Commonwealth of Australia Explanatory Memoranda

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BANKRUPTCY LEGISLATION AMENDMENT BILL 2010

                               2008-2009-2010







               THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA







                                   SENATE




                 BANKRUPTCY LEGISLATION AMENDMENT BILL 2009





                    SUPPLEMENTARY EXPLANATORY MEMORANDUM


             Amendments to be Moved on Behalf of the Government



              (Circulated by authority of the Attorney-General,
                    the Honourable Robert McClelland MP)








GENERAL OUTLINE

The Bankruptcy Legislation Amendment Bill 2009 (the Bill) was passed in the
House of Representatives on 30 November 2009.  The principal purpose of the
amendments contained in the Bill is to modernise the national personal
insolvency system and to make it more efficient.

The proposed Government amendments to the Bill would:
    . provide for an increase in the minimum amounts for creditor petitions
      and bankruptcy notices from $2,000 to $5,000 ( the Bill currently
      provides for the minimum amounts to increase to $10,000);
    . remove the proposed increases in the after-tax income, assets and debt
      thresholds for debt agreements that are currently contained in the
      Bill; and
    . provide for an increase in the stay period for a declaration of intent
      to file from seven days to 21 days (the Bill currently provides for an
      increase in the stay period to 28 days).


Thresholds for creditor petitions and bankruptcy notices

The Bill provides for an increase in the minimum amounts for bankruptcy
notices and creditor petitions from $2,000 to $10,000.  If a debtor is
unable to pay a creditor, or has refused to pay, the creditor may choose to
initiate proceedings to bankrupt the debtor.  The creditor's petition will
seek the "sequestration" of the debtor's estate, which will cause
bankruptcy to commence if the court makes a sequestration order.  In
practice the first step is usually the issuing of a bankruptcy notice which
provides the debtor with a final chance to pay.  Failure to comply is an
act of bankruptcy which a creditor can use to file a creditor's petition.

During consultation on the Bill, some stakeholders expressed concern that
the proposed increase in the minimum amount for creditor petitions would
allow unscrupulous debtors to run up debts of less than $10,000 with
multiple creditors.  However, there was general agreement among
stakeholders that an increase in the minimum amount was warranted, as it
was last increased in 1996 and had not kept pace with the increase in the
value of money.  In order to address stakeholder concerns, the Government
amendments would provide for an increase in the minimum amounts for
creditor petitions and bankruptcy notices to $5,000 (rather than $10,000).


Thresholds for income, assets and debt thresholds for debt agreements

The Bill provides for an increase in the after-tax income, assets and debt
thresholds for debt agreements.  Debt agreements are a type of voluntary
arrangement between a debtor and his or her creditors.  In order to be
eligible to propose a debt agreement, a debtor has to have after-tax
income, assets and debt below the statutory thresholds.  Following
consultations with stakeholders the Government has decided to put aside any
increases in the thresholds for debt agreements until the 2010 review of
debt agreements is completed.  Hence the Government amendments delete the
proposed increases in the after-tax income, assets and debt thresholds for
debt agreements.

Increase in the stay period for declarations of intent to file

The Bill provides for an increase in the stay period for declarations of
intent to file from seven days to 28 days.  When a debtor files a
declaration of intent to file, creditors are barred from taking any action
to collect debts during the stay period.  The stay period gives debtors an
opportunity to consider their options and to negotiate with their
creditors.  Increasing the stay period would provide debtors with a more
realistic opportunity to properly assess their options.  Some stakeholders
have expressed concern that an increase in the stay period to 28 days would
be excessive and that such an increase may prejudice the rights and
interests of creditors.  In order to address these concerns, the Government
amendments would provide for an increase in the stay period to 21 days for
declarations of intent to file (as opposed to 28 days).

FINANCIAL IMPACT

There is no direct financial impact on Government revenue arising from
these amendments.
NOTES ON AMENDMENTS

Amendment 1

1. This amendment would amend item 1 of Schedule 4 of the Bill to provide
   for an increase in the minimum amount for bankruptcy notices to $5,000.

Amendment 2

2. This amendment would amend item 2 of Schedule 4 of the Bill to provide
   for an increase in the minimum amount for creditor petitions to $5,000.

Amendment 3

3. This amendment would amend item 3 of Schedule 4 of the Bill to provide
   for an increase in the minimum amount for creditor petitions filed
   against deceased estates to $5,000.

Amendment 4

4. This amendment would amend item 5 of Schedule 4 of the Bill to provide
   for an increase in the stay period to 21 days for declarations of intent
   to file.

Amendment 5

5. This amendment would delete item 11 of Schedule 4 of the Bill.  Item 11
   of Schedule 4 of the Bill provides for a 20% increase in the after-tax
   income, assets and debt thresholds for debt agreements.

Amendment 6

6. This amendment would delete "(1)" from line 2 of Schedule 4, item 13, as
   item 13 will no longer have multiple subitems due to the effect of
   amendment 7 below.

Amendment 7

7. This amendment would delete subitem 2 of item 13 of Schedule 4 of the
   Bill, as it is an application provision for item 11 of Schedule 4 of the
   Bill (amendment 5 above would delete item 11 of Schedule 4 of the Bill).