Thursday, 19 October 2017
Bankruptcy Amendment (Enterprise Incentives) Bill 2017; Second Reading
I table the explanatory memorandum relating to the bill and move:
That this bill be now read a second time.
I seek leave to have the second reading speech incorporated into the Hansard
The speech read as follows—
This Bill amends the Bankruptcy Act 1966 to improve Australia's personal insolvency regime.
It will reduce the default period of bankruptcy from three years to one year but will preserve a trustee's ability to extend the period of bankruptcy in cases of misconduct.
Our current personal insolvency laws put too much focus on stigmatising and penalising failure. As part of the National Innovation and Science Agenda, this reform aims to promote entrepreneurship and innovation and to reduce the stigma associated with bankruptcy.
This reform is designed to foster entrepreneurial activity by reducing the negative effects that harsh bankruptcy laws may have on prospective entrepreneurs. Further, a reduced bankruptcy term will decrease stigma associated with entering into bankruptcy by recognising the importance of giving bankrupts a 'fresh start'. This will encourage entrepreneurs to re-engage in business sooner and encourage people, who have previously been deterred by punitive bankruptcy laws, to pursue their own business ventures.
The amendments in Part 1 of this Bill will mean that current restrictions associated with bankruptcy will automatically reduce from three years to one year so that upon discharge a former bankrupt may:
One year is sufficient time for the administration of the vast majority of bankruptcies. Currently, where more time is required, a trustee can continue to administer a bankruptcy after discharge. This may occur for various reasons, including: ongoing investigations, assets to be realised, outstanding income contributions, and incomplete distribution of funds. This safeguard will continue to operate to ensure trustees can properly administer a bankruptcy even after a bankrupt's one year discharge.
Currently bankrupts are obligated to pay income contributions until discharge where their income exceeds the prescribed threshold. Part 1 of the Bill contains measures that extend income contribution obligations for discharged bankrupts for a minimum period of two years following discharge or, in the event that a bankruptcy is extended due to non-compliance, for
five to eight years. This will ensure high income earners do not abuse bankruptcy laws by reducing their income for a year, hiding their assets and incurring excessive debt.
The amendments in Part 2 of this Bill relate to the application and transitional arrangements. Commencement of these new provisions will occur six months after Royal Assent to allow trustees, debtors and creditors time to adjust to the new laws. It will give trustees time to object to discharge in cases of misconduct.
On the commencement of this reform all bankruptcies, including those on foot, will be discharged if they are over a year old unless they are subject to an objection. This will remove any incentives for individuals to delay petitioning for bankruptcy as all bankruptcies filed after Royal Assent will only run for one year.
Broadly, this reform encourages Australians to take reasonable educated risks, to leave behind the fear of failure and be more innovative and ambitious.
Owners of small businesses in Australia often need to secure business loans with their personal assets or provide personal guarantees. This blurs the distinction between personal and business liability, but it is the reality for many Australians
contemplating starting or building a business or any enterprise. The current bankruptcy regime deters entrepreneurs from taking risk for fear of failure where the consequences include being locked out of one's profession, being barred from overseas travel, or identifying as a bankrupt for a period of three years. The 2015 Productivity Commission Report on Business Set-Up, Transfer and Closure also suggests that more forgiving personal bankruptcy laws encourage entrepreneurial activity. Reducing the default period of bankruptcy to one year supports this.
More often than not, entrepreneurs will fail several times before they experience success and will generally learn valuable lessons during the process. Helping these entrepreneurs to succeed requires a cultural shift. We need to provide the opportunity for a fresh start as soon as possible.
Reducing the default period of bankruptcy to one year will decrease the stigma of failure and encourage a culture of entrepreneurship and innovation.
Ordered that further consideration of the second reading of this bill be adjourned to the first sitting day of the next period of sittings, in accordance with standing order 111.