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Bankruptcy Bill to be revised

News

Cite as: (2004) 78(9) LIJ, p. 24

The Law Institute has led a successful campaign for the withdrawal of proposed changes to bankruptcy laws.

Federal Attorney-General Philip Ruddock has withdrawn controversial amendments to bankruptcy laws after a chorus of opposition led by the Law Institute.

Mr Ruddock announced on 23 July that the exposure draft Bankruptcy Legislation Amendment (Anti-Avoidance and Other Measures) Bill 2004 would be revised after significant concerns were raised on aspects of the proposal.

The most contentious feature of the exposure draft related to the power of bankruptcy trustees to recover property held by third parties, including family members.

The draft Bill, released on 14 May, proposed that trustees would be able to recover assets held in the name of the bankrupt’s spouse, or that of another party, where the bankrupt had paid for and used the asset.

The changes stemmed from an Australian Taxation Office desire to close loopholes which had allowed some NSW tax evaders, including barristers, to avoid paying tax debts by filing for bankruptcy.

However, the changes proposed in the Bill were immediately challenged by the Institute, the Law Council of Australia, business groups and welfare agencies as being too tough.

Institute president Chris Dale, who appeared before the House of Representatives Standing Committee on Legal and Constitutional Affairs inquiry into the Bill on 6 July, said the changes were too severe.

Mr Dale said the loopholes could be easily closed by minor amendments to ss120 and 121 of the Bankruptcy Act.

He said the Institute’s criticism and suggested solutions played a crucial role in seeing the Bill withdrawn.

“It was quite plain that our submission had hit the mark with the Committee. The submission clearly argued that there had not been a case made out for the reform suggested in the exposure draft Bill.”

The federal Labor Party also opposed the Bill.

Speaking at the Institute’s President’s Luncheon on 21 July, federal shadow Attorney-General Nicola Roxon said Mr Ruddock had taken an “extraordinarily broad approach” to what was a very particular problem.

“Their answer has been totally disproportionate and we are very concerned that it is going to put a lot of small businesses at risk.”

On 23 July, the House of Representatives Committee released its report on the exposure draft Bill.

The Committee found that the proposed amendments to the recovery of property laws should be abandoned.

It also called for the Attorney-General’s Department and the Insolvency and Trustee Service Australia to undertake fresh consultation with the Bankruptcy Reform Consultative Forum with a view to strengthening the clawback provisions in the Bankruptcy Act, especially ss120 and 121.

Announcing the withdrawal of the draft Bill on the same day as the release of the Committee’s report, Mr Ruddock said the government remained determined to address the issue of high-income earners using bankruptcy to avoid debts.

“However, we are aware of the criticisms which have been raised since the exposure draft was released and have decided it is important to resolve these to avoid unintended consequences,” he said.

Mr Ruddock said the revision of the draft Bill would also include revisiting:

  • the provisions which reverse the onus of proof that the bankrupt had a “tainted purpose” in making the original transfer of assets;
  • the time limits determining how far back bankruptcy trustees could look in seeking to recover transferred property; and
  • certain provisions to ensure they did not have an unintended consequence in cases where bankruptcy results from business or professional behaviour.

At the time of writing, no timeline had been set for the introduction of a revised draft Bill.

Jason Silverii

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