Senate

Explanatory Memorandum

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

GENERAL OUTLINE

The most significant amendments to be made by this Bill will allow bankruptcy trustees to recover superannuation contributions made prior to bankruptcy with the intention to defeat creditors. These amendments will apply to superannuation contributions made on or after 28 July 2006. The Bill also contains amendments to facilitate recovery of void superannuation contributions by building on existing administrative recovery powers exercised by the Official Receiver and providing the Court with powers to make orders for payment by superannuation fund trustees where appropriate.

The Bill will also make other amendments designed to improve the operation of the Act particularly in relation to the treatment of rural support grants where the recipient is or becomes bankrupt.

The objects of this Bill are to:

(a)

provide for the recovery of superannuation contributions made with the intention to defeat creditors;

(b)

provide for certain rural support grants to be exempt from the property available to pay the bankrupt's creditors; and

(c)

make minor technical amendments to clarify or improve the operation of the Act.

Schedule 1 contains the amendments relating to recovery of superannuation contributions made with the intention to defeat creditors. That Schedule is divided into two Parts. Part 1 contains the substantive amendments which have the effect of rendering certain contributions void. Part 2 is concerned with the recovery of void contributions.

Schedule 2 contains the amendments relating to the treatment of rural support grants and the minor technical amendments to clarify or improve the operation of the Act.

Financial Impact Statement

The amendments proposed by this Bill will have no significant financial impact.

Section 2 - Policy objectives

The principal purpose of the amendments to be made by this Bill is to allow bankruptcy trustees to recover superannuation contributions made prior to bankruptcy with the intention to defeat creditors. These amendments will address problems highlighted following the High Court's decision in Cook v Benson
[2003] HCA 36 (19 June 2003).

The overall purpose of the amendments is to:

•

allow a bankruptcy trustee to recover the value of contributions to an eligible superannuation plan made by the bankrupt to defeat creditors (along the lines of the current section 121);

•

allow the trustee to recover contributions made by a person other than the bankrupt for the benefit of the bankrupt where the bankrupt's main purpose in participating in the arrangement was to defeat creditors;

•

ensure that consideration given by the superannuation trustee for the contribution will be ignored in determining whether the contribution is recoverable by the bankruptcy trustee, thus overcoming the effect of the High Court decision of Cook v Benson ;

•

allow the Court to consider the bankrupt's historical contributions pattern and whether any contributions were 'out of character' in determining whether they were made with the intention to defeat creditors;

•

provide that a superannuation fund will not have to repay any fees and charges associated with the contributions or any taxes it has paid in relation to the contributions, and

•

give the Official Receiver the power to issue a notice to the superannuation fund or funds that are holding the contributions that will put a freeze on the funds in order to prevent the bankrupt from rolling them over into another fund or otherwise dealing with them in circumstances where the trustee is entitled to recover them.

The effect of these amendments will be that payments to superannuation plans to defeat creditors will be recoverable in the same way as other payments or transfers to defeat creditors.

The amendments will apply to any contributions made after 27 July 2006.

The Bill also contains other amendments designed to enable certain rural support grants to be treated as exempt property in the recipient's bankruptcy and some minor technical amendments designed to clarify or improve the operation of the Act.

Section 3 - Notes on sections

Section 1 - Short Title

The Bankruptcy Legislation Amendment (Superannuation Contributions) Bill 2006 (the Bill) proposes amendments to the Bankruptcy Act 1966 (the Bankruptcy Act), the Payment Systems and Netting Act 1998 (the Payment Systems and Netting Act), and the Proceeds of Crime Act 2002 (the Proceeds of Crime Act). By proposed section 1, when the Bill has been enacted, it will be known as the Bankruptcy Legislation Amendment (Superannuation Contributions) Act 2006 .

Section 2 - Commencement

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 Royal Assent.

Schedule 1, Part 1 will commence on 28 July 2006. Schedule 1, Part 2 will commence on a single day to be fixed by Proclamation. However, if any of the provisions do not commence within 6 months of Royal Assent, they will commence on the first day after the end of that 6 month period.

Schedule 2, item 1 will commence on a single day to be fixed by Proclamation. However, if the provision included in item 1 does not commence within 6 months of Royal Assent, it will commence on the first day after the end of that 6 month period. Schedule 2, items 2 to 5 will commence on the day after the Bill receives Royal Assent. Schedule 2, items 6 to 8 will commence at the same time as Schedule 2, item 1.

Schedule 2, item 9 will commence immediately after the commencement of item 12 of Schedule 1 to Bankruptcy Legislation Amendment (Anti-avoidance) Act 2006 (that is, 31 May 2006). Proposed Schedule 2, item 10 will commence immediately after the commencement of item 208 of Schedule 1 to the Bankruptcy Legislation Amendment Act 1996 (that is, 16 December 1996). Schedule 2, item 11 will commence immediately after the commencement of section 10 of the Superannuation Industry (Supervision) Consequential Amendments Act 1993 (that is, 1 July 1994). These three amendments all correct drafting errors in the respective amending Acts so their commencement is linked to the commencement of the original amendments which are now being corrected.

Schedule 2, items 12 to 20 commence on the day after the Bill receives Royal Assent.

Section 3 - Amendments

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.