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Proposed amendments to Personal Bankruptcy Legislation in 2010

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On 28 October 2009, the Federal Government introduced the Bankruptcy Legislation Amendment Bill 2009 to Parliament.

In its current form, the amendments would bring some significant changes to the Commonwealth Bankruptcy Act. The Bill’s Explanatory Memorandum noted that the principal purposes of the amendments would be to modernise Australia’s personal insolvency scheme and to make it more efficient.  The amendments will allow changes to fixing and reviewing of trustee remuneration, strengthen penalties for some bankruptcy offences, increase the minimum debt for a creditor’s petition to reflect changes in the economic environment, increase the stay period from 7 to 28 days following a declaration of intent to file a debtor’s petition, and increase the debt, income and asset tests thresholds for debt agreements to ensure the thresholds keep pace with increasing wages and the increasing availability of credit.

Overall, the Bill’s amendments could be viewed as being consumer orientated.  Most significantly, the minimum debt for a creditor’s petition will increase from $2,000 to $10,000.  The Government maintains that the proposed change in the minimum debt level is designed to reflect changes in the current economic environment.  The Insolvency and Trustee Service Australia (ITSA), who is responsible for the administration and regulation of the personal insolvency system in Australia, reported that in 2008-2009 financial year, Australia recorded its highest ever level of personal insolvency activity (36,479/11% increase on 2007-2008).  A number of submissions on the draft Bill (Law Council of Australia, Westpac, Australian Bankers Association, Association of Building Societies and Credit Unions) called for an increase to a threshold level of only $5,000.  In another submission (Insolvency Practitioners Association), it was argued that an increase in the threshold to $10,000 will prevent creditors from pursuing debtors and such an increase will encourage debtors to run up larger debts without the fear of recourse.  All submissions which argued against the increase noted that the impact would likely be borne by small business.  By contrast, the Government’s view in justifying the increased threshold was that creditors continue to use (personal) bankruptcy as a tool for debt collection and not as a last resort.

Also contained in the Bill are amended offence provisions which will enhance the powers of the Inspector-General in Bankruptcy.  If the Bill is approved, the Inspector-General will be able to conduct investigations into breaches of the Bankruptcy Act at any time.  The Inspector-General will have the powers to compel any person to provide information where they believe, on reasonable grounds, that the person has information relevant to an inquiry or investigation.  If a person fails to comply with the notice under the Act, they will face a potential jail term of up to 12 months.

The Bill includes amended provisions relating to remuneration of trustees and will allow for a simplified process for challenging a trustee’s remuneration claim.  The aim is to ensure creditors will be satisfied that their trustee’s remuneration is reasonable.  Where a trustee’s remuneration is disputed, an applicant will have access to a free review process and the Inspector-General in Bankruptcy will have enhanced powers of review to ensure trustees are following the rules when claiming remuneration.  Trustees for their part, will be allowed a base remuneration of $5,000 in every estate regardless of the extent of the work they undertake.  The minimum payment will not require the approval of creditors.

The Bill has now been referred to the Senate Legal and Constitutional Affairs Legislation Committee for inquiry.  To what extent the proposed amendments will change before the Bill goes back to Parliament remains unknown, suffice to say there may be changes to the Commonwealth Bankruptcy Act in 2010.  The Committee is due to publish its report in February 2010.

MST’s lawyers will be happy to assist you with any enquiries you may have.

Author: Susan Reece Jones