Senate

Replacement Explanatory Memorandum

(Circulated by authority of the Attorney-General, the Hon Christian Porter MP)

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Bankruptcy Amendment (Debt Agreement Reform) Bill 2018

8. The Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Bill

9. The Bill will amend the Bankruptcy Act to effect a comprehensive reform of Australia's debt agreement system. The aims of the Bill are to boost confidence in the professionalism of administrators, deter unscrupulous practices, enhance transparency between the administrator and stakeholders and to ensure that the debt agreement system is accessible and equitable.

Human rights implications

10. The impact of the Bill on the following human rights has been considered:

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the right to privacy and reputation, and

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the right to a fair trial and fair hearing.

The right to privacy

11. Article 17 of the International Covenant on Civil and Political Rights (ICCPR) provides that no one shall be subjected to arbitrary or unlawful interference with their privacy. The right to privacy may be engaged if the measures in the Bill involve the collection, use, disclosure or publication of personal information.

12. The Bill interacts with the right to privacy by providing for disclosure of information held by the Official Receiver, regarding commercial arrangements between debt agreement administrators and brokers or related entities (where these are natural persons), to be provided to affected creditors (item 33 of Part 6 Schedule 1). This disclosure may include personal information relating to the brokers and related entities. As noted above, the disclosure of personal information without a person's consent will engage, and limit, the protection from arbitrary and unlawful interference with privacy in article 17 of the ICCPR.

13. The right in article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.

14. To the extent that the measures in the Bill will limit the right in article 17 of the ICCPR, they are lawful and non-arbitrary. The amendment in the Bill allowing for the disclosure of information relating to brokers and related entities is for a legitimate purpose (to ensure that the voting process is fair and transparent) and is limited to disclosures that are necessary to achieve this purpose. In the absence of this amendment, a proposed administrator is not required to disclose any broker or referrer arrangements, including any commissions or other payments involved, to the debtor or affected creditors.

15. Item 33 of Part 6 Schedule 1 inserts new paragraphs 185C(2D)(f) and 185C(2D)(g) which require the proposed administrator to record details of any broker or referrer information, and to declare whether an affected creditor is also a related entity, in the certificate required by subsection 185C(2D). Item 38 of Schedule 1 mandates that a copy of the certificate be sent to affected creditors. These amendments will give affected creditors the opportunity to account for the administrator's referral arrangements, as well as notify them of potential conflicts of interest when a creditor is a related entity to the administrator, when voting on whether to accept the debt agreement.

16. Providing all affected creditors with an opportunity to review an administrator's relationships promotes a fair and transparent voting process. Money that the debtor pays to brokers or related entities is money that the debtor could have otherwise paid to affected creditors.

17. The requirement to disclose any information under the Bill is limited to the legitimate purpose of disclosing conflicts of interest and ensuring that the creditor voting process is fair and transparent. Most affected creditors are large credit providers and are generally required to comply with the Australian Privacy Principles (APPs) in the Privacy Act 1988 (Privacy Act).

The right to a fair trial

18. This Bill engages the right to a fair trial in Article 14 of the ICCPR.

19. The right to a fair trial applies to criminal proceedings. The Parliamentary Joint Committee on Human Rights Guidance Note 2 notes a range of protections are afforded to persons accused and convicted of criminal offences under article 14, including the presumption of innocence (article 14(2)).

20. Article 14(2) provides that everyone charged with a criminal offence shall have the right to be presumed innocent until proved guilty according to law.

21. Strict liability offences engage the presumption of innocence, because they allow for the imposition of criminal liability without the need to prove fault. The effect of applying strict liability to an element or elements of an offence therefore means that the prosecution does not need to prove fault. The Parliamentary Joint Committee on Human Rights Guidance Note 2 notes that where strict liability offences are introduced, a human rights assessment should assess its compatibility with the presumption of innocence.

22. Item 30 of Part 8 Schedule 2 inserts a new strict liability offence provision of 50 penalty units for contravention of existing requirements to maintain a separate bank account for funds relating to the debt agreement. Similarly, item 31 of Part 8 Schedule 2 inserts a new strict liability offence of 5 penalty units for failure of the debt agreement administrator to maintain accurate books or produce records relating to a trust account when requested by the Inspector-General. As an alternative, item 32 of Part 8 Schedule 2 provides that a breach of new subsection 185LE(1A) (item 31) can, where appropriate, be addressed by way of infringement notice with an amount payable to the value of 1 penalty unit. These amendments align the bankruptcy and debt agreement regimes and improve the integrity of the debt agreement regime by ensuring that trust accounts are easily identifiable and appropriately regulated.

23. Item 21 of Part 3 Schedule 3 inserts a new section 186HA to mandate that registered debt agreement administrators must maintain adequate and appropriate professional indemnity and fidelity insurance and that failure to do so amounts to an offence. In the case of intentional or reckless failure, a penalty of 1,000 penalty units will apply. However, if the failure is not intentional or reckless, it is considered a strict liability offence with a penalty of 60 penalty units. The application of strict liability, as opposed to absolute liability, preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for individuals who may be accused of breaching such offences.

24. Strict liability offences are appropriate in this area of regulation, as it is necessary to strongly deter misconduct that can have serious consequences for affected parties. Strict liability offences also reduce non-compliance, which bolsters the integrity of the regulatory regime enforced by the AFSA. Strict liability is particularly beneficial to these regulatory bodies as they need to deal with offences expeditiously to maintain public confidence in their regulatory regimes. The strict liability offences in the Bill meet all the conditions listed in the Guide to Framing Commonwealth Offences (pages 23 and 24). For example, the fines for the offences do not exceed 60 penalty units for an individual. By providing a strict liability enforcement regime for duties of debt agreement administrators, the Bill significantly enhances the likelihood of compliance by administrators. The severity of the penalty for intentionally or recklessly failing to comply with these requirements and the need for a strict liability offence reflects the importance of adequate and appropriate insurance for debt agreement administrators. As providers of professional services who often deal with large sums of money, debt agreement administrators must hold adequate and appropriate insurance to mitigate the risks associated with the profession.

Conclusion

25. The Bill is compatible with human rights. To the extent that the measures may limit those rights and freedoms recognised or declared in the international instruments listed in the definition of human rights in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 , such limitations are reasonable, necessary and proportionate to ensuring the proper administration of the debt agreement system.