Richard Colbeck (Tasmania, Liberal Party, Assistant Minister for Agriculture and Water Resources) Share this | Hansard source

I would like to thank senators for their contribution to the debate. The debt agreement system is an important part of Australia's consumer finance framework. For many debtors, a debt agreement is the final option to avoid bankruptcy. The debt agreement system gives those in financial difficulty an opportunity to protect their family home and take control of their finances. Unfortunately, debt agreements can also be used as a tool to keep people in financial stress, trapped in unsustainable debt repayments. Debtors can be stuck in this cycle long before they become insolvent. The consequences of a debt agreement prolonging financial hardship can be severe for the debtor and their family.

The Bankruptcy Amendment (Debt Agreement Reform) Bill 2018, which incorporates a number of government amendments, finds the delicate balance between protecting vulnerable debtors and ensuring that the debt agreement system remains accessible. To protect vulnerable debtors, the bill introduces a payment-to-income ratio and a three-year limit on debt agreement proposals. These safeguards respond to the concerning trend of debt agreements lasting significantly longer than five years. The safeguards will also prevent debt agreements that are based on unrealistic or unsustainable payment sources. These measure will also ensure that no-one undertaking a debit agreement is set up to fail. The bill makes the debt agreement system more accessible to those who could derive most benefit. The bill doubles the asset eligibility threshold from $113,349.60 to $226, 699.20 to open up the system to more people with a family home.

In response to the Senate committee's recommendations, the bill has had the benefit of scrutiny by both the Scrutiny of Bills Committee and the Legal and Constitutional Affairs Legislation Committee. I would like to thank these committees for their consideration of the bill. The government has responded to the Scrutiny of Bills Committee's concerns about including custodial penalties of less than six month months. To ensure the bill aligns with the Guide to Framing Commonwealth Offences and other commonwealth penalties for similar conduct, the bill amends these three penalties from three-months to six-months imprisonment.

The government has also responded to the Scrutiny of Bills Committee's concerns that the payment-to-income ratio empowers the Attorney-General to set eligibility requirements in delegated legislation. The government has reassured the committee that the power to determine the ratio will not significantly alter the eligibility requirements for entering into a debt agreement, as it is only intended to be exercised in a manner that captures the most excessive debt repayment schedules. The government has additionally introduced amendments to address this concern by providing certain debtors can propose a debt agreement that exceeds the prescribed ratio. This option would only be open to debtors whose financial situation has withstood additional scrutiny from a debt agreement administrator. To prevent abuse of this option, a serious strict liability offence would apply to administrators who fail to properly undertake this scrutiny.

The government has also responded to recommendations by the Legal and Constitutional Affairs Legislation Committee. These recommendations were to provide additional flexibility to the bill's payment-to-income ratio and three-year time frame. I would like to assure the Senate that, consistent with these recommendations, the amendments as introduced by the government will provide additional sufficient flexibility while maintaining the effectiveness of the debtor protection safeguards. The amendments additionally tailor the application of these safeguards to debtors with a family home to protect. The government recognises that debtors with interest in their property should be given every opportunity to protect that home by avoiding bankruptcy. The amendments also allow debtors to vary agreements to up to five years if they suffer an unexpected and unforeseen change in circumstances. If a person unexpectedly loses a their job with only a few payments to go on their debt agreement, for example, these amendments ensure that they can factor a little breathing space into their repayment schedule to avoid terminating the agreement.

This is the first comprehensive overhaul of Australia's debt agreement system in over a decade. With the number of new debt agreements almost doubling in the last 10 years, debt agreements are proving to be an important and popular alternative to bankruptcy for individuals who are facing financial difficulty. These reforms ensure that debt agreements are fair and accessible for debtors and creditors. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.