Commonwealth Numbered Regulations - Explanatory Statements

[Index] [Search] [Download] [Related Items] [Help]

BANKRUPTCY RULES (AMENDMENT) 1994 NO. 214

Statutory Rules 1994 No. 214

Issued by the authority of the Minister for Justice

Bankruptcy Act 1966

Bankruptcy Rules (Amendment)

The Bankruptcy Rules (Amendment) made amendments to the Bankruptcy Rules to give effect to:

•       changes to the Bankruptcy Act 1966 (the Act) in relation to the treatment of superannuation funds and proceeds from policies of life assurance and endowment assurance as property of a bankrupt available for distribution amongst creditors arising from the enactment of the Superannuation Industry (Supervision) Consequential Amendments Act 1993 (SISCA Act); and

•       those recommendations of the joint Attorney-General's Department /Department of Finance Phase 1 Review of the Insolvency and Trustee Service, Australia (the Report) which have been accepted by the Government. The Insolvency and Trustee Service, Australia is the -General's Department.

Insolvency Practice of the Attorney

Authority

Subsection 315(1) of the Act provides that the Governor-General may make rules prescribing matters that are required or permitted to be prescribed or that are necessary or convenient to be prescribed for the carrying out or giving effect to the Act.

Section 4 of the Acts Interpretation Act 1901 provides for the exercise of certain powers between passing and commencement of an Act. Where an Act (the Act concerned) does not come into operation immediately upon its enactment and is expressed to confer power, or to amend another Act in such a manner that the other Act, as amended, will confer power to make an instrument of a legislative or administrative character (including rules), then unless the contrary intention appears, the power may be exercised and anything may be done for the purpose of enabling the exercise of the power, or of bringing the instrument into effect, before the Act concerned comes into operation as if it had come into operation.

Details of Rules

Rule 1-Commencement

The Bankruptcy Rules (Amendment) commenced on 1 July 1994.

Rule 2-Amendment

The Bankruptcy Rules (the Rules) are amended as set out in these Rules.

Rule 3-Rule 40A (Prescribed amount for purposes of paragraph 109(1)(e) of the Act)

Under paragraph 109(1)(e) of the Act, the payment of amounts in respect of unpaid wages, salary and other emoluments to a bankrupt's employees are priority claims in a bankruptcy. The amount of the priority entitlement is specified in rule 40A of the Rules, and was set at $2,000.

The Working Party recommended that the amount of this priority be increased to $3000, and rule 3 amended rule 40A accordingly.

Rule 4-Rules 40C and 40D

Rule 4 omitted former rules 40C and 40D which prescribed monetary limits in respect of policies for annuities and payments from such policies, which prior to the commencement of the SISCA Act a bankrupt was able to retain. Those rules are redundant because the allowed value of property the bankrupt was able to retain is now specified in the Act, as amended by the SISCA Act.

Rule 5-Division 3 of Part III-Apportionment of property

The SISCA Act made amendments to section 116 of the Act to revise the treatment accorded to policies of life assurance, endowment assurance and interests in superannuation and approved deposit funds consistent with the Government's retirement income policy, and to remove from the category of protected property certain types of investment such as policies for pure endowment and annuities, which are no longer commonly available and are not within the regulatory framework established under the Life Insurance Act 1945 and the Superannuation Industry (Supervision) Act 1993.

Upon bankruptcy, all the property of a debtor vests in the bankruptcy trustee, subject to certain exceptions which are specified in subsection 116(2) of the Act. A bankrupt is able to retain:

•       policies of life insurance or endowment assurance;

•        the proceeds of such policies received by the bankrupt on or after the date of bankruptcy;

•       an interest in a regulated superannuation fund or an approved deposit fund;

•       a payment to the bankrupt from such a fund received on or after the date of bankruptcy.

Subsection 116(5) of the Act, as amended by the SISCA Act, provides that the bankrupt is able to retain all the types of such property in which the bankrupt has an interest where the total value does not exceed the bankrupt's pension Retirement Benefits Limit (RBL) for the year of income in which the date of the bankruptcy occurred.

The RBL is the amount of income that a person can receive by way of superannuation or such things as eligible termination payments at concessional taxation rates. The pension RBL is worked out under section 140ZD of the Income Tax Assessment Act 1936, and will be an amount of $800,000 in the 1994-5 year of income. Where the value of the bankrupt's interest in relevant life insurance and superannuation products exceeds the pension RBL, the trustee in bankruptcy is entitled to the excess.

Prior to the amendments made by the SISCA Act, a bankrupt could retain policies of life insurance and endowment assurance that had been in force for not less than 2 years prior to the commencement of the bankruptcy. The bankrupt could also retain certain policies for annuities up to a certain monetary value, however interests in superannuation and approved deposit funds were not specifically protected.

The SISCA Act also inserted new subsections 116(6), (7) and (8) which enable rules to be made to set out a method for determining how one or more forms of property are to be apportioned, to provide for a special method of working out the value of a specified kind of property and for the issue of a written evidentiary certificate by a trustee of a regulated superannuation fund or an approved deposit fund. To provide for these matters, rule 5 of the Bankruptcy Rules (Amendment) omitted former Division 3 of Part Ill and inserted "Division 3-Apportionment of property" which contains rules 41, 41A, 41B and 41C.

Rule 41 provides the definitions of terms used in this Division by reference to the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations (SIS Regulations).

'actuary' has the same meaning as in the SIS Act. That term is defined in section 10 of that Act to mean a person who is a Fellow or an Accredited Member of the Institute of Actuaries of Australia.

'accumulation fund' has the same meaning as in the SIS Regulations. Under sub regulation 1.03(1) of those Regulations, this term is defined to mean a regulated superannuation fund that is not a defined benefit fund.

'approved deposit fund' has the same meaning as in the SIS Act. Under section 10 of that Act, that term means a fund that is an indefinitely continuing fund maintained by an approved trustee solely for approved purposes and has approved rules.

'defined benefit fund' has the same meaning as in the SIS Regulations. Under sub regulation 1.03(1) of those Regulations, that term is defined to mean a regulated superannuation fund under which one or more members of the fund are entitled, on retirement, to be paid a benefit defined, wholly or in part, by reference to either or both of the amount of the member's salary or a specified amount. If the fund is not a public sector superannuation scheme, a defined benefit fund is a regulated superannuation fund under which some or all the contributions to the fund (out of which, together with earnings on those contributions, the benefits are to be paid) are not paid into a fund, or accumulated in a fund, in respect of any individual member but are paid into and accumulated in a fund in the form of an aggregate amount.

The term "contributions" is also defined in sub regulation 1.03 of those Regulations and in relation to a fund, include payments of shortfall components to the fund but do not include benefits that have been rolled-over or transferred to the fund.

'member' in relation to a regulated superannuation fund, means a person who is a member of the fund or receives a pension from the fund or has deferred his or her entitlement to receive a benefit from the fund. In relation to an approved deposit fund, a member means a depositor in the fund.

'pension RBL', in relation to a bankrupt, means the bankrupt's pension RBL worked out under section 140ZD of the Income Tax Assessment Act 1936.

'preserved component' means the component of a bankrupt's interest in a fund that consists of preserved benefits (ascertained in accordance with Subdivision 6.1.2 of the SIS Regulations).

'regulated superannuation fund' has the same meaning as in the SIS Act.

'restricted non-preserved component' means the component of a bankrupt's interest in a fund that consists of restricted non-preserved benefits (ascertained in accordance with Subdivision 6.1.3 of the SIS Regulations).

'unrestricted non-preserved component' 'means the component of a bankrupt's interest in a fund that consists of unrestricted non-preserved benefits (ascertained in accordance with Subdivision 6.1.4 of the SIS Regulations).

'withdrawal benefit' has the same meaning as in the SIS Regulations.

Method of apportionment-subsection 116(6) of the Act

Fundamental to the superannuation system is the notion that money should be put aside today and accessed only at retirement, or a retirement related event, such as termination of employment. At the same time, superannuation fund benefits are not permitted to be deferred beyond tile point of entry into retirement. The legislative framework of the SIS Act and SIS Regulations gives effect to these policy intentions. The Regulations prescribe rules which support the ability of funds to pay benefits on, or after the happening of an appropriate event, subject to appropriate preservation requirements, and which do not allow indefinite deferral beyond retirement. It is considered appropriate that these policy intentions are maintained in the bankruptcy context.

Rule 41A is made for the purposes of subsection 116(6) of the Act and applies in respect of property of a bankrupt (the bankrupt's property) that is covered by paragraph 116(2)(d) of the Act where the total value of the bankrupt's property exceeds the bankrupt's pension RBL.

Subrule 41A(2) applies where the bankrupt's property consists of only one item of property and consists of a policy of life assurance or endowment assurance, or proceeds from such policies received by the bankrupt on or after the date of bankruptcy. In such a case, so much of the bankrupt's property as exceeds the pension RBL is divisible amongst the creditors of the bankrupt, that is, subsection 116(1) extends to the excess amount. So, if the bankrupt has one life insurance policy only and the amount available in cash on the voluntary termination of the policy is $1m, and the applicable pension RBL is $800,000, the bankruptcy trustee would be entitled to claim $200,000.

Subrule 41A(3) applies a similar method of determining how the property is to be apportioned where the bankrupt's property consists of only one item of property and is in the form of a payment from a regulated superannuation fund or an approved deposit fund, being a payment that is received by the bankrupt on or after the date of bankruptcy and which is not a pension, within the meaning of the Superannuation Industry (Supervision) Act 1993. So much of the bankrupt's property as exceeds the pension RBL is divisible amongst the creditors of the bankrupt, that is, subsection 116(1) extends to the excess amount.

Where the bankrupt's property consists of only one item of property and is in the form of an interest in a regulated superannuation fund or an approved deposit fund, subrule 41A(4) applies subsection 116(1) to the excess. In these circumstances, the non preserved components of the bankrupt's property is taken first, and if necessary, the remainder is taken from the preserved components.

So, in a case where the bankrupt has one item of property, namely an interest of $1,200,000 in a regulated superannuation fund and the applicable pension RBL was $800,000, the bankruptcy trustee would be entitled to claim the amount of $400,000 from that fund. Where this fund comprised an unrestricted non-preserved component of $100,000; a restricted nonpreserved component of $200,000 and a preserved component of $900,000, the amount of $400,000 (by which the property exceeds the pension RBL) is met by applying the whole of the non-preserved components ($100,000 + $200,000 = $300,000) and $100,000 from the preserved component. The amount of the pension RBL is always protected and remains in the fund.

Where there is more than one item of property, subrule 41A(5) prescribes that the method of determining how the property is to be apportioned is to extend subsection 116(1) of the Act to the items in the following order:

(a)       proceeds of a policy of life assurance or endowment assurance received by the bankrupt on or after the date of the bankruptcy;

(b)       policies of life assurance or of endowment assurance;

(c)       a payment from a regulated superannuation fund or an approved deposit fund, being a payment that:

(i)       is received by the bankrupt on or after the date of bankruptcy; and

(ii)       is not a pension, within the meaning of the Superannuation Industry (Supervision) Act 1993;

(d)       the unrestricted non-preserved component of any interest in an approved deposit fund,

(e)       the unrestricted non-preserved, component of any interest in an accumulation fund;

(f)       the restricted non-preserved component of any interest in an accumulation fund;

(g)       the preserved component of any interest in an approved deposit fund;

(h)       the preserved component of any interest in an accumulation fund;

(i)       the unrestricted non-preserved component of any interest in a defined benefit fund;

(j)       the restricted non-preserved component of any interest in a defined benefit fund;

(k)       the preserved component of any interest in a defined benefit fund;

until the residuary interest of the bankrupt in the property equals the bankrupt's pension RBL.

New subrule 41B(1) prescribes a method of working out the value of property for the purposes of subsections 116(5) and 116(7) of the Act, as amended by the SISCA Act. Generally, the value is determined at the date of the bankruptcy.

New subrule 41B(2) prescribes that in the case of property that is an interest in a policy life assurance or endowment assurance, the value of the bankrupt's interest in the property is taken to be the amount available in cash on voluntary termination of the policy at the date of the bankruptcy.

New subrule 41B(3) prescribes that in the case of property that is an interest in an accumulation fund or an approved deposit fund, the value of the bankrupt's interest in the property is taken to be the withdrawal benefit of the bankrupt in the fund at the date of the bankruptcy.

New subrule 41B(4) prescribes that in the case of property that is an interest in a defined benefit fund, the value of the bankrupt's interest in the property is taken to be the withdrawal benefit of the bankrupt in the fund at the date of bankruptcy. However, under subrule 41B(5), where the withdrawal benefit is not an immediately payable lump sum, the amount of the withdrawal benefit is to be determined by an actuary.

Evidentiary certificate by trustee-subsection 116(8) of the Act

New subrule 4 C(1) is made for the purposes of subsection 116(8) of the Act, which provides for the issue of a written evidentiary certificate about the value of the interest of the bankrupt in prescribed superannuation funds.

New subrule 41C(2) provides that where the bankrupt has an interest in a regulated superannuation or approved deposit fund, the trustee of the bankrupt must give a request in writing to the trustee of the fund to provide a written certificate setting out the following particulars:

(a) the withdrawal benefit of the bankrupt in the fund at the date of bankruptcy; and

(b) the amount of each payment (if any) that the fund has paid to the bankrupt, and the date of each payment.

New subrule 41C(3) provides that the trustee of a fund who receives a request under subrule (2) must give a written certificate setting out the requested particulars, so far as it is reasonably practicable to do so, and signed and dated by the trustee, to the relevant trustee in bankruptcy within 28 days or, if the relevant trustee allows a further period of time, that further period.

New subrule 41C(4) prescribes that a document that purports, or appears to the court, to be a written certificate given under subrule (3) is prima facie evidence of its contents and may be tendered in evidence without being proved.

Rule 6-Rule 46 (Notice of intended dividends)

When a trustee is about to declare a first dividend for distribution to creditors, he or she must, under section 140 and rule 46 publish notice of his or her intention to do so in the Gazette. Rule 6 amended rule 46 to enable trustees to publish the notice of intention to declare a dividend in a newspaper, as well as the Gazette.

Rule 7-Rule 161B (Official Receiver's charges and fees)

Rule 161 B provides for fees to be charged by an Official Receiver and officers assisting an Official Receiver in the performance of various functions, at specified hourly rates, reflecting salary and overhead costs. The hourly rates used were determined in 1987, and the Working Party recommended they be changed to take account of the erosion of money values since that time. Accordingly, new fees were substituted at paragraphs 16B(I)(a) and (2)(a), 16B(1)(b) and (2)(b) and 161B(2)(c) of the Rules.

Subrules 161B(4) and (5) provide specific fees for the issue of various notices under the Act. In view of the fact that the hourly rates of fees will apply in relation to all functions performed by the Official Receiver and other officers at the request of a registered trustee, subrule 7.4 omitted subrules 161B(4) and (5).

Rule 8-Rule 179 (Fees and percentages)

Subrule 8.1 omitted an incorrect reference to section "148" in paragraph 179(5)(c) of the Act and substituted the correct reference to "154".

Rule 9-Rule 182 (Fees and percentages payable to the Official Trustee)

Rule 182 of the Rules prescribes the fees and percentages payable to the Official Trustee in the administration of a bankrupt estate. Subrule 182(1) prescribes that the fees specified at Schedule 6 are payable to the Official Trustee in respect of the matters in relation to which they are so specified. Subrule 182(2) prescribes that fees are payable to the Official Trustee on a scale based on the "prescribed amount" in respect of an estate of a bankrupt or debtor.

The Report recommended that the fees and percentages payable to the Official Trustee reflect the average cost of administering a bankrupt estate. Accordingly, rules 8 and 9 prescribed amendments to subrules 182(1) and (2) of the Rules to effect that recommendation.

The Report estimated that the average cost of specific overheads applied to each administration paying a dividend was $265. Accordingly, rule 8 amended subrule 182(1) to introduce a minimum fee of $265 for all matters specified at Schedule 6 of the Rules. If functions are performed which attract fees under Schedule 6 amounting to less the $265, a fee of $265 will be payable in respect of the administration. If the amount of fees calculated under Schedule 6 is greater than $265, the greater amount, as calculated, is payable.

The Report also noted that the minimum fee of $1000, prescribed in Rule subrule 182(2), was set in 1981. If it had been indexed in line with the CPI, that fee would currently be approximately $2,210. Accordingly, subrule 8.1 introduced a minimum fee of $2000.

Subrules 9.4 and 9.5 make formal amendments to paragraphs 182(6)(b) and (c) to remove spent references to subsection 74(4) of the Act which was repealed from 1 July 1992.

Rule 10-Schedule 6 (Official Trustee's fee)

Schedule 6 of the Rules prescribes fees payable to the Official Trustee in respect of the administration of bankrupt estates.

Subrules 10.1 and 10.2 make formal amendments to items 6 and 7 of Schedule 6 to substitute correct references to provisions of the Act and Rules.

Subrule 10.3 prescribed new fees payable to the Official Trustee in respect of the amounts specified at column 3 of Schedule 6, by omitting the former fee and substituting the new fee.

Subrule 10.4 added further items to Schedule 6. They are new items 8 to 11 in Schedule 6. The new items specify fees for the Official Trustee's receipt of proofs of debt and requests for copies of documents held by the Official Trustee.

Schedule 6, as amended by subrules 10.1, 10.2, 10.3 and 10.4, is as follows:

Item No.	New Fee	Matter	Old Fee
1	No change ($50)	For the seizure, attachment and making of an inventory of property, being property of a bankrupt or of the estate of a deceased person in respect of which an order has been made under Part XI of the Act, by an officer who assists the trustee in the performance of his duties as an Official Receiver-in respect of each hour or part of an hour during which the officer is absent from his or her office in connection with the seizure, attachment or making of the inventory.	No change ($50)
2	$30 $30	For expenditure in connection with the estate of a bankrupt or of a deceased person in respect of which an order has been made under Part XI of the Act for official stationery, printing, books, postage, telegrams and local telephone calls (a) in respect of each 10, or part of 10, creditors of the estate and (b) in respect of each 10, or part of 10, debtors of the estate.	$15 $10
3	$150 $75	For the use of a room for a meeting of creditors convened by the trustee (a) in respect of the first hour of the meeting, or where the meeting does not exceed 1 hour, of the meeting and (b) in respect of each half hour, or part of a half hour, of the meeting after the first hour	$10 $5
4	No Change ($50) $5	For giving notice - (a) of sitting of the Court or of the Registrar; (b) of a meeting of creditors (other than the first meeting); or (ba) of a bankruptcy and forwarding a summary of the statement of affairs; to creditors of the estate of a bankrupt or of a deceased person in respect of which an order has been made under Part XI of the Act (c) in respect of the first 10 notices, or, where not more than 10 notices are given, of the notices and (d) in respect of each notice given after the first 10 notices.	No Change ($50) $2
5	$50 $5	For sending cheques and statements to creditors in pursuance of subsection 140(8) of the Act (a) in respect of the first 10 cheques and statements or, where not more than 10 cheques and statements are sent, of the cheques and statements and (b) in respect of each cheque and statement sent after the first 10 cheques and statements.	$10 $1
6	$58	For causing a notice to be published in the Gazette under paragraph 140(3)(a) of the Act.	$1
7	$25	For causing a notice to be published in a newspaper under paragraph 140(3)(a) of the Act or subrule 46(2).	$5
(new)8	$35	Receipt of proofs of debt, not exceeding 10.
(new)9	$3.50	Receipt of each proof of debt in excess of the first 10.
(new)10	$20	Where a person requests a copy of a document held by the Official Trustee, for the first page.
(new) 11	$1	For each additional page provided for a copy mentioned in item 10.