Fairbrother Russell: Insolvency Law Reform Bill — In Committee 
Fairbrother Russell: Insolvency Law Reform Bill — In Committee 
[Volume:634;Page:6048] 
RUSSELL FAIRBROTHER (Labour) 
: 
 There is nothing worse for a small business than to have the expectation of a debt being repaid that will not be repaid. It leads to borrowing from the bank in order to cover assets that will never be realised—namely unpaid debts. The no-asset procedure is an enlightened piece of legislation in the debt recovery regime. In fact it is a natural extension from the present provisions of the Insolvency Act because bankruptcy is not an automatic consequence of filing to put someone in bankruptcy. The judge always retains the discretion to make a bankruptcy order because the underlying thesis of granting that discretion is a protection to the commercial community from a continually bad debtor. 
The no-asset procedure has high qualifying standards. Clause 359 has five prerequisites two of which are important in rebuttal of the matters raised by previous speakers. First clause 359(1)(a) states: “the debtor has no realisable assets;”. Of course an income that will enable payment of the debt over a 12-month period is a realisable asset so any person with such an income would not qualify for a no-asset procedure. Under clause 359(1)(e) a debtor must meet a prescribed means test to prove that he or she “does not have the means of repaying any amount towards those debts.” So a person who applies for a no-asset procedure will not be granted that status if there is any ability within the 12-month period to repay the debt. But more important we find in clause 360(c) that a debtor who has incurred debt knowing that he or she does not have the means to repay it will not be allowed into a no-asset procedure. So a debtor who is careless and reckless is precluded from entering the no-asset procedure. That provision underscores the basic tenet of the present bankruptcy laws that that is a discretion designed to protect the commercial community. 
If a person is not a threat to the commercial community but is in a circumstance where he or she having acted in good faith comes to a stage where he or she cannot pay his or her debts then all creditors are entitled to know that in order to clear what would otherwise be an asset from their books and get on with planning their businesses accordingly. So a debtor who is in the unfortunate position of being in good faith but of having no realisable assets which would include a good income over the next 12 months can apply for a no-asset procedure because it cancels out the share of unmeritorious assets in a creditor’s book based on the assumption that maybe that debtor will one day pay. Of course if the circumstances of the debtor do change in a 12-month period then clause 367 applies because in the event of such a change the official assignee must be notified of that and of course the next step would be for the person to go either straight into bankruptcy or into the insolvency provisions. 
The no-asset procedure will not be used in a widespread way. It is a simple cut-off sanitising process for a person who cannot repay debts that have been incurred in good faith. It is an asset to the business community because it gives everybody a standard for assessing which debts will be repaid and which people are worth lingering with in the hope that they will repay debt. But of course a creditor also has a say in this procedure. Under clause 362 a creditor has time to object to a debtor being placed into a no-asset provision situation. The final underscoring of the good-faith provisions that underlie the no-asset procedure is that a debtor may be placed into a no-asset procedure on only one occasion. One mistake is OK in the commercial world but two are a bad habit and people cannot be placed in a no-asset procedure again. 
So instead of the misrepresentation we have heard from the speakers on the Opposition side of the debate I can tell the Committee that the no-asset procedure is a logical extension of the discretion the court has under the present insolvency laws. It is a low-expense provision that enables creditors to truly appraise what are good debts and what are bad debts because it has the measuring stick of the official assignee who has to apply stringent test criteria before admitting someone to a no-asset procedure. There is the out of the creditor having a chance to object and there is the opportunity should the debtor’s position improve for the debtor to move from a no-asset procedure to an insolvency or even bankruptcy basis or to repay his or her bills.