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Senator Wright on Greens success in disallowing bankruptcy filing fees

Speeches in Parliament
Penny Wright 23 Jun 2014

Senator WRIGHT: I move:

That item 4.10A of Schedule 1 of the Bankruptcy Amendment (2014 Measures No. 1) Regulation 2014, as contained in Select Legislative Instrument 2014 No. 36 and made under the Bankruptcy Act 1966, be disallowed [F2014L00350].

(Eleven sitting days remain, including today, to resolve the motion or the instrument will be deemed to have been disallowed.)

I also move:

That the Division 2.11 of the Bankruptcy (Fees and Remuneration) Determination 2014, made under subsection 316(1) of the Bankruptcy Act 1966, be disallowed [F2014L00367].

(Eleven sitting days remain, including today, to resolve the motion or the instrument will be deemed to have been disallowed.)

As the instigator of these disallowance motions, I rise to highlight exactly what they will disallow. I urge the Senate to disallow these provisions. In so doing, the Senate will send a clear message that we are looking out for vulnerable people in Australia.

Last year's Mid-Year Economic and Fiscal Outlook, MYEFO, directed the Australian Financial Security Authority to recover its own costs by introducing a new $120 fee for people who apply for a debtor's petition. What is a debtor's petition? It is a form of voluntary bankruptcy. A person files for a debtor's petition when their debts are insurmountable, when all other options have been exhausted and when they have finally-often after a long, protracted period-decided to take control of their own finances by filing for this form of voluntary bankruptcy.

In coming to the decision to move this disallowance,    I have been closely consulting with consumer advocates and financial counsellors, in particular the representatives of Financial Counselling Australia and the Consumer Action Law Centre who brought the consequences of this fee to my attention. Many of us in this place will not have personally experienced the stress and worry that others face as they struggle to get on top of stifling debts. No doubt some of us in this place have faced or will face such a situation, but I think there would probably be fewer here than in other parts of Australia. The debts some people face are impossible to deal with and are a constant living nightmare-people can often see no way to get out of the financial nightmare they are in.

Some Australians are in the midst of that nightmare right now. Just last week in South Australia, I met with some financial counsellors who told me about the experiences of a couple of their clients. One of them told me about a man who had developed a serious physical illness, a debilitating illness. He, along with his wife, had been running a small business. He had been struggling to continue with the business and to pay his mounting debts. He was initially very unwilling to consider bankruptcy, because he considered his debts his moral responsibility to repay. But the situation was becoming increasingly hopeless. There was no end in sight-either in recovery from his illness or in resurrecting his business. He finally came to a decision to petition for bankruptcy, but this fee, which came into effect on 1 April, was one more impediment-after the long series of steps he had taken in coming to that decision-and once again the situation seemed hopeless to him.

What these financial counsellors were at pains to convey to me-and they have been doing so all along-is that people do not undertake voluntary bankruptcy lightly. There is a still a strong sense of shame and stigma in Australian society for people who have had to publicly acknowledge that their financial circumstances are out of their control. So people usually only go into voluntary bankruptcy after a long process of consideration and a series of steps. With that final decision-which they always make on a personal basis; the counsellors give them the options, but it is always the decision of the client-there often then comes a sense of relief. They start to have a sense that they are reasserting control over their lives, that there is a light at the end of the tunnel. However, what I have been consistently hearing from these representatives of vulnerable and marginalised people is that this final fee, this fee of $120, was just one more impediment-and often, in fact, impossible.

For people on our incomes, $120 may seem little more than a meal out, perhaps. But there are many people in Australia who are struggling on low incomes. I am not even talking about people on fixed incomes, on pensions; I am talking about people on below average incomes who would find it impossible to find $120 in their budget for this. People who are contemplating bankruptcy, of course, are at the end of the spectrum where they have no hope of being able to control their finances. So where do they find this money? Can they put it on a credit card? Probably their credit card is one of the debts they have not been able to manage. Even if they did have some credit limit available, arguably it would be fraudulent to use the card for that fee-because they would know, at the time they put the fee on the credit card, that they would have no means of repaying that credit card debt. We know about the risks of going to payday lenders and the exorbitant interest rates they charge. Or do they go to an agency-an NGO somewhere-who can support them to find this fee? At best that is just cost shifting, but increasingly, in the current environment, it is not going to be possible anyway.

Financial counsellors have been telling me that those who truly need to go bankrupt may be, ironically, the very people who cannot afford it. I am told that, since the fee was introduced on 1 April, just after the Senate rose from the autumn sittings, it has already made it harder and more complicated for vulnerable people to decide to file a debtor's petition. It has already acted as a disincentive. In fact in Senate estimates in May I questioned the authority about this, and the authority's own figures confirm this. It is difficult to draw conclusions after a short period of time, of course, and there are seasonal factors from year to year and numbers go up and down, but certainly the number of people filing for a debtor's petition has decreased since the fee was introduced.

The alternative, if a person cannot take this step to resolve their nightmare situation where debts are just insurmountable, is to live with the anxiety that someone else may well then force your bankruptcy at any time. Any of your creditors can do that, and of course that means it is out of your control and you do not know when the blow is coming.

I now want to deal with a few furphies that are floating around. We know that there is a common perception that bankrupts are perhaps high-flying entrepreneurs who had one luxury vehicle too many-maybe people like the Christopher Skase's of this world will come to mind-but in fact that is just not an accurate representation of the sorts of people who are needing to make this difficult decision. AFSA's own figures show that this is false imagery. They show that unemployment is by far the biggest cause of personal bankruptcy in Australia, and that most people earned less than $30,000 in the year before they ultimately became bankrupt.

Forcing people to live with debt that they cannot repay is not only unfair, but it is bad for the business sector and the economy. That is why the business sector, especially those who are common creditors, is on the record as saying that the fee should not be introduced because continued accessibility to an orderly, methodical means of resolving and ongoing situation like this, and to bankruptcy, not only supports debtors but also creditors and the entire financial system. They know that a very real consequence of this filing fee is a reduction in the number of debtor's petitions filed.

The Australian Greens stand with people on low incomes, consumer advocates and the business sector in saying that this fee is not acceptable. That is one of the reasons we are disallowing these instruments. It is an unfair and rather unsophisticated way to recover costs. The introduction of the debtor's petition fee hits disadvantaged people the hardest, quite obviously. Often they will have no other means to support themselves, and it is happening in the wake of a federal budget that we know is going to have increased adverse effects-it is a cruel budget-on people who are already struggling, such as the unemployed, older people, single parents and people who are already doing it tough. We know that these people are already in trouble. With cuts to services, cuts to benefits and the proposal that young people under 30 who are not earning or learning go without income support for six months, the conditions are rife to see an increase in the number of people who will be facing the incredibly difficult decision to file for bankruptcy.

The Australian Financial Security Authority, which is introducing this fee, at the government's direction, has published figures showing the profile of those who this fee would affect. Unemployment or loss of income has consistently been nominated as the most frequent cause of insolvency for non-business related bankruptcies since 2003. In 2011, the majority of bankrupts who owed less than $5,000 were not employed at the time of bankruptcy and had low-level utility debt.

As the Australian Greens spokesperson for legal affairs, I have fought for people's access to justice. Despite successive governments' obsession with full cost recovery, increasingly, the Greens believe that institutions like courts, tribunals and bankruptcy in Australia provide an essential service in ensuring that people have avenues to pursue their legal rights. I think the assumption that essential services such as these should earn back their own costs needs to be questioned. When the Labor government raised Federal Court fees, the then shadow Attorney-General and now Attorney-General, Senator Brandis, called it another disguised Labor tax. But the messaging has changed now that he is the Attorney-General and is looking at the same thing in relation to courts and so on.

Financial counsellors emphasise that no person makes the decision lightly to go bankrupt. It is considered as a last option, but an appropriate one in some cases.

As a result of the Greens moving of a notice to disallow these regulations, a clear message has been sent that the Australian Greens are willing to heed the policy advice of those people who are currently working to assist some of the most vulnerable people in Australia. As a result I have had the opportunity to make the case to the Attorney-General's Department and to representatives of the Attorney-General himself. I do want to indicate that there has been a series of productive meetings where representatives of Financial Counselling Australia and the Consumer Action Law Centre have been able to strongly advocate against the introduction of this new fee and have painted a picture of its detrimental effects on their clients. They have been able to put to the government that instead of closing the debt recovery loop by hitting the most financially vulnerable people in Australia, the government could look at other options-for instance, to nuance the realisations charge, which applies to all administrations under the Bankruptcy Act.

The Financial Counsellors Association and the Consumer Action Law Centre, which is a community legal centre, are highly respected and highly expert people in the area of dealing with consumer credit issues with vulnerable people in Australia. I do find it somewhat ironic that they have indeed, I suppose you would argue, been engaging in advocacy by taking their combined experience with the effects of law changes on their clients and making a strong case about changing the law in a better way so that their clients are not disproportionately affected. Ironically, given the new mantra from the Attorney-General that funding for these sorts of organisations, particularly community legal centres, should not ideally used for advocacy and instead should be used for front-line services, it would mean that perhaps in the future this advocacy may not be so possible, or the representatives of those organisations may have to do it on their own time, which would mean that the meetings perhaps would have had to have occurred outside business hours. But in any case there was an opportunity for these representatives to meet with representatives of the Attorney-General's Department and the Attorney-General and make the case about this particular change, which is to impose a $120 fee that had not been there before, against the evidence in other countries that the fee becomes shifted and creditors end up bearing the cost, or else it shifts to other government agencies. They were able to make that case.

I do have an understanding that in fact there may be action coming forward on the part of the government to indeed waive that fee entirely and to find some other means of cost recovery, perhaps by increasing the asset realisation charge with a review to see how that is going ahead. If that is the case, I would certainly welcome that. That would certainly be something that would ameliorate the worst aspects of this fee, as it has been indicated and conveyed to me and the Attorney-General's representatives. In that case, it may be that there will not be a need to look at disallowing a fee further in the future. We will wait and see what comes out of that. But if that is the case, then I would like to think that this has been a good example of a process whereby good policy can be pursued on the basis of information and evidence coming forward.

Just to finish, I would say that the Australian Greens do urge the government to nuance its cost-recovery measures with AFSA in a way that provides real relief and good policy for those people who are making the most difficult decision to file for a debtor's petition and which indeed provides a genuine benefit to the Australian community, including the business and finance sector. I move that the Senate supports this motion. 

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