income threshold in cases of
hardship
191 Item 116 proposes a new section 139T, modelled on existing
section 139T, but providing for the trustee of a bankrupt estate rather than the
Official Receiver to assess hardship when deciding liability for income
contributions. The trustee is best placed to consider the initial application
for hardship. The trustee’s decision is reviewable by the
Inspector-General.
192 Items 117 to 119 propose amendments to section
139U of the Act requiring a bankrupt to give the trustee particulars of all
income that was derived or is expected to be derived by each dependant of the
bankrupt during the relevant assessment periods.
193 These amendments are
consequential on that proposed by item 111 to be made to section 139K of
the Act to allow a bankrupt’s dependant to earn an income of up to a
prescribed amount and retain the status of dependant.
Trustee to
notify bankrupt of review rights regarding hardship decisions
194 Item
120 proposes to amend subsection 139W(4) to require the trustee to give written
notice to the bankrupt about the possibility of a variation, under section 139T
on the grounds of hardship, of the bankrupt’s assessed contribution
liability.
No time limit on making assessment
195 It is
proposed by item 121 to amend the contribution provisions by inserting a new
provision, section 139WA, under which it will be clear that there is no time
limit for the trustee to make an assessment under section 139W or a fresh
assessment under subsection 139W(2). In particular, such an assessment may be
made after the end of a contribution assessment period or after the bankrupt has
been discharged from bankruptcy.
196 To avoid any doubt about the
intended scope of the word ‘bankrupt’ in applying new subsection
139WA(1), proposed new subsection 139WA(2) provides that a reference in Division
4B of Part VI to ‘a bankrupt’ includes a reference to a former
bankrupt.
197 The amending provision is intended to ensure that bankrupts
gain no benefit from hindering the trustee’s ability to make an accurate
assessment of the bankrupt’s liability to make a contribution under
Division 4B of Part VI of the Act.
198 By transitional provision item
249, the amendments made by items 111 to 121 inclusive will apply to
contribution assessment periods that begin after commencement.
Time
limit for applying for review of assessment
199 Item 122 provides for a
60 day time limit on requests under paragraph 139ZA(3)(a) for a review of a
trustee’s assessment of a contribution liability. This limit is to
facilitate the trustee’s prompt administration and finalisation of an
estate. By transitional provision item 243, the amendment made by this item
will apply to the review of decisions made after commencement.
200 Item
123 proposes the amendment of subsection 139ZE(1) which requires the
Inspector-General to notify both the bankrupt and the (registered) trustee of
the Inspector-General’s decision on the review of an assessment made by a
trustee. The amendment proposes to omit references to a
‘registered’ trustee. The result will be that the provision will
apply both to a registered trustee and the Official Trustee. The amendment
recognises the Official Trustee as an entity quite separate from the
Inspector-General.
Review of assessment decisions
201 Item
124 proposes the repeal and replacement of section 139ZF with the effect of
requiring bankrupts to utilise the internal review mechanism, ie, review by the
Inspector-General, before seeking AAT review of a trustee’s contribution
assessment. Item 126 proposes an amendment consequential on the removal of that
right of direct access to the AAT. By transitional provision item 250, the
amendments made by these 2 items will apply to the review of decisions made
after commencement.
202 Item 125 is a deferred item: see the notes
on item 41.
Repeal of Division 4C of Part VI
203 Item 127
provides for the repeal of Division 4C of Part VI of the Act. That Division
provides for a bankrupt who is liable to pay income contributions not to leave
Australia without permission of the Court. It is proposed to transfer the
primary decision making in relation to such matters from the Court to the
trustee of the bankrupt estate: see the notes on items 209 and 212. By
transitional provision item 251, the amendments made by this item will not
affect the rights of bankrupts in relation to permission for overseas travel
granted before commencement or sought before, but granted after,
commencement.
204 Items 126 and 128 propose a minor drafting amendment of
a technical nature to subsection 145(3). No substantive change to the law
is proposed by the amendment.
205 Item 129 proposes an amendment of
subsection 149(1) to remove what will become an obsolete reference upon the
repeal of the early discharge provisions. By transitional provision item 234,
this change will apply to bankruptcies for which the date of the bankruptcy is
after commencement.
Bankruptcy extended when objection
filed
206 Item 130 proposes to amend subparagraph 149A(2)(a)(i) to
replace the subsection 149D(1)-based list of objection grounds which extend
a bankruptcy by 5 years. Each ground in the new list will constitute a
special ground of objection: see the notes on items 135 to
140.
207 Item 131 proposes a minor drafting amendment to correct a drafting
error. It will make no change to the substantive law.
208 Item 132
proposes an amendment to subsection 149A(3) of the Act which sets out the effect
of an objection being withdrawn or cancelled. The amendment proposes to repeal
subparagraph (3)(b)(iii) to remove reference to the early discharge provisions
as their repeal will make them irrelevant in determining the effect of the
cancellation or withdrawal of an objection. By transitional provision item 234,
this change will apply to bankruptcies for which the date of the bankruptcy is
after commencement.
209 Item 133 proposes to amend subsection 149B(1)
to remove the Official Receiver’s power to file a notice of objection to
discharge. The filing of such an objection is not an Official Receiver function
but, rather, a function of the trustee. Item 134 proposes a consequential
technical amendment.
Objections to discharge
-
Background
210 The objection-to-discharge provisions of the Act allow
a trustee to file an objection to the bankrupt’s discharge from
bankruptcy. A successful objection extends the standard period of bankruptcy by
either 2 years or 5 years, depending on the grounds of the objection. The
grounds are specified in the Act. They relate to various means by which a
bankrupt’s non-cooperation with the trustee can frustrate the
trustee’s efforts to administer the bankruptcy.
211 When filing
an objection, the trustee must set out the ground of objection, the facts relied
on to support the ground and the reasons for filing an objection. Case law
establishes that punishing the bankrupt, of itself, is not a lawful reason. The
only valid reason for filing an objection has been held to be to advance the
trustee’s administration of the bankruptcy. This approach does not
encourage bankrupts to cooperate with trustees.
- Special grounds of
objection
212 The amendments propose to address this weakness in the
present law by identifying some existing grounds, and adding some new grounds,
as “special grounds”. In these special ground cases the
trustee will not need to show that filing the objection will advance the
administration, only that the special ground existed. Therefore, if the grounds
of objection include a special ground, only the facts supporting that special
ground need to be established. The special grounds are specified in paragraphs
149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (k) and (ma). Item 135
proposes that paragraph 149C(1)(c), which requires a trustee to state the
reasons for objection to discharge, not apply regarding objections filed on
those special grounds.
- New grounds of objection, including special
grounds
213 Item 136 proposes the insertion of proposed new grounds of
objection in subsection 149D(1). They are: that any transfer is void against
the trustee in the bankruptcy because of section 120 or 122 (new paragraph
149D(1)(aa)); and a new special ground - that any transfer is void against the
trustee because of section 121 (new paragraph 149D(1)(ab).
214 Items 137,
138 and 140 propose to add further, special grounds of objection. Respectively,
the items deal with the intentional provision by the bankrupt, after the date of
bankruptcy, of false or misleading information to the trustee; and a
bankrupt’s intentional failure to disclose to the trustee either a
liability or the bankrupt’s beneficial interest in any property.
215 By item 139, failure to comply with the requirements of paragraphs
77(1)(bb) or (bc) will be a ground (but not a special ground) of objection. By
transitional provision item 242, the amendment made by this item will apply to
failure to notify a change, referred to in those paragraphs, which occurs after
commencement.
216 The amendment proposed by item 141 would amend
subsection 149F(1) so that, when a notice of objection is filed by a trustee,
the trustee must give a copy of it to the bankrupt, together with a notice to
the effect that the bankrupt may request the Inspector-General to review the
decision of the trustee to file a notice. This removal of any reference to the
AAT reflects the proposed requirement that a bankrupt must first access internal
review before seeking external review.
217 The amendments proposed by
items 142 to 146 inclusive are consequential upon the proposed withdrawal of the
Official Receiver’s power to file an objection to the discharge of a
bankrupt: see the notes on item 133. By transitional provision item 252, the
amendments made by items 133 to 146 will apply to objections filed after
commencement.
218 Item 147 proposes the insertion of a 60 day time limit
in which a bankrupt may apply, under paragraph 149K(3)(a), for a review of the
trustee’s decision to object to the bankrupt’s discharge. By
transitional provision item 243, the amendment made by this item will apply to
the review of decisions made after commencement.
219 Item 148 proposes an
amendment consequential on the loss of the Official Receiver’s power to
file an objection to the discharge of a bankrupt: see the notes on item
133.
220 Item 149 proposes a new subsection 149N(1A), under which an
objection must not be cancelled if it specifies at least one special
ground and there is sufficient evidence to support the existence of at
least one such ground.
Bankrupt’s conduct after ground
commenced to exist must be ignored on review of objection
221 Trustees
understandably are disconcerted when an objection filed by them has been
cancelled by the AAT or the Court because, for example, immediately prior to a
review hearing, the bankrupt has provided information long sought by the
trustee. By proposed new subsection 149N(1B), no notice is to be taken by a
review tribunal or the Court when applying proposed new subsection 149N(1A), of
any conduct of the bankrupt after the time when the ground concerned first
commenced to exist.
222 However, as a bankrupt may fail, for reasons
beyond the bankrupt’s control, to comply with a duty imposed under the
Act, the proposed amendment permits the Inspector-General to cancel an objection
made on a special ground if the bankrupt establishes that there was a
‘reasonable excuse’ for the conduct or failure that constituted a
special ground.
223 Paragraph 149D(1)(h) is excluded from the
‘reasonable excuse’ provision. This is because non-payment of
assessed contributions must remain an effective ground of objection when a
bankrupt receives substantial benefits from friends or family and so is able to
maintain a lifestyle ‘of undiminished splendour’ (see Bond v The
Trustee of the Property of Alan Bond, a Bankrupt (1994) 125 ALR
399). The value of such benefits can be assessed by the trustee as
‘income’ for contribution scheme purposes. It is not appropriate
that an objection filed on the ground of non-payment of such an assessed
contribution be cancelled because of a ‘reasonable excuse’ that the
bankrupt had no capacity to pay the contributions.
224 By transitional
provision item 252, the amendments made by items 148 and 149 will apply to
objections filed after commencement.
Notifying Official Trustee of
objection review decision
225 Section 149P obliges the Inspector-General
to notify the bankrupt and the trustee about the outcome of the
Inspector-General’s review of an objection decision or the
Inspector-General’s refusal of a request for a review of the
trustee’s decision to object to discharge. Item 150 proposes an amendment
to ensure that the provisions of subsection 149P(1) apply to the Official
Trustee as well as to a registered trustee, by extending the notification
obligation to cases where the Official Trustee is the trustee.
226 Item
151 proposes another amendment consequential on the loss of the Official
Receiver’s power to file an objection to the discharge of a bankrupt: see
the notes on item 133. By transitional provision item 252, the amendment made
by this item will apply to objections filed after
commencement.
Internal review of objection decision required before
external review accessible
227 Item 152 proposes the repeal and
substitution of section 149Q to make clear that applications to the
Administrative Appeals Tribunal can only be made for a review of a decision of
the Inspector-General on the decision of a trustee to file an objection or a
decision of the Inspector-General refusing a request to review a decision of the
trustee to file a notice of objection. This measure ensures that a bankrupt
dissatisfied with such a decision must first seek review of it by the
Inspector-General rather than seeking initial review of it by the Administrative
Appeals Tribunal. By transitional provision item 250, the amendment made by
this item will apply to the review of decisions made after
commencement.
228 Item 153 is a deferred item: see the notes on
item 41.
Repeal of early discharge provisions
229 Item 154
proposes the repeal Division 3 of Part VII which is the division dealing with
the early discharge of bankrupts from bankruptcy. The effect of the amendment
will be to repeal the early discharge provisions under which some bankrupts can
obtain discharge from bankruptcy after 6 months. By transitional provision item
234, this change will apply to bankruptcies for which the date of the bankruptcy
is after commencement.
Annulment on payment of debts to include
payment of interest
230 Item 155 proposes an amendment to subsection
153A(1) of the Act to make clear that annulment on the ground of full payment of
the bankrupt’s debts requires, in relation to any debts that bear
interest, interest reckoned up to and including the date on which the debt,
including the interest, is paid.
Annulment of bankruptcy by Court
whether or not petitioning debtor insolvent
231 Item 156 proposes the
insertion of a new subsection in section 153B of the Act. That section gives
the Court power to annul a bankruptcy. There is at present no test for
insolvency in relation to a debtor’s petition filed under the Act and it
is not proposed that, in the ordinary case, there be one. However, the
amendment will enable the Court to annul a bankruptcy even if the debtor is
insolvent.
232 Some debtors who petition for bankruptcy may be
technically insolvent but could make arrangements to repay their debts: they
choose not to while maintaining an expensive lifestyle. Section 153B, as
proposed to be amended, would enable the Court to find that their petition is an
abuse of process.
233 A person, for example, might have an income of
$400,000, no assets and owe one creditor (eg, ATO) $500,000. The creditor in
such a situation would be able to argue that the bankruptcy should be annulled
because the debtor has the capacity to pay the debt within a reasonable time but
appears to have chosen not to pay it while continuing to enjoy a lifestyle which
absorbs all of his or her (often) very substantial income. The Court would not
be able to rely on the person’s technical insolvency (inability to pay
debts as they become due and payable) to dismiss the application.
234 Items 157, 162 and 164 propose an amendment which is consequential
on the change of ITSA’s status from that of a Division of the
Attorney-General’s Department to that of an executive agency under the
Public Service Act 1999. Under the proposed change, an ‘APS
employee’ will be substituted for an ‘officer of the
Department’ as a person who may form part of the membership of a committee
convened to consider a person’s application for registration as a trustee
under the Act, or the conditions applying to a trustee’s registration or
whether or not a trustee should continue to be
registered.
Registration of trustees
235 Item 158 proposes an
amendment to subsection 155A(1) of the Act to allow a committee convened to
decide whether an applicant should be registered as a trustee to require the
applicant to sit for an exam in addition to the present compulsory
interview.
236 Item 159 proposes to insert new subsection 155A(4A) which
provides that an applicant should not be registered if the applicant does not
have the ability (including knowledge) to perform satisfactorily the duties of a
registered trustee. An Administrative Appeals Tribunal has held that the
current law permits a person to be registered as a trustee even if that person
did not, at the time of registration, have that ability. That decision was open
to the Tribunal but the provision had not been intended to have that outcome.
Under the proposed amendment, it will be insufficient for an applicant to
satisfy a committee that the applicant has a capacity to acquire the requisite
ability and knowledge after they have been registered.
237 By
transitional provision item 255, the amendments made by items 158 and 159 will
apply to registration applications made after commencement.
238 The
effect of existing section 155D is that Inspector-General must extend a
trustee’s registration for three years from the expiry of his or her
current registration if the trustee applies in writing before the expiry of the
registration and the person has paid the charge imposed by section 6 of the
Bankruptcy (Registration Charges) Act 1997. Items 160 and 161 propose to
insert new subsections 155D(2) and (3) into the Act and to amend paragraph
155(D)(b). Item 160 adds a further requirement to existing paragraph 155D(b)
which is that any late payment penalty under proposed subsection 155D(3) has
been paid. The amendments proposed by item 161 would provide that the
Inspector-General must not extend a trustee’s registration if the trustee
owes more than $50 of charge under the Bankruptcy (Estate Charges) Act
1997 or of penalty under section 281 of the Act in respect of that charge.
This sanction can only be applied, however, if the Inspector-General has
notified the person of the unpaid charge at least 14 days before the due date
for payment of the charge under proposed new subsection 155D(3).
239 Proposed new subsection 155D(3) changes the current arrangements in
relation to the payment by trustees of their registration charge, ie, the
payment which ordinarily will renew their registration as trustees for a further
3 years.
240 At present, if a trustee’s payment is received after
the expiry of the trustee’s current registration, the trustee is
unregistered and must apply to the Court for an order that he or she be
re-registered. Such applications are costly and inconvenient for
trustees.
241 To minimise the number and impact of such cases, the Bill
proposes a revised arrangement whereby the charge payable for the extension of a
trustee’s registration is to be due for payment one month before the date
of expiry of that registration. Further, if the charge is not paid by the due
date, an additional amount equal to 20% of the charge is payable by the trustee
by way of penalty.
242 It is proposed that ITSA will alert trustees to
the forthcoming expiry of their registration and, if the charge is not then paid
by the due date, send a reminder to affected trustees that a 20% penalty has
become applicable. If, ultimately, the trustee does not pay the charge and the
penalty before the expiry of his or her current registration, the by then
unregistered trustee will have no option but to apply to the Court for
re-registration.
243 By transitional provision item 256, the amendments
made by items 160 and 161 will apply to extensions of registration with an
expiry date at least 3 months after commencement.
244 Item 163 proposes
to insert in section 155H an additional ground for de-registration of a trustee.
That ground will be that the trustee no longer has the ability (including
knowledge) to perform satisfactorily the duties of a registered trustee. It is
appropriate that this ground be added to those already appearing in subsection
155H(1) because trustees need to maintain their professional expertise so as to
be able to continue to perform satisfactorily their duties as registered
trustees. By transitional provision item 255, the amendment made by this item
will apply to registration applications made after
commencement.
Minimum remuneration of registered
trustee
245 Items 165 and 166 propose amendments to subsection 161B(1) to
increase, by 8.4%, the minimum statutory trustee remuneration payable under the
Act to take account of the impact of the GST and associated tax changes under
the new tax system.
246 Item 167 proposes the insertion of new
subsection 162(6A) under which the trustee must, in relation to his/her
remuneration, give such notices to the bankrupt and creditors as are required by
the regulations. It is intended that the regulations will require that the
bankrupt and creditors be given adequate information about a trustees’
remuneration and also notified of the rights of the bankrupt and creditors to
seek to have that remuneration taxed if they are dissatisfied with its amount.
Remuneration of successive trustees
247 Item 168 amends
section 164 by substituting ‘Officer of ITSA’ for ‘Officer of
the Department’ to reflect ITSA becoming an executive
agency.
Time limit for review applications under section
178
248 Item 169 proposes an amendment to section 178 of the Act to
insert a 60 day time limit in which an application may be made to the Court for
a review of a trustee’s act, omission or decision. At present, no time
limit is specified: some bankrupt’s have applied to the Court for a review
many years after the act, omission or decision concerned. This is both
inconvenient and costly for trustees: setting a time limit will allow a
reasonable period for persons to seek review under section 178. By transitional
provision item 243, the amendment made by this item will apply to the review of
trustee decisions made after commencement.
Streamlined method for
replacing trustee
249 Item 170 proposes a streamlined method for
replacing a trustee under the Act. Proposed new section 181A will allow the
trustee of a bankrupt’s estate to notify creditors of a proposal to
replace the trustee, providing the new trustee has consented. If no creditor
lodges a written objection within the specified time, the change of trustee
takes place on the date specified in the notice. The new trustee is treated as
having been appointed by the creditors and therefore has the same powers as if
he/she had been appointed by them under section 157 of the Act.
250 The
effect of proposed evidentiary provision subsection 181A(6) is that a
trustee’s signed certificate as to any matter relating to a section 181A
proposal is to be prima facie evidence of the matter.
251 By transitional
provision item 258, the amendments made by item 170 will apply to all
bankruptcies, including those for which the date of bankruptcy is before
commencement.
Official Receiver to process debt agreement
proposals
252 Items 171 to 176 inclusive, items 178 and 180, and items
182 to 193 inclusive, all propose minor drafting changes to sections in Part IX
of the Act, ie, the Part which deals with debt agreements. The proposed changes
are a recognition that the processing of debt agreement proposals is more
appropriately an Official Receiver function than an Official Trustee function.
By transitional provision item 255, the amendments made by all these items will
apply to debt agreements in force at commencement and those made thereafter.
Item 194, which proposes to repeal a note to section 185Y, will apply in the
same way.
Doubling the income threshold for debt
agreements
253 Item 177 proposes a doubling of the present income
threshold for debt agreement proposals. This measure will enable more people to
enter into an arrangement with creditors and thereby avoid bankruptcy. By
transitional provision item 260, the amendment made by this item will apply to
debt agreement proposals given after commencement.
254 Item 179 proposes
to insert subsection 185D(2) to extend to debtors who make debt agreement
proposals the right that the Bill proposes that bankrupts will enjoy: to access,
for no fee, their own statement of affairs: see the notes on item
37.
Oversight of debt agreement administrators
255 Item 181
provides that the Official Receiver must refuse to accept a debt agreement
proposal for processing if the person nominated in it as administrator is
ineligible in accordance with the regulations to act as an administrator.
256 The debt agreement mechanism inserted in the Act in 1996, was
introduced as a low-cost, simple process under which a debt agreement
administrator could be any person, such as a debtor’s friend or family
member, and need hold no formal qualifications.
257 Whilst it is
desirable, as far as possible, to continue to maintain this informal approach,
the vast majority of debt agreements are administered by persons who do so as a
business. Some evidence of sharp practices has emerged. It therefore is
appropriate for a regulatory regime - but less detailed than that provided in
the Act in relation to registered trustees - to be established. It is proposed
that the regulations will provide criteria under which certain persons will be
ineligible to be nominated as debt agreement administrators in debt agreement
proposals.
258 By transitional provision item 260, the amendment made
by this item will apply to debt agreement proposals given after
commencement.
Oversight of controlling trustees who are
solicitors
259 In a similar vein, item 195 proposes the insertion of
subsections 188(2A) and (2B) under which the regulations may prescribe the
circumstances in which a person other than the Official Trustee or a registered
trustee is ineligible to act as a controlling trustee under Part X of the
Act.
260 There is evidence that some controlling trustees who are
solicitors have been performing that role in an unsatisfactory and
unprofessional manner. Taking court action against them is costly and
time-consuming. It therefore is intended by this measure that solicitor
controlling trustees will be subject to regulation by the Inspector-General,
just as registered trustees and the Official Trustee already are. A controlling
trustee solicitor’s failure to meet eligibility conditions prescribed in
the regulations will make him or her ineligible to act as a controlling trustee.
By transitional provision item 262, the amendment made by this item will apply
where the control ends after commencement.
Notification of cessation
of control as controlling trustee
261 Item 196 proposes an amendment to
section 189 of the Act so that a trustee will be required to notify the Official
Receiver in writing within 7 days after becoming aware that his or her control
has ended because of an event specified in subsection 189(1A). The purpose of
this amendment is to ensure that the National Personal Insolvency Index can be
kept up-to-date. By transitional provision item 263, the amendment made by this
item will apply where the control ends after commencement.
262 The
amendments proposed by items 197 and 198 delete redundant references to
section 198, a section repealed in 1996. Similarly, item 199 proposes to
correct an incorrect reference to subsection 188(2) in paragraph 222(4)(b) of
the Act by substituting a correct reference to section 188A.
Validation of acts of Part X trustee acting in good
faith
263 Section 224 of the Act validates the acts of trustees or any
other persons who have entered into transactions in good faith under a Part X
arrangement without being aware that the arrangement has been voided or
terminated under the provisions of the Act. The amendments proposed by items
200 and 201 will extend references in paragraphs 224(c) and 224(d) to include
references to proposed new sections under which Part X arrangements can be
terminated: see the notes on items 203 and 204 for an explanation of the new
proposed provisions referred to in items 200 and 201. By transitional provision
item 241, the changes proposed by all these 4 items will apply to Part X
arrangements made after commencement. Also by that transitional item, a Part X
composition or scheme of arrangement will be made when it is accepted by
creditors, and a deed of arrangement will be made when it is executed.
264 Item 202 would amend an incorrect reference in subsections 226(1)
and (2) of the Act to subsection 188(2) and substitute a correct reference to
section 188A.
Variation of deed of arrangement
265 Item 203
proposes the insertion of new sections 234A and 234B into the Act. Under those
sections, it will be possible for a Part X deed of arrangement to be varied by a
special resolution of creditors or by the trustee (new section 234A) or for a
deed of arrangement to be terminated by the trustee (new section 234B).
266 The variation of deeds of arrangement may be effected by the
creditors, with the written consent of the debtor, by special resolution at a
meeting called for the purpose (new subsection 234A(1)).
267 Similarly,
with the debtor’s written consent, a trustee may in writing propose a
variation of a deed of arrangement (new subsection 234A). The trustee would
give notice of the proposed variation to the creditors, state why the variation
is being proposed and what its likely impact on creditors will be if it is
approved. If no creditor lodges a written notice of objection, the proposed
variation takes effect on the date specified in the notice. No vote of
creditors is required. A creditor who objects to the proposal, or to it being
dealt with other than by a creditors’ meeting, can lodge with the trustee
a written notice of objection.
268 The effect of proposed evidentiary
provision subsection 234A(6) will be that a trustee’s signed certificate
as to any matter relating to a section 234A proposal is to be prima facie
evidence of the matter.
Termination of deed of arrangement by
trustee
269 Proposed new section 234B provides a comparable mechanism for
terminations of deeds of arrangement. The notification procedure is the same as
in subsections 234A(2) to (4), except that it requires that the debtor be in
default under the deed of arrangement before a termination can take place. By
subsection 234B(5), the debtor is in default if the debtor has
failed to carry out or failed to comply with a provision of the deed or, if the
debtor has died, the debtor or the person administering the deceased estate of
the debtor has failed to carry out or comply with a provision of the deed.
Subsection 234B(5) is modelled on existing paragraph 236(1)(a) of the Act.
270 The effect of proposed evidentiary provision subsection 234B(6) will
be that a trustee’s signed certificate as to any matter relating to a
section 234B proposal is to be prima facie evidence of the
matter.
Variation of composition
271 Item 204 proposes the
insertion of new sections 240A and 240B which would deal with the variation of a
Part X composition or the termination, at the instigation of the trustee, of a
Part X composition.
272 The provisions of proposed new section 240A
parallel, in relation to the variation of a composition, the provisions proposed
to be inserted by new section 234A in relation to the variation of a deed of
arrangement: see the notes on item 203.
Termination of composition
by trustee
273 Similarly, the provisions of proposed new section 240B
parallel, in relation to the termination of a composition by a trustee, the
procedure set out in proposed new section 234B regarding the termination of a
deed of arrangement by a trustee: see the notes on item 203 as they relate to
proposed new section 234B. In relation to the termination of a composition by a
trustee, proposed subsection 240B(5) sets out when a debtor is to be regarded as
in default. However, in this case new subsection 240B(5) is
modelled on paragraph 242(1)(a) of the Act.
Offence of incurring
further debts: threshold amount repealed
274 Item 205 proposes to amend
subsection 265(8) of the Act to omit the words ‘of an amount of $500 or
upwards’. This amendment has the effect of removing any threshold for the
commission of the offence of incurring debts within 2 years before bankruptcy
without having, at the time of contracting the debts, any reasonable or probable
ground of expectation, after taking into consideration the debtor’s other
liabilities (if any), of being able to pay the debt.
275 The removal of
the $500 threshold for this offence aligns the bankruptcy law with the
Corporations Law which has no such threshold regarding a comparable offence. By
transitional provision item 264, the amendment made by this item will apply to
debts contracted after commencement.
276 Each of the amendments proposed
by items 206 to 208 omits a reference to section 77B in the offence provisions
in section 265A of the Act. These omissions are consequential on the repeal of
section 77B of the Act proposed by item 95 of the Bill. By transitional
provision item 231, these changes will apply to bankruptcies for which the date
of the bankruptcy is after commencement.
Permission for debtor or
bankrupt to leave Australia
277 Item 209 proposes the insertion of a new
paragraph in section 272 of the Act. Proposed new paragraph 272(baa) will
provide to the effect that a debtor who has the benefit of the protection from
creditors afforded by the proposed new cooling-off period cannot leave Australia
or do an act preparatory to leaving Australia without permission of the Court.
The debtor cannot apply to his or her trustee during the period because no
trustee is appointed until the date of bankruptcy at the end of that period
(assuming the debtor does not withdraw the petition).
278 Item 210
proposes the repeal of paragraph 272(ba) because of the repeal of Division 4C
Part VI (see item 127), and item 211 proposes an amendment consequential upon
the proposed repeal of paragraph 272(ba) of the Act.
279 Consistently
with the effective transfer from the Court to the trustee of the power to permit
a debtor or bankrupt to travel overseas, item 212 proposes to insert new
subsections 272(2) and (3). By those subsections, the trustee may impose
written conditions on a consent to travel overseas if the bankrupt is liable to
make a contribution to the trustee under the contribution scheme. A
contravention by the bankrupt of any conditions imposed by the
trustee is an
offence and, under subsection (3), is punishable on conviction by imprisonment
for a period not exceeding 1 year. By transitional provision item 251, the
amendments made by items 210 to 212 will not affect the rights of bankrupts in
relation to permission for overseas travel granted before commencement or sought
before, but granted after, commencement.
Applications for more time to
pay charge amounts
280 Item 213 proposes an amendment to paragraph
282(2)(b) of the Act to require that a person who seeks an extension of time to
pay interest charge or realisations charge is to apply for that extension before
the original time for payment. By transitional provision item 265, the
amendment made by this item will apply to applications made after
commencement.
Hardship test to become ‘undue
hardship’
281 Item 214 proposes an amendment of paragraph 283(1)(a)
of the Act to insert the word “undue” before “hardship”
so that the Inspector-General, when considering whether to remit an amount of
interest charge, realisations charge or late payment penalty that is payable but
has not been paid, may consider both whether failure to remit the amount would
cause a person undue hardship and whether it is appropriate to remit the amount.
The existing test of “hardship” in paragraph 283(1)(a) has been
distinguished by the Administrative Appeals Tribunal (AAT) from the test of
“undue hardship” set out in regulation 16.10(2)(a) of the Bankruptcy
Regulations. The AAT took the view that the section 283 test was more liberal
than that called for by the regulations. It is considered appropriate that the
Act and the regulations use an identical test of hardship in this context and
that it be the test of “undue hardship” rather than simply
“hardship”. By transitional provision item 266, the amendment made
by this item will apply where the application for remission is made to the
Inspector-General after commencement.
282 Items 215 and 216 propose
amendments which are consequential on the repeal of the early discharge
provisions of the Act. References in section 304A to provisions within those
early discharge provisions will become redundant and are proposed to be omitted.
By transitional provision item 234, these changes will apply to bankruptcies for
which the date of the bankruptcy is after commencement.
Scope of
section 305 extended to Part X arrangements
283 Section 305 of the Act
sets out a scheme where trustees of a bankrupt estate may seek Commonwealth
assistance, if monies in the estate are insufficient for the purpose, to
institute, continue or defend proceedings in relation to the estate of the
bankrupt, the examinable affairs of the bankrupt or other matters specified in
the section. Trustees from time to time have made representations that the
scope of the section should be extended to trustees under Part X of the
Act.
284 The amendment proposed by item 217 would remove the capacity
of an Official Receiver to seek assistance under section 305 and allow a new
category of trustee, ie, a trustee under Part X in relation to a debtor, to seek
assistance under the section.
285 The amendments proposed by items 218
to 223 inclusive make consequential drafting amendments following that proposed
by item 217 and to reflect the fact that, in a Part X matter, the trustee is
handling the affairs of a debtor and not the affairs of a
bankrupt.
286 Item 224 proposes an amendment to section 305 to define
what is to constitute an estate in section 305. By proposed paragraph
305(4)(a), estate, in relation to a Part X deed of assignment,
will mean the property that is vested in the trustee under the deed; in relation
to a Part X deed of arrangement, the term will have the same meaning but will
extend also to property that is available or may become available to the trustee
under the deed; and, in relation to a Part X composition, it will mean the
property that is available or may become available to the trustee under the
composition.
Part 2—Transitional provisions.
287 As
noted in relation to section 3 of the Bill, the notes on the Schedule items in
Part 1 include notes on the transitional and application items. These items
extend from item 225 to item 266 inclusive.
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