John Williams (NSW, National Party) Share this | Link to this | Hansard source

I am not going to go into a lot of the details of the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018, as other speakers will do that, but I will just mention a few points. The bill amends the Bankruptcy Act 1966 to comprehensively reform Australia's debt agreement system. Debt agreements allow a debtor and their creditors to settle debts without the debtor becoming bankrupt. This is an important piece of legislation. I commend the former Prime Minister, Mr Malcolm Turnbull with whom I had many discussions on the issue of bankruptcy and how I think the Australian system is unfair.

I'm sure all of us in the chamber would agree that Australia was built on people having a go—taking risks and working hard. Of course, it doesn't always work out as planned. In fact, many small businesses fail in the first couple of years. I will give you an example. Imagine a married couple with a couple of children who have a house that might be worth $500,000 and they owe $100,000 on it. They have $400,000 worth of equity and they take a low-doc loan or an extra mortgage out on the house and they go into a small business. It might be in retailing. They open up a store in a country town and are selling whatever to the public and along comes the internet and people can buy online and the retail sales are dramatically affected in a very negative way and their business goes down the tube. I think it is wrong for those people to be put in bankruptcy for three years—just because they had a go and the market conditions changed because of the new system of buying online. These days, with internet shopping and so on, we see that retail sales are down and many small businesses are doing it tough.

Under this bill, those people can go to their creditors and negotiate a way to pay out the debt over time, for example, instead of the business failing and the people losing everything. It is a bit like chapter 11 of the US Bankruptcy Code. Under chapter 11, when a business gets into trouble, the creditors who give credit first up are the first paid when things come good. Currently in a situation where a business is failing, the administrators are the first in and then the liquidators come or, in a case where they miss a payment to the bank, the bank might send the receivers in. We know that, once the insolvency practitioners enter the scene, the cost goes up. They do charge a lot of money. I mean, they do a job that I'd hate to do—be an insolvency practitioner! This legislation allows people to give CPR to their business—to breathe some life back into their business—and allow them to go on, negotiate their debts and not be put into bankruptcy, which I think would be a very demeaning thing. If you're in bankruptcy for three years, you lose your incentive to work. I think it's a situation where the trustee takes whatever you earn over $50,000 and pays it to creditors et cetera, so people say: 'I'm bankrupt for three years. I'm not going to get a job and work hard and make money because I'm going to lose most of it.' The incentive to work is gone.

As I said, people who are in serious financial trouble—and I've seen plenty of them. I've had some tough times and been through some dry gullies myself. Since I've been in the Senate, I have dealt a lot with banks and financial institutions, and many have been very successful negotiations as we've stepped people through. That's what this bill does. Instead of bringing the guillotine down on a business and chopping its head off, it allows people to negotiate with their creditors and try to trade their way out of trouble. Creditors get most of their money back—they might not get it all back—but if the receivers are sent in then the unsecured creditors will probably get nothing back at all.

I'd like to see a situation change in time where those people who cheat actually get more than three years in bankruptcy. A couple of examples are Ponzi schemes. People start a Ponzi scheme and say, 'Invest with me and I'll give you 12 per cent return.' That's all well and good until people stop putting the money in. Then, they stop paying it out. In the meantime, you siphon a heap of the money off and the business goes belly up. Of course, people have lost their money because it was a false, misleading business that was never going to earn 12 per cent. They only paid the money back to investors when other people kept paying into them. When those people stop paying in then, of course, it all turns to tears.

There's also phoenixing. People can have a business and then the next thing that happens is say, 'I'm in trouble.' They declare it no good, bring in a voluntary administrator, don't pay the creditors, run and take money with them and never pay the creditors but, the next thing you know, they're down the street and starting up the same business with a different name. They do this deliberately to not pay the creditors and take the money away. Those people who do that should be in bankruptcy for more than three years, in my opinion, but we're not discussing that in this bill. We're actually talking about giving relief to businesses by not having them go through bankruptcy, instead letting them get back on their feet because, as I said, the country was built on people having a go.

You only have to look out rural Australia when they first developed the country. They cleared some country for grazing and farming to grow food and fenced the area for the livestock. They did the hard work of splitting the ironbark posts, digging every hole with a crowbar and shovel, drilling every hole in the post with a brace and bit and straining the wires up. I've seen it over much of my life, where the old-timers worked so hard. As I said, the country was built on hardworking people having a go.

That's what this bill does. It allows people to take a risk, have a go and, if it doesn't work out as planned, if they get in trouble, then they can negotiate with their creditors. They can get on with their lives and work out a plan of payment where everyone wins. The people running the business don't go bankrupt, and, in time, the creditors that are owed money at least get some of that back. If the administrators come in, creditors will probably get very little back.

I'm not going to go through the details of the bill, but in summary I'm saying the bill is a good thing that allows people to have the incentive to have a go, do their planning, seek advice and talk to people who have been in businesses. You can often learn a lot from them—people who've been here and done that. If it does turn to tears, here's a situation where they can get on with their lives because one thing I've learned in my life is the old saying, 'No mon, no fun.' When there's no money in the family, things get pretty sour. The wife says, 'Hang on, the kids new school shoes,' and the dad says: 'No, we haven't got the money. Why do you want to spend money on school shoes?' The next thing is the blue starts. The next thing is you have broken marriages and broken families. Those are some of the ramifications of businesses going belly up and people going broke.

This bill will prevent much of that, I hope. And with the social side of things, keeping those families together where they can see a future that they can work on is very important. With that, I will conclude my remarks and commend the bill. In summary, this is a bill that allows people to have a go, stick their necks out, work hard and take the risk. If it doesn't eventuate as planned, you're not going to get in serious trouble and have your incentive to work removed.

Richard Colbeck (Tasmania, Liberal Party, Assistant Minister for Agriculture and Water Resources) Share this | Link to 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.