House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Justice and Customs Senator the Honourable Chris Ellison)

SCHEDULE 4 - BANKRUPTCY

This Schedule makes amendments to the Bankruptcy Act 1966 , giving priority to recovery of forfeited property or pecuniary penalty/literary proceeds amounts due under the PoC Bill 2002 over bankruptcy proceedings.

Part 1 - Effect of proceeds of crime orders

Bankruptcy Act 1966

Item 1 This item inserts a new definition of 'forfeiture order', to refer to a forfeiture order made under a proceeds of crime law. 'Proceeds of crime law is defined in Part 2 of Schedule 4.

Item 2 This amends the definition of 'pecuniary penalty order' to include a reference to a literary proceeds order (LPO), and to provide for PPOs made under the PoC Bill 2002.

Item 3 This item inserts a new definition of 'proceeds of crime order'. A 'proceeds of crime order' is a restraining order, forfeiture order or PPO. All orders may be either conviction- or civil-based under the PoC Bill 2002.

Item 4 This inserts a definition of 'restraining order'. A restraining order is an order preventing property from being disposed of or otherwise dealt with.

Item 5 This provision inserts a new section at the end of Part 1A of the Bankruptcy Act, which is an interpretative Part. Proposed section 6C provides that for the purposes of the Bankruptcy Act property is covered by a restraining order or forfeiture order from the time the order comes into force in relation to the property until it ceases or the property is excluded from the order.

A restraining order may cease for many reasons, including because property it covers is forfeited to the Commonwealth or because there is no relevant conviction or charge (if the conviction or charge is the basis of the restraining order).

Sub-paragraph 6C(1)(b)(iii) refers to where there is a restraining order in force and automatic forfeiture would occur six months after conviction of the relevant serious offence (unless the time is extended).

Proposed subsection 6C(2) makes it clear that a PPO ceases to be in force once it has been satisfied.

Proposed subsection 6C(3) establishes that for the purposes of the Bankruptcy Act an application for a proceeds of crime order is finally determined when one of the circumstances in paragraphs (a)-(c) occurs. Paragraph (a) states that if an application is withdrawn, it can be taken to be finally determined. Under paragraph (b), an application is taken to be finally determined where the application is successful and the resulting proceeds of crime order comes into force. A proceeds of crime order comes into force upon being made by a court, or in the case of automatic forfeiture under Part 2-2 of the PoC Bill 2002, upon the expiry of the relevant time since conviction of the serious offence. Upon an order being made, or time period expiring, the property vests absolutely in the Commonwealth (except where the property is real property, in which case it vests in equity and must be registered to vest is law).

Item 6 This item amends paragraph 40(1)(hd). Section 40 establishes what is an act of bankruptcy. One of the grounds which may constitute an act of bankruptcy is if a debt agreement (to which the debtor is a party as the debtor) is terminated, under either section 185P or 185Q. Item 25 inserts a new section under which a debt agreement may be terminated (proposed section 185QA), and the amendment to paragraph 40(1)(hd) reflects this.

Item 7 This item adds a Note at the end of subsection 58(1) of the Bankruptcy Act. The Note advises that subsection 58(1) has limited application if there are orders in force under the proceeds of crime law, and notes that section 58A is the appropriate section to look to in those circumstances.

Subsection 58(1) provides that where a debtor becomes a bankrupt, his or her property vests in the OT or a registered trustee, and that any after-acquired property also vests in the OT or registered trustee as soon as it is either acquired by or devolves on the bankrupt.

Item 8 This amendment removes the ability of a creditor to enforce a remedy against a bankrupt or property of the bankrupt not vested in the bankrupt, in respect of a liability under a PPO or interstate PPO. PPOs and interstate PPOs are covered by the proposed amendments at Item 6.

Item 9 This item disapplies subsection 58(1) of the Bankruptcy Act where the property of the bankrupt is covered by a restraining order or a forfeiture order made before the bankruptcy. The amendments also disapplies subsection 58(1) where a PPO is made prior to a bankruptcy.

The effect of the amendment is that the property of a bankrupt does not vest in the OT or a registered trustee at bankruptcy, and that any after-acquired property does also not vest in the OT or registered trustee when it is acquired by or devolves on the bankrupt.

Item 10 This item amends section 82 of the Bankruptcy Act, which sets out what debts are provable in bankruptcy. The amendment to subsection 82(3) removes the condition relating to PPOs and interstate PPOs. The effect of this is that penalties and fines imposed by a court in respect of an offence are not provable in bankruptcy. This item works in conjunction with item 8.

Item 11 This item amends subsection 82(3A) and provides that whereas PPOs and interstate PPOs were previously provable in bankruptcy, they no longer are. The effect of this is that the debt survives bankruptcy and thus is recoverable despite the bankruptcy.

Item 12 This item sets out when the provisions under this Schedule commence. The amendments are taken to apply to bankruptcies where the date of bankruptcy is after the commencement of the Schedule. In addition, the amendments apply to any deed of assignment, deed of arrangement or composition not accepted, before the commencement of this Schedule.

Item 13 This item creates a Subdivision A of Division 2 of Part VI of the Bankruptcy Act.

Item 14 This item inserts a Note at the end of section 108, advising that the rules in section 108 (which provides that proved debts are to rank equally unless otherwise provided) can be affected by proceeds of crime orders.

Item 15 This item creates a Subdivision B of Division 2 of Part VI of the Bankruptcy Act. The item also inserts three proposed sections, which set out the effects of proceeds of crime orders and applications for such orders on bankruptcy proceedings.

Subdivision B - The effect of proceeds of crime orders and applications for proceeds of crime orders

Proposed section 114A The effect of proceeds of crime orders

Proposed section 114A provides that where property of a bankrupt is covered by a restraining order or forfeiture order at the same time as the bankruptcy, the proceeds of any property covered by the relevant proceeds of crime order cannot be applied under section 108 while such an order is in force.

This amendment effectively excludes the property covered by a restraining order or forfeiture order from the property able to be used to pay the debts of the bankrupt.

Proposed section 114B The effect of applications for proceeds of crime orders

Proposed subsection 114B(1) provides that where an application for a forfeiture or restraining order is made under a proceeds of crime law, and the property it would cover if made is the property of a bankrupt, the proceeds of any property that would be covered by a relevant proceeds of crime order cannot be applied under section 108 before the application is determined.

Proposed subsection 114B(2) provides that where an application for a PPO is made under a proceeds of crime law, and person against whom the order is made either is or later becomes a bankrupt, the proceeds of any property of the bankrupt cannot be applied under section 108 before the application is determined.

Proposed section 114C Director of Public Prosecutions must notify the trustee of certain matters

Proposed section 114C requires the DPP to notify the trustee of circumstances which prevent section 108 from applying to the proceeds of the property of a bankrupt. The DPP must also notify the trustee when the circumstances change, and section 108 is no longer prevented from applying. For example, if an application for a restraining order is made which would cover the property of the bankrupt, proposed section 114B would prevent section 108 from applying. However, if the application was unsuccessful, proposed section 114B would no longer prevent section 108 from applying. The DPP would have to notify the trustee in both circumstances.

Item 16 this item applies new Subdivisions B to proceeds of crime orders and applications for proceeds of crime orders made after the commencement of this Schedule, even where the date of bankruptcy is before that commencement.

Item 17 This item makes paragraphs 153(2)(a)-(b) apply in the alternative.

Item 18 This item works in conjunction with item 19, which removes paragraph 153(2)(d). This item removes the word 'or' currently between paragraphs 153(2)(c) and (d).

Item 19 This item removes paragraph 153(2)(d), which states that upon discharge from bankruptcy, the bankrupt is not released the from any liability under a pecuniary penalty order or interstate pecuniary penalty order. This provision is no longer necessary, as the discharged bankrupt will remain liable for the PPO throughout and after the bankruptcy, as such orders are not provable in bankruptcy.

Item 20 This item inserts a Note, advising that a discharged bankrupt will remain liable under any PPO because such liabilities are not provable in bankruptcy.

Item 21 Item 24 of this Schedule inserts a new section under which a debt agreement may be terminated (proposed section 185QA), and the amendment to paragraph 185J(2)(a) reflects this.

Item 22 This item inserts proposed subsection 185K(2), which inserts a liability under a proceeds of crime law as a liability in respect of which a remedy may be enforced against the debtor or the debtor's property.

Item 23 Item 24 of this Schedule inserts a new section under which a debt agreement may be terminated (proposed section 185QA), and the amendment to subsection 185N(1) reflects this.

Item 24 This item inserts proposed section 185QA. Proposed section 185QA will enable a debt agreement to be terminated by the passing of a special resolution where property of the debtor is covered by a restraining order or a forfeiture order or a PPO made against the debtor is in force.

However, if the property was already covered by a restraining or forfeiture order, or a PPO was already in force against the debtor at the time the debt agreement was made, the debt agreement cannot be terminated under this section.

Item 25 Item 24 of this Schedule inserts a new section under which a debt agreement may be terminated (proposed section 185QA), and the amendment to section 185S reflects this.

Item 26 This item amends subsection 190(5) of the Bankruptcy Act to take account of new Subdivision B of Division 2 of Part VI of the Bankruptcy Act.

Item 27 This item inserts a new subsection into section 237 of the Bankruptcy Act, which provides that nothing in Division 5 of Part X (which contains special provisions applicable to Deeds of Arrangement) empowers the court to stay proceeds of crime proceedings.

Item 28 This item inserts a new subsection in section 241, which provides that a composition may be terminated by the creditors where property of the debtor is covered by a restraining order or a forfeiture order or a PPO made against the debtor is in force.

However, if the property was already covered by a restraining or forfeiture order, or a PPO was already in force against the debtor at the time the composition was made, the composition cannot be terminated under this section.

Item 29 This item inserts a new subsection into section 243 of the Bankruptcy Act, which provides that nothing in Division 6 of Part X (which contains special provisions applicable to compositions) empowers the court to stay proceeds of crime proceedings.

Proceeds of Crime Act 1987

Item 30 This item repeals paragraph 50(2)(d) of the PoC Act 1987, which has the effect of giving bankruptcy proceedings priority over PoC Act 1987 proceedings.

Item 31 This item repeals section 53 of the PoC Act 1987, which has the effect of giving bankruptcy proceedings priority over PoC Act 1987 proceedings.

Item 32 This item repeals the reference in paragraph 59(1)(f) of the PoC Act 1987 to section 53 of that Act, which has the effect of giving bankruptcy proceedings priority over PoC Act 1987 proceedings.

Item 33 This item repeals paragraph 90(2)(d) of the PoC Act 1987, which has the effect of giving bankruptcy proceedings priority over PoC Act 1987 proceedings.

Part 2 - Other amendments

Bankruptcy Act 1966

Item 34 This item amends the definition of 'confiscation order'. It repeals the reference to the PoC Act 1987 and replaces it with a reference to the PoC Bill 2002.

Item 35 This item amends the definition of 'corresponding law'. It repeals the reference to the PoC Act 1987 and replaces it with a reference to the PoC Bill 2002.

Item 36 This item amends the definition of 'interstate forfeiture order'. It repeals the reference to the PoC Act 1987 and replaces it with a reference to the PoC Bill 2002.

Item 37 This item amends the definition of 'interstate pecuniary penalty order'. It repeals the reference to the PoC Act 1987 and replaces it with a reference to the PoC Bill 2002.

Item 38 This item inserts the definition of 'proceeds of crime law', which is defined to include both the PoC Act 1987 and the PoC Bill 2002, as well as a corresponding law.

Item 39 This item amends subsection 60(4A). It repeals the reference to the PoC Act 1987 and replaces it with a reference to a 'proceeds of crime law'.

Item 40 This item amends sub-paragraph 154(6)(b)(i). It repeals the reference to the PoC Act 1987 and replaces it with a reference to a 'proceeds of crime law'.

Item 41 This item amends subsection 189AA(2). It repeals the reference to the PoC Act 1987 and replaces it with a reference to a 'proceeds of crime law'.

Item 42 This item amends sub-paragraph 231A(2)(b)(i). It repeals the reference to the PoC Act 1987 and replaces it with a reference to a 'proceeds of crime law'.

Item 43 This item amends sub-paragraph 237AA(2)(b)(i). It repeals the reference to the PoC Act 1987 and replaces it with a reference to a 'proceeds of crime law'.

Item 44 This item amends sub-paragraph 243AA(2)(b)(i). It repeals the reference to the PoC Act 1987 and replaces it with a reference to a 'proceeds of crime law'.