Nicola Roxon (Gellibrand, Australian Labor Party, Shadow Attorney-General) Share this | Hansard source

The problem of high-flying professionals who use bankruptcy to avoid tax and other liabilities first came to national attention in 2001. That was when Paul Barry, a journalist for the Sydney Morning Herald, published an investigation into New South Wales barristers, some of whom had been bankrupt more than once but who continued to enjoy the high life because they had put all their assets in the names of their spouses or in trusts unreachable by the tax office or other creditors. Playing catch-up, the government set up its own task force to look into the matter that same year. But now we are here in 2006, five years later, finally debating a piece of legislation that might actually deal with this issue.

However, before I discuss the detail of the Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2005, I think the House deserves to hear some of the bill’s history, because it is an extraordinary tale of incompetence on behalf of the government. For five years, until now, the government has zigzagged bizarrely between nonchalance and overzealousness, never managing to steer a clear, straight and sensible path. At first the government dragged its feet for three years before producing any response. Then, in 2004, it produced an exposure draft bill that went way overboard with a disproportionate response to the problem. It proposed retrospective laws and a reversed onus of proof. That draft would also have undermined legitimate asset protection arrangements, where families divide their property so that not all family members are exposed to the business and credit risk taken by one. Bankruptcy law of course has to get the balance right between cracking down on rorters and protecting legitimate family arrangements. The exposure draft, though, got it completely wrong and a furore erupted.

Coming up to the 2004 election, the government took the antiavoidance parts of the plan completely off the table. This was a return to another period of inaction. Rather than have another try at more sensible legislation, the coalition gave up on getting antiavoidance measures right at all. The Attorney-General came back with the Bankruptcy and Family Law Legislation Amendment Bill—basically the exposure draft minus the antiavoidance schedule. Although we supported that bill, Labor were very disappointed that the government would let slip an opportunity to fix the high-flyers’ problem once and for all. We moved some amendments which would have gone part of the way, but the government in its arrogance refused to consider them. That was one year ago.

One year later—in all, five years too late—Labor are pleased to see that the government has accepted the approach that we advocated at that time. Finally, we have before us a bill sensibly targeting the use of bankruptcy to avoid tax and other debts. It takes the approach of strengthening existing clawback provisions, as Labor proposed through amendments last year. Clawback provisions allow the trustee to undo transactions, transfers and arrangements designed to defeat or frustrate creditors. They make it harder to hide assets.

This bill proposes four mechanisms to toughen clawback provisions. Firstly, it will introduce a rebuttable presumption of insolvency where the bankrupt has kept books, records and accounts below an acceptable standard or has not retained them at all. This is precisely what Labor proposed and the government rejected last year. That is a real shame, because these laws could have been active a whole year earlier if not for the government’s pure arrogance. Sadly, the Attorney-General would rather delay reform of the law than be seen to pick up an amendment proposed by the Labor Party. A rebuttable presumption is useful because in many instances it is hard to prove that the bankrupt was insolvent at the relevant time. This introduces a new fair concept, preventing people from frustrating trustees and creditors by relying on their own incompetent record keeping.

Secondly, the bill will increase the time period for clawback for related entities, including family members, to four years rather than two. Avoidance techniques are obviously more common amongst related entities than strangers, so it is reasonable to have a longer period to inquire into the purpose and nature of transactions. Thirdly, the bill will introduce a requirement of reasonableness into the test for the clawback of transfers intended to defeat creditors. Currently, transferees are immune from clawback if they had no actual knowledge of the transferor’s true intention. Under this bill, transferees will be protected only if they could not reasonably have known. This will target those cases where a person has turned a blind eye to an obvious attempt to avoid liabilities.

Fourthly, the bill will allow property to be vested in the trustee in bankruptcy in those cases where the bankrupt has paid for property on behalf of someone else but still enjoys the benefits of the property. For example, it will cover the situation where a person has put their income into a house that is technically owned by their spouse but where the person still enjoys rent-free living. This is exactly the sort of scam that allows some high-flying bankrupts to maintain a high-income lifestyle while avoiding creditors.

This bill contains three other changes relating to the admissibility of transcripts of interviews by the official receiver and corrects two possible unintended interpretations of sections 120 and 121. These are uncontroversial. Indeed, the whole bill is uncontroversial. It is a welcome set of reforms to target the high-flying bankruptcy problem. Labor will closely watch to see whether these changes actually achieve that result. The only controversy here is why this bill has taken so long. It is five years since the problem emerged. It is all the more embarrassing, given that Labor offered a large part of this solution 12 months ago, only to have it arrogantly dismissed by the Attorney-General. I might note, while the Attorney-General is here at the table, that earlier today we started debating the Family Law Amendment (Shared Parental Responsibility) Bill. This was another case where the opposition has made some very constructive proposed amendments to the Attorney-General’s bill. I hope that he has learnt from the embarrassing experience of this antiavoidance bill that good policy sometimes means being prepared to swallow his pride and accept Labor’s good ideas the first time around. I trust that he might take that advice to heart when we are debating other changes in the House later in this week. I commend the bill to the House.

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