Power Simon: Insolvency Amendment Bill — Second Reading 
Power Simon: Insolvency Amendment Bill — Second Reading 
[Volume:655;Page:4994] 
Hon SIMON POWER (Minister of Justice) 
: 
 I move  
That the Insolvency Amendment Bill be now read a second time 
. The Insolvency Amendment Bill amends the Insolvency Act 2006—not unsurprisingly—in order to preserve the integrity of the personal insolvency processes namely bankruptcy— 
Hon David Parker 
: “Not unsurprisingly”—a double negative. 
Hon SIMON POWER 
:—that is true—and the no-asset procedure also known as NAP. The amendments in the bill will also ensure that the official assignee is able to administer these processes effectively and efficiently for the benefit of creditors. 
The bill addresses three major areas. Firstly the no-asset procedure provisions are being tightened to prevent the discharge of debts under no-asset procedures that have been obtained as a result of a fraudulent act or behaviour. It is proposed that the no-asset procedure discharge period be extended by a maximum of 25 working days to allow the official assignee to undertake a thorough investigation of any late objections that are received in relation to a debtor’s entry to the no-asset procedure process. Secondly the insolvent gift provisions are being tightened to allow the official assignee to claw back gifts that have been made by a bankrupt in the period leading up to his or her bankruptcy. This benefits creditors as the clawed-back assets are added to the pool of assets for distribution to the creditors of the bankrupt. Lastly it is proposed that the personal insolvency public register provisions in the Act be amended to reflect information about a debtor’s previous insolvency history for longer periods of time—a total of 5 years for no-asset procedure debtors and permanent retention for those debtors who have been through multiple insolvency processes. This will allow further lenders to better assess the creditworthiness of an individual. Any risk would then be accurately reflected in the cost of credit extended to the debtor. 
Since the first reading of the bill the Commerce Committee has recommended a number of amendments to strengthen the bill which will contribute to the bill meeting its objectives. Those amendments do not alter the original policy intention. However they do clarify those policy decisions. I thank the committee for its work in this area and I thank its chair in particular. I am pleased that the committee has recommended those amendments. Firstly I start by discussing some of the changes recommended by the committee to Part 1 of the bill particularly dealing with administration of the no-asset procedure. I will then discuss the changes proposed by the committee that relate to the public register provisions in the bill. As I understand it overall submitters welcomed the introduction of the bill. In particular they supported the proposed amendments to the treatment of fraudulent debts under the no-asset procedure the extension of the no-asset procedure discharge period and the proposed treatment of insolvent gifts under bankruptcy. 
Submitters however expressed different views on the proposed changes to the personal insolvency register provisions in the bill. The committee did not recommend any substantive changes to the no-asset procedure part of the bill; the changes proposed to the no-asset procedure were matters of clarification rather than policy which strengthened the administration of the no-asset procedure by the official assignee. One of the key criteria for entry to the no-asset procedure is that the debtor must not have any realisable assets. To gift an asset or provide security against an asset in the periods leading up to the application for entry into the process implies that the debtor has realisable assets which can be used to pay creditors. It is the official assignee’s current practice to ensure that assets have not been concealed by the debtor in any way prior to filing the no-asset procedure application. The committee therefore clarified that realisable assets include any assets that might be recoverable by the official assignee under the irregular transaction provisions in the Act. The insolvent transaction provisions are an integral part of a bankruptcy regime allowing the official assignee to claw back assets that for example have been gifted by the bankrupt debtor in the periods leading up to his or her bankruptcy. These gifts can be made to a friend a relative or a trust. This change not only formalises the current practice of the official assignee but also preserves the integrity of the no-asset procedure by preventing dishonest debtors from entering into it. 
In relation to the treatment of fraudulent debts under the no-asset procedure the committee recommended amending the bill to clarify that fraudulent debts become enforceable again once a debtor is discharged from the process and that the debtor is liable to pay interest and penalties accrued during the procedure. That reinforces the underlying principle that insolvency laws are designed to deal with debts arising as a result of contractual obligations not debts that have originated from fraud. To forgive penalties in interest of a fraudulent debt would be inconsistent with that principle. The committee also clarified that a discharge from the no-asset procedure does not release any other person who at the date of discharge was a business partner co-trustee joint debtor or guarantor of the discharged debtor. If these individuals are in financial distress they would have to file a separate application for entry to the process. This change mirrors the current bankruptcy provisions. 
The committee’s discussions focused largely on the proposed changes to the public register provisions in Part 2 of the bill. The committee clarified the practicalities of reintroducing details of a debtor’s earlier insolvency into the public register should that person again become insolvent. Also due to a lack of reliable information regarding bankruptcies under the Insolvency Act 1908 the committee has agreed to exclude bankruptcies declared under that old legislation for the purposes of determining multiple insolvencies. Instead bankruptcies declared under the Insolvency Act 1967 and the Insolvency Act 2006 will be used to determine multiple insolvencies and the bankruptcy public register will reflect that information accordingly. 
The majority of submitters on the bill welcomed the proposed changes to the no-asset procedure and bankruptcy public registers in the bill. That was not unexpected given that the changes are designed to assist future lenders in making prudent lending decisions. Those changes will also facilitate flow of credit which is being clearly negatively impacted by the current global financial crisis. 
The diversity of reasons for financial distress such as job loss illness or marriage breakdown means that the length of time that information remains on the public registers will be appropriate for some debtors and not for others no matter what amount of time is chosen. I note there is no international consensus on that matter. The committee considered the proposed extension of the no-asset procedure register time frames from 1 year to 5 years which some submitters suggested goes against the rehabilitative objectives under the no-asset procedure process. Getting debts of up to $40000 written off under the process is a privilege to the debtors as they no longer have to repay their debts to the creditors. The changes proposed to lengthen the time a debtor’s details are made available on the public registers provide some balance to the no-asset procedure process. It also promotes responsible lending by not denying creditors the opportunity to ascertain the true creditworthiness of individuals wanting to obtain credit. That is equally applicable to the proposal to permanently retain the details of debtors who have been through multiple insolvency processes. 
The committee also recommended a minor change to the Privacy Act 1993 to make the summary instalment order register subject to the privacy principles under that Act. The no-asset procedure and bankruptcy public registers are currently subject to those principles. There is no sound policy reason to exclude the summary instalment order public register which had inadvertently been omitted from the Privacy Act. 
I conclude by thanking the members of the Commerce Committee for their swift consideration of the bill and by acknowledging the contributions of those who provided submissions. I am confident that the amendments made by the Commerce Committee will help the bill achieve its objectives of firstly preserving the integrity of the no-asset procedure and bankruptcy processes and secondly making those processes efficient and effective so that returns to creditors are maximised. I commend the bill to the House.