House of Representatives

Revised Explanatory Memorandum

(Circulated by authority of the Attorney-General, the Honourable Philip Ruddock MP)

Schedule 3 - Amendment relating to maintenance agreements

Bankruptcy Act 1966

Item 1: Subsection 5(1) (definition of maintenance agreement)

Item 1 proposes to amend the definition of 'maintenance agreement' at subsection 5(1) of the Bankruptcy Act 1966 (the Bankruptcy Act) to exclude financial agreements entered into under Part VIIIA of the Family Law Act 1975 (the Family Law Act). This will allow trustees to use the provisions in Division 3 of Part VI of the Bankruptcy Act to recover property transferred by the bankrupt prior to the commencement of bankruptcy.

Division 3 of Part VI includes provisions which allow trustees to recover certain property transferred by the bankrupt prior to the commencement of his or her bankruptcy. These provisions do not apply to transactions arising from the bankrupt's liability under a 'maintenance agreement' or 'maintenance order'. A financial agreement made under Part VIIIA of the Family Law Act is a 'maintenance agreement' for the purposes of that Act.

A financial agreement can be made before or during the marriage or following separation. It is a binding agreement dealing with the distribution of property in the event of the marriage breaking down. It may also provide for the maintenance of either party to the marriage or their children. Financial agreements do not require approval by a court. Nor do they have to be registered with the court. They can only be set aside by the court in circumstances similar to those applying in contract law (such a fraud and undue influence). For these reasons, it is not appropriate that property transferred pursuant to such an agreement is excluded from the property available to pay creditors.

Item 2: Application of amendment

Item 2 provides that the amendment made by Item 1 will apply to all bankruptcies current on or after the commencement of the amendment.