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2004-2005
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
BANKRUPTCY LEGISLATION AMENDMENT (ANTI-AVOIDANCE) BILL 2005
EXPLANATORY MEMORANDUM
(Circulated by authority of the Attorney-General,
the Honourable Philip Ruddock MP)
BANKRUPTCY LEGISLATION AMENDMENT (ANTI-AVOIDANCE) BILL 2005
Readers' Guide
This Explanatory Memorandum is divided into three main sections: a general
outline of the main provisions of the Bankruptcy Legislation Amendment
(Anti-avoidance) Bill 2005 (the Bill) (Section 1); a discussion of the main
policy objectives the Bill seeks to achieve (Section 2, commencing at page
3); and a detailed discussion of each provision, item by item (Section 3,
commencing at page 6).
Section 1 - General Outline
2. The amendments proposed by this Bill are intended to strengthen the
'claw back' provisions in the Bankruptcy Act 1966 (the Act). These
provisions allow trustees to recover property disposed of prior to
bankruptcy or owned by a third person but acquired by that person using the
bankrupt's resources. Bankrupts may deliberately avoid these provisions in
a number of ways including; (a) transferring assets to related entities in
anticipation of insolvency and delaying the commencement of the bankruptcy
(e.g. through protracted litigation); (b) concealing records relating to
the transfer of assets; (c) transferring assets to a person who should
reasonably be aware of the bankrupt's intention to defeat creditors; or
(d) accumulating wealth in the lead up to bankruptcy in the name of a
person who allows the bankrupt to continue to enjoy the asset despite the
transfer and after the bankruptcy commences.
3. The objects of this Bill are to:
a) increase the claw back period from 2 to 4 years for transfers of
property by a bankrupt to a related entity for less than market
value;
b) introduce a rebuttable presumption of insolvency for the purposes of
the claw back provisions where a bankrupt has failed to keep proper
books, accounts and records;
c) void a transfer made to defeat creditors if it was reasonable for the
transferee to infer that the bankrupt's main purpose in transferring
the property was to defeat creditors;
(d) empower the court to make orders in relation to property or
money of natural persons where during the period of up to 5 years
prior to bankruptcy:
. the person acquired an estate in property as a direct or
indirect result of financial contributions made by the bankrupt
during that period; or the value of the person's interest in
particular property increased as a direct or indirect result of
financial contributions made by the bankrupt during the period;
and
. the bankrupt used or derived (whether directly or indirectly) a
benefit from the property during the relevant period.
f) allow transcripts and notes from examinations under sections 77C and
81 of the Act to be used in proceedings under the Act, regardless of
whether the person examined is a party to the proceedings;
g) clarify section 120 to make it clear that a transfer will only be
protected from this provision if market value consideration is given
by the transferee to the bankrupt; and
h) amend sections 120 and 121 to make it clear that:
ix) the amount to be refunded to the transferee by the trustee is
the amount that the transferee gave to the bankrupt; and
(ii) 'consideration' for the purposes of these provisions is not to
include any right that the transferee has given to their
bankrupt spouse to reside at the transferred property (except in
the case of marital breakdown).
4. Schedule 1 contains the proposed amendments.
Financial Impact Statement
5. The amendments proposed by this Bill will have no significant
financial impact.
-------------------------------
Section 2 - Policy objectives
Increased time period for undervalue transfers from 2 to 4 years
6. A proposed amendment will increase the time period in section 120
from 2 to 4 years
where property was transferred to a related entity during that period for
less than
market value consideration. Examples of related entities are business
partners, parents, children, relatives, trustees and beneficiaries of
trusts that are related to the bankrupt or the bankrupt's spouse. The term
'related entity' is defined in section 5 of the Act.
7. This approach is based on the premise that gifts designed to
dissipate assets rendering them unavailable to creditors are in practice
more likely to be made to relatives
and associates rather than to strangers. Further, it is common for people
to be aware they are
likely to become bankrupt more than 2 years before they become bankrupt or
even
become technically insolvent. If transfers in this early period can't be
declared void,
it is open to a person to dispose of their assets in a way that will leave
little for
creditors (eg gifts to relatives). It is appropriate to extend the bar to
doing this to 4
years, not 2, because in the period between 2 and 4 years there is too much
scope for a
person to deliberately divest themselves of assets.
Rebuttable presumption of insolvency
8. A further proposed amendment will create a rebuttable presumption of
insolvency for the purposes of sections 120 and 121 of the Act. A
presumption will arise that the transferor was insolvent at the time of the
transfer if it is established that the transferor had not, in respect of
that time, kept proper 'books, accounts and records'; or where, having kept
the appropriate books, accounts and records in relation to that time, the
transferor had failed to preserve them. A similar presumption will be
introduced in relation to Division 4A of Part VI of the Act.
9. These amendments are proposed on the basis that it is usual
commercial practice to keep these books and records. This removes the
incentive to avoid making, hiding or destroying, records that would
demonstrate insolvency. This amendment will overcome some of the
difficulties faced by trustees when, for example, endeavouring to establish
an intention on the bankrupt's behalf to defeat the interests of creditors
under section 121. The bankrupt will of course have the opportunity to
rebut the presumption.
Additional element of 'reasonableness' in section 121
10. It is proposed to amend subsection 121(4) to place an additional
limit on the circumstances in which a transfer is protected by that
provision. At present, a transferee can be wilfully blind as to whether a
transferor's purpose is to defeat creditors. For example,
if a person is heading towards bankruptcy and transfers all their assets to
their spouse, that transfer is protected by subsection 121(4) if the non-
bankrupt spouse claims they did not think about why the transfer was
occurring. This 'wilful blindness' can be used to take advantage of
subsection 121(4) and protect actions divesting the bankrupt (and later,
their creditors) of assets.
11. The proposed amendment will introduce standards of reasonableness in
relation to the transferee's knowledge of the transferor's intention in
conveying the property.
Extending Division 4A of Part VI to natural persons
12. Division 4A of Part VI of the Act allows the trustee to obtain
property in certain
circumstances from an 'entity' that, during the 'examinable period', was
'controlled' by the bankrupt and benefited from his or her personal
services. The purpose of the provision is to allow the trustee to recover
a bankrupt's property in the situation where that property is disguised as
an asset of a trust, company or the like.
13. The current definition of 'entity' in the Act would theoretically
allow these provisions to apply to natural persons. However, the
provisions could not logically operate in that way. For example, the
provisions could not apply to the situation where the non-bankrupt spouse
acquires an estate in property, (or the value of the non-bankrupt spouse's
interest in property increases) as a result of the bankrupt's financial
contributions and the bankrupt uses or derives a benefit from that
property. This is because the bankrupt does not provide 'personal
services' to, does not 'control', and does not receive any remuneration
from, the non-bankrupt spouse.
14. The amendments proposed by this Bill will extend these provisions to
natural persons. The policy underlying these amendments is that just as a
person can hide their own assets in a trust or company, they can do so by
placing them with a spouse or other relative or associate.
Extending the time period in Division 4A of Part VI
15. The 'examinable period' is the relevant claw back period for the
purposes of Division 4A of Part VI. The term is currently defined in the
Act as either 2 years prior to the commencement of the bankruptcy, or from
the first point of insolvency in the 2 years
previous to that if the bankrupt became insolvent in those 2 years.
16. A proposed amendment will amend the definition of 'examinable period'
to
bring it in line with the proposed changes to the time periods in section
120. That is,
it is proposed to amend the 'examinable period' to either 4 years prior to
the
commencement of the bankruptcy in relation to property acquired by a
related entity,
or from the first point of insolvency in the year prior to that if the
bankrupt became insolvent in that year. The claw back period for non-
related entities will also be amended to align it with the changes proposed
to section 120. That is, for non-related entities the 'examinable period'
will be either 2 years prior to the commencement of the bankruptcy, or from
the first point of insolvency in the 3 years previous to that if the
bankrupt became insolvent in those 3 years.
Notion of 'benefit' in Division 4A of Part VI
17. A further proposed amendment to Division 4A of Part VI will make it
clear that it is
sufficient that the bankrupt benefited directly or indirectly from the
relevant property that the trustee seeks to recover under these provisions.
This will overcome the situation where it may not be immediately apparent
how the bankrupt has benefited. This was the case in one of the few
reported decisions under these provisions- Birdseye v Sheahan [2002] FCA
1319.
Transcripts of proceedings
18. Currently, it is not clear whether the transcript of proceedings
carried out under
section 77C can be used in proceedings relating to the bankrupt estate. The
proposed amendment will insert a provision into section 77C to make that
clear. This proposed change is similar to current subsection 81(17) of the
Act which provides:
Notes taken down and signed by a person in pursuance of subsection
(15), and
the transcript of the evidence given at the examination of a person
under this
section:
(a) may be used in evidence in any proceedings under this Act in which
the person is a party; and
(b) shall be open to inspection by the person, the relevant person,
the
trustee or a person who states in writing that he or she is a creditor
without fee and by any other person on payment of the fee prescribed
by the regulations.
19. It is proposed to further amend sections 77C and 81(17) to allow
notes and
transcripts to be admissible in subsequent proceedings to claw back assets,
irrespective of whether or not the bankrupt is a party to those
proceedings. This proposed change is consistent with a general philosophy
that relevant evidence should be able to be used in an efficient manner.
The transferee will still be able to call the bankrupt as a
witness and to cross-examine the bankrupt on their prior statements, as
appropriate.
Technical Amendments
20. The Bill also proposes to make some technical amendments to sections
120 and 121. Subsection 120(1) provides that a transfer is void against
the trustee if the transferee did not give at least market value
consideration. It is currently arguable that a transfer would not be void
where the transferee gave consideration to a third party even though the
bankrupt estate has lost the value of the property transferred.
Subsections 120(4) and 121(5) provide that when a transfer is void under
those sections the trustee must pay to the transferee an amount equal to
the value of any consideration that the transferee gave for the transfer.
21. The first proposed amendment would make it clear that consideration
must be given to the bankrupt (and not to a third party) for a transfer to
be protected. The second proposed amendment would make it clear that the
bankruptcy trustee must pay to the transferee an amount equal to the value
of any consideration received by the bankrupt from the transferee (ignoring
the value of any consideration that the transferee gave to a third party).
The effect would be to restore the bankrupt estate to the position that it
would be in had the transfer not occurred.
22. Subsections 120(5) and 121(6) provide that a number of things are to
have no value as consideration for the purposes of subsection 120(4) and
121(5) (for example, the transferee's love and affection for the
transferor). The second amendment would provide that the grant of a right
to a bankrupt spouse to reside at a place owned by the non-bankrupt spouse,
such as the family home, does not constitute consideration (except in cases
of marital breakdown).
-------------------------------
Section 3 - Notes on sections
Section 1 - Short Title
23. The Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2005 (the
Bill) proposes amendments to the Bankruptcy Act 1966 (the Act). By
proposed section 1, when the Bill has been enacted, it will be known as the
Bankruptcy Legislation Amendment ( Anti-avoidance) Act 2005.
Section 2 - Commencement
24. In accordance with the table in proposed section 2, proposed
sections 1 to 3 and anything in the Bill not elsewhere covered in that
table will commence on the day which the Bill receives the Royal Assent.
Proposed Schedule 1 will commence the 28th day after the day on which the
Bill receives the Royal Assent.
Section 3 - Amendments
25. Proposed section 3 is a drafting device to allow all the amendments
proposed to be made to the Act to be set out in a Schedule. The items in
the Schedule will amend the Act and will have effect according to their
terms. Notes on the Schedule items follow.
Schedule 1-Amendments to the Bankruptcy Act 1966
(This schedule sets out all of the amendments proposed to be made to the
Bankruptcy Act 1966.)
Part 1-Amendments
Definition of examinable period
26. The term 'examinable period' is used in current Division 4A of Part
VI of the Act. The Bill proposes amendments to that provision, including
amendments to the meaning of 'examinable period'. For ease of reference,
it is proposed that the new definition be contained in Division 4A of Part
VI (see note to item 17), rather than in section 5. This change is
reflected by the amendment proposed by item 1.
Section 77C
27. Section 77C of the Act allows the Official Receiver to issue a notice
requiring a
person to attend before the Official Receiver and give evidence and produce
all books
in the possession of the person relating to 'any matters connected with the
performance of the functions of the Official Receiver or trustee' under the
Act.
Item 2 proposes to amend section 77C to clarify that notes and transcripts
of proceedings carried out under this provision may be used in evidence in
any proceedings under the Act, regardless of whether or not the person is a
party to the proceedings; and made available for inspection by the person,
the trustee or a creditor, without fee. Any other person wishing to
inspect these documents will be required to pay a fee to be prescribed by
the regulations.
28. The proposed amendment is consistent with the modern trend to allow
relevant and probative material to be considered in proceedings, rather
than having artificial limits on the
evidence that may be adduced. In many cases, use of the transcript will be
an
efficient way to get straight to the major issues and evidence in the
proceedings.
Section 81
29. Subsection 81(17) currently provides that notes and transcripts from
an examination carried out under that provision may be used in evidence in
any proceedings under the Act in which the person being examined is a
party; and that these documents are open to inspection by the person being
examined, the bankrupt, the trustee or a creditor without a fee. The
effect of the amendment proposed by item 3 is that those documents will be
able to be used in any proceedings under the Act whether or not the person
is a party to the proceeding. This proposed amendment is in line with the
amendment proposed by item 2.
Section 116
30. As noted, the Bill proposes to make amendments to Division 4A of Part
VI of the Act. Those amendments propose to create new sections 139DA and
139EA (see notes on items 20 and 22). The effect of the amendments
proposed by items 4 and 5 is to deem property vested in or money paid to
the trustee pursuant to an order under those proposed new sections as
property divisible amongst the creditors of the bankrupt.
Section 120
Consideration must move from the transferee to the transferor
31. Subsection 120(1) of the Act currently provides that a transfer will
be void against the trustee if the transfer took place in the 5 years prior
to the commencement of the bankruptcy, and the transferee gave no
consideration for the transfer or gave consideration of less than the
market value of the property. Item 6 proposes to amend subsection 120 to
make it clear that the question of 'consideration' in this context is
whether or not consideration was given by the transferee to the transferor.
The effect of this proposed amendment is that a transfer will not be
protected where the transferee has given consideration to a third party.
Time Periods
32. Item 7 proposes to create a different period of claw back for the
purposes of section 120 where the transferee is a 'related entity' of the
transferor. Subsection 120(3) currently provides that:
Despite subsection (1), a transfer is not void against the trustee if:
j) the transfer took place more than 2 years before the
commencement of the bankruptcy and;
k) the transferee proves that, at the time of the transfer, the
transferor was solvent.
33. The effect of proposed new subsection 120(3) is to extend this time
period where the relevant transfer is to a 'related entity' (pursuant to
current section 5 of the Act, a 'related entity' in relation to a person
includes a relative; a body corporate of which the person, or a relative of
the person, is a director; and a member of a partnership of which the
person, or a relative of the person, is a member). The proposed change
will mean that an under market value transfer of property to a related
entity would be void as against the trustee in bankruptcy if it took place
in the 4 years prior to the bankruptcy, regardless of whether the
transferee was able to establish the transferor's solvency during that
period.
Rebuttable Presumption of Insolvency
34. Item 8 proposes to create a rebuttable presumption of insolvency for
the purposes of section 120. A presumption will arise that the transferor
was insolvent at the time of the transfer if it is established that the
transferor had not, in respect of that time, kept proper 'books, accounts
and records'; or where, having kept the appropriate books, accounts and
records in relation to that time, the transferor had failed to preserve
them. The practical effect of this proposed change will be that the claw
back period in section 120 could be extended to 5 years if a bankrupt had
undertaken an undervalue transfer at a time during the first 3 years (and
for related entities, the first year) of the 5 years prior to bankruptcy
when he or she had not been keeping proper books and records (eg as
required by taxation or business licensing laws). The presumption will
also arise where the bankrupt had failed to preserve the appropriate books,
accounts and records relating to the time of the transfer.
35. The policy underlying this proposed change is that if a bankrupt is
unable to produce books and records explaining their financial position at
a particular time, it would be reasonable to allow the trustee to presume
they were insolvent at that time.
Refund of consideration
36. Current subsection 120(4) provides that the trustee must pay to the
transferee an amount equal to the value of any consideration that the
transferee gave for a transfer that is void against the trustee. By virtue
of the amendment proposed by item 9, it will be made clear that the
consideration to be refunded in these circumstances is the consideration
given by the transferee to the transferor.
What is not consideration
Current subsection 120(5) sets out the actions and circumstances that are
not to be regarded as consideration for the purposes of subsections 120(1)
and 120(4) of the Act. The effect of the amendment proposed by item 10 is
that a further circumstance is to be included in this provision. By virtue
of new paragraph 120(5)(e), the grant by the transferee (if the transferee
is the spouse of the transferor) of the transferor's right to live at the
transferred property also does not constitute consideration for these
purposes, unless that grant relates to a transfer or settlement of
property, or an agreement, under the Family Law Act 1975.
Consideration must move from the transferee to the transferor
38. Item 11 proposes to make it clear that the 'consideration' referred
to in paragraph 121(4)(a) is the consideration moving from the transferee
to the transferor. The meaning of 'consideration' is similarly clarified
in the proposed changes to section 120 (see notes to items 6 and 9).
Section 121
Notion of reasonableness
39. Current subsection 121(1) of the Act renders a transfer of property
by the bankrupt prior to bankruptcy void as against the trustee if that
transfer was made with the intention to defeat the interests of creditors.
40. Current subsection 121(4) provides that, despite subsection 121(1), a
transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at
least
as valuable as the market value of the property; and
(b) the transferee did not know that the transferor's main purpose in
making the transfer was the purpose described in paragraph (1)(b)
(i.e. to defeat the interests of creditors);
and
(c) the transferee could not reasonably have inferred that, at the
time of
the transfer, the transferor was, or was about to become, insolvent.
41. The amendment proposed by item 12 will mean that a person could only
take advantage of subsection 121(4) if they both didn't know the transferor
was seeking to defeat creditors (as at present) AND they could not have
reasonably inferred that this was the transferor's main purpose. In other
words, if the evidence objectively suggests the transferee (i.e. recipient)
should have known that the transferor (i.e. pending bankrupt) was
attempting
to defeat creditors, the transfer would not be protected by subsection
121(4).
Rebuttable presumption of insolvency
42. Item 13 would create a rebuttable presumption of insolvency for the
purposes of subsection 121. Pursuant to this proposed change, a rebuttable
presumption arises that the transferor was, or was about to become,
insolvent at the time of the transfer if it established that the transferor
had failed to keep proper 'books, accounts and records' in respect of that
time, or, having kept such books and records, the transferor had failed to
preserve them. The Bill proposes to create the same presumption in
relation to section 120 (see notes on item 8).
Refund of consideration
43. Subsection 121(5) currently provides that the trustee must pay to the
transferee an amount equal to the value of any consideration that the
transferee gave for a transfer that is void against the trustee. By virtue
of the amendment proposed by item 14, it will be made clear that the
consideration to be refunded in these circumstances is the consideration
given by the transferee to the transferor. A similar amendment is proposed
in relation to the equivalent provision in section 120 (see notes on items
9).
What is not consideration
44. Current subsection 121(6) sets out the actions and circumstances that
are not to be regarded as consideration for the purposes of subsections
121(4) and 121(5) of the Act. The effect of the amendment proposed by item
15 is that a further circumstance is to be included in this provision. By
virtue of new paragraph 121(6)(e), the grant by the transferee (if the
transferee is the spouse of the transferor) of the transferor's right to
live at the transferred property also does not constitute consideration for
these purposes, unless that grant relates to a property settlement or
agreement under the Family Law Act 1975. A similar amendment is proposed
in relation to the equivalent provision in section 120 (see notes on item
10).
Division 4A of Part VI-Orders in relation to property of entity controlled
by bankrupt or from which bankrupt derived a benefit
45. Current sections 139D and 139E empower the court to make an order
transferring certain property from a company, trust, partnership or other
third person ('the entity') to the trustee in bankruptcy. Before an order
can be made under Division 4A, it must be demonstrated that:
m) during the 'examinable period' and before the end of the bankruptcy,
the bankrupt supplied 'personal services' to, for or on behalf of the
entity at a time when the bankrupt 'controlled' the entity (ss
139D(1)(a), 139E(1)(a)); and
n) the bankrupt received no remuneration or received inadequate
remuneration for those services (ss 139D(1)(b), 139E(1)(b); and
o) either:
(i) the entity acquired an estate in particular property as a
direct or indirect result of, or of matter including, the
bankrupt's supply of the services (and still has an estate in
the property at the date of the order); and
the bankrupt used the property, or derived a benefit from it,
while controlling the entity in relation to the property (ss
139D(1)(c), (d), (e)); or
(ii) at any time during the examinable period, the entity's
'net worth' was substantially more than it would have been if
the bankrupt had not supplied the services (s 139E(1)(c)).
46. 'Examinable period' is currently defined to mean the period ending on
the day of the trustee's application under the Division and beginning:
p) at the time or times when the bankrupt became insolvent during the
period beginning four years before, and ending two years before, the
commencement of the bankruptcy; or
q) in any other case - two years before the commencement of the
bankruptcy
(s 5).
By virtue of the amendments proposed by this Bill, Division 4A of Part VI
will be amended to enable these provisions to apply to natural persons (see
notes on items 20 and 22); and to align the 'examinable period' (i.e. the
claw back period) with the changes proposed to the section 120 claw back
periods (see notes on item 17).
48. Item 16 would repeal the heading of Division 4A of Part VI and
replace it with a heading that reflects the proposed new provisions.
Definition of examinable period
Item 17 reflects these proposed changes by inserting a proposed new
definition of the term 'examinable period'. Proposed new section 139CA
provides that, for the purposes of Division 4A of Part VI, 'examinable
period' is, in relation to a 'related entity', either 4 years prior to the
commencement of the bankruptcy, or from the first point of insolvency in
the year previous to that if the bankrupt became insolvent during that
year. The proposed new definition also provides that, in any other case,
the 'examinable period' is either 2 years prior the commencement of the
bankruptcy, or from the first point of insolvency in the 3 years previous
to that if the bankrupt became insolvent during that period.
50. Item 17 would also create a rebuttable presumption of insolvency for
the purposes of proposed new section 139CA. Consistent with the proposed
introduction of this presumption in relation to sections 120 and 121 (see
notes on items 8 and 13), a presumption will arise that the bankrupt became
insolvent during the first year of the 5 years prior to bankruptcy (or, for
orders in relation to non-related entities, the first 3 of the 5 years
prior to bankruptcy) if it is established that the transferor had not, in
respect of that time, kept proper 'books, accounts and records'; or where,
having kept the appropriate books, accounts and records in relation to that
time, the transferor had failed to preserve them.
Current section 139D
Confined to entities other than natural persons
51. The change proposed in item 18 is necessary to make it clear that
current section 139D is dealing only with orders in relation to entities
other than a natural person. Proposed new section 139DA will apply
specifically to natural persons (see notes on item 20).
Notion of benefit
52. As noted, in order for the court to transfer property to the trustee
under current section 139D, the bankrupt must have used or derived a
'benefit' from that property during the examinable period. The effect of
the change proposed by item 19 is that it is sufficient if the bankrupt
benefited indirectly from the relevant property.
Orders relating to property of natural persons
53. Item 20 proposes to insert new section 139DA. This proposed new
provision will allow the court to make orders in relation to property of
natural persons where:
. during the examinable period, the entity acquired an estate in
particular property as a direct or indirect result of financial
contributions made by the bankrupt during that period; and
. the bankrupt used or derived (whether directly or indirectly) a
benefit from, the property at a time or times during the examinable
period; and
. the entity still has an estate in the property.
54. These proposed changes will overcome the practical inapplicability of
the current provisions in Division 4A of Part VI to natural persons. This
has been achieved by removing criteria such as 'control', 'personal
services', and remuneration and replacing these with provisions that allow
the court to examine how the bankrupt's substantive contribution (his or
her 'income flow or activities') has resulted in the acquisition of the
property. The amended time period in Division 4A of Part VI will apply to
these proposed changes (see notes on item 17). These proposed changes will
address the situation where, for example, the bankrupt has diverted his
income in order to fund the purchase a house property in his partner's
name, and the bankrupt derives a benefit by living in that property.
Current section 139E
Confined to entities other than natural persons
55. The change proposed in item 21 is necessary to make it clear that
current section 139E is dealing only with orders in relation to entities
other than a natural person. Proposed new section 139EA will apply
specifically to natural persons (see notes on item 22).
Order relating to increase in value of property of natural persons
56. By virtue if the changes proposed in item 22, the court will be able
to make orders directing a natural person to pay the trustee a specified
amount if the court is satisfied that:
. during the examinable period, the value of the entity's interest in
particular property increased as a direct or indirect result of
financial contributions made by the bankrupt during that period; and
. the bankrupt used or derived (whether directly or indirectly) a
benefit from the property at a time or times during the examinable
period.
57. The amount that the court can order the entity to pay under this
proposed provision must not exceed the amount by which the value of the
entity's interest in the property increased as a result of the bankrupt's
financial contributions.
58. This proposed amendment will address the situation where, as a result
of contributions supplied by the bankrupt, a person's net worth increases
in the years immediately prior to bankruptcy, and the bankrupt derives a
benefit from property directly connected to that increase in net worth.
For example, in the 4 years prior to bankruptcy, a bankrupt may service the
mortgage on a house property held in the name of his or her spouse, and the
bankrupt may live in that property (thereby deriving a benefit from the
property). Under these proposed provisions, the trustee may be able to
recover the increase in the value of the property that can be attributed to
the bankrupt's financial contributions.
Current section 139F
59. Current section 139F sets out the matters that the Court must take
into account in considering whether to make orders under section 139D or
139E. These include matters such as hardship and, in relation to an order
under section 139E, the respondent entity's current net worth. By virtue
of the amendments proposed by items 23 and 24, the court must take these
same matters into account when making an order under proposed new sections
139DA and 139EA.
Current section 139G
60. Current section 139G contains provisions which allow the court to
give effect to orders under sections 139D and 139E, and which provide that,
should laws of the Commonwealth, a State or Territory require the
registration of the transfer of property subject to an order under section
139D, the property, estate or interest vests in equity in the person by
virtue of equity but does not vest at law until the relevant registration
requirements have been met. By virtue of the amendments proposed by items
25, 26 and 27, the provisions in section 139G will apply to orders under
proposed new sections 139DA and 139EA.
Current section 139H
61. Current section 139H provides that, where orders have been made under
sections 139D or 139E, the respondent entity may claim for a dividend in
the bankruptcy to the value of the property or money subject to the order.
However, such a claim must be postponed until all claims of other creditors
(including claims for interest on interest-bearing debts in respect of a
period after the date of the bankruptcy but not including claims under
subsection 120(4)) have been satisfied. Items 28 and 29 propose to apply
this provision to orders under proposed new sections 139DA and 139EA.
Part 2 - Application provisions
62. Item 30 sets out when the proposed amendments made by this Schedule
apply.
63. The amendments made by items 2 and 3 apply to attendances under
section 77C and examinations under section 81 that occur on or after
commencement of these items.
64. The amendments made by items 6 to 15 apply to transfers of property
made on or after the commencements of these items.
65. The amendments made by items 1, 4 and 5, and 16 to 29 apply in
relation to an examinable period that commences on or after the
commencement of these items.