Monthly Archives: March 2009

Rural confidence plummets

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AUSTRALIAN farmer confidence has hit a two-year low as the global financial crisis and falling commodity prices continue to dampen rural sentiment, a new survey reveals.

The Rabobank Rural Confidence Survey has shown the fourth successive quarterly decline in Australian farmer sentiment, with nearly half the nation’s primary producers now expecting the rural economy to worsen.

The survey of 1,200 farmers found that 48 per cent expected conditions to worsen in the next year, up from 39 per cent last quarter, while only 16 per cent anticipated conditions would improve, down from 23 per cent previously.

Overseas markets and economies were cited as the major area for concern, followed by softening commodity prices impacting upon wine, cotton, wool and dairy in particular.

This is the first survey where a negative outlook hasn’t been driven by the effects of drought.

State by state, the survey found rural sentiment had weakened in the eastern states, with Queensland, New South Wales and Victoria all recording significant drops in confidence, but had improved in Western Australia and Tasmania.

Welfare blowout predicted after recession

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THERE could be one person of working age on welfare for every three people with a job by the time a recession ends, according to one of Australia’s leading economists, Bob Gregory.

The welfare blowout, with more than a million more people likely to be relying on benefits, will far exceed the threat posed by an increasing aged population and has so far been overlooked by federal Government and Treasury.

Professor Gregory has modelled the changes in the welfare population following the 1990-92 recession, and says the rise in unemployment is likely to be followed by increases in the number of people on disability, carer and sole-parent pensions.

A paper to be presented by Professor Gregory to a Victoria University conference next month shows the full-time male workforce never recovered from the 1990-92 downturn, when it dropped from a historic average of about 62 per cent to 54 per cent of the male working-age population.

“What happens is that male unemployment goes up, and then, as time goes by, the unemployment rate comes down, not because there are more jobs but because the unemployed gradually seep into disability payments,” he says.

Professor Gregory says that a year or two after a recession, half the men on disability benefits have come from the unemployment pool, where they have been in and out of jobs for some time. It is usually men aged over 55 years.

The rise in the number of women on welfare during a recession is more likely to be an indirect result of male unemployment.

“For women, because the men didn’t have jobs, they took up welfare as partners, carers or as lone parents,” he says in the paper.

He says the Government and Treasury have not yet started to calculate the effect of what could prove to be an additional million people on welfare, sustained for six or seven years.

“The only budgetary implication that the Government has consciously faced has been around what to do about old-age pensioners, where they seem to have taken a gulp and decided to go ahead anyway.”

Banks cut deposit rates ahead of RBA decision

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THE major banks are aggressively repricing their deposit books ahead of next week’s expected rate cut by the Reserve Bank.

With the political pressure mounting on all banks to pass on the full benefit of further easings of monetary policy, two of the major banks have taken drastic steps to protect their funding margins by slashing deposit rates.

From this morning, NAB will slash the rate it pays on three month fixed term deposits from 4.2 per cent to 2.1 per cent.

The NAB move comes after more aggressive repricing by Commonwealth Bank in recent weeks in which it slashed its three month fixed term deposit rate from 4.2 per cent to 1.5 per cent.

CBA has also crunched its one year fixed rate offer to 1.5 per cent from 3.5 per cent.

The dramatic repricings by CBA and NAB follow recent comments by the chief executives of both banks that they may not be able to pass on the full benefits of additional official rate cuts.

However the slashing of deposit rates could be political dynamite for the banks if they elect not to pass on next week’s expected official cut.

Westpac and ANZ have also lowered short term fixed rates on their deposit products in the last month but their repricings have been more subdued.

With wholesale funding pressures continuing to weigh on lenders, the major banks are reviewing their rates on all deposit products as part of overall programs to contain costs.

So far this year all of the big banks have slashed the rates they pay on internet saver accounts which have become a key market segment through which to acquire customers.

These internet-only accounts, such as CBA’s Netsaver and NAB’s iSaver, were paying monthly interest of around 7 per cent towards the end of last year, but now deliver a monthly return of only 3 per cent to existing customers.

ANZ continues to be a price leader in this segment among the major banks, maintaining its online saver rate at 4 per cent.

article excerpts news.com

Till Debt do us part?

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Bankruptcy and Family Law: Till Debt Do Us Part ?

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HEAD NOTE: This article looks at how the law has been applied by the courts in the two years since in the introduction of the Bankruptcy and Family Law Legislation Amendment Act 2005 and should serve as a warning to Trustees in Bankruptcy acting in Family Law matters.

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Introduction 

 

The primary purpose of bankruptcy law is realize the bankrupt’s assets and distribute them fairly for the benefit of creditors.

 

The primary purposes of family law, as it relates to property interests, is to achieve the fair and equitable distribution of matrimonial property between the parties to marriage.

 

The Bankruptcy & Family Law Legislation Amendment Act 2005 was supposed to create harmony between these areas of law, however, it seems the amendments have been interpreted and applied in a manner which is completely contrary to the original intention of parliament.

 

The key amendments

 

The Family Court now has exclusive jurisdiction over matters in which there are both bankruptcy and family law issues. The amended s 35 of the Bankruptcy Act makes it clear that the Family Court now has exclusive jurisdiction where the trustee is a party to property or spousal maintenance proceedings. 

 

The trustee now ‘stands in the shoes’ of the bankrupt spouse and accordingly, without leave of the court, the bankrupt spouse had no right to appear in relation to arguments regarding “vested property”. (Superannuation benefits do not vest in the trustee). How the Family Court can make an informed decision when effectively hearing only one side of the story is questionable.

 

Most importantly, the law obliges the Family Court to consider the interests of creditors in making property related orders, there is no priority accorded to the interests of creditors.

 

How the remaining funds can disappear  

 

In the ordinary course, bankruptcy trustees are remunerated for the assets of the bankrupt they realize for creditors, and payment of their fees is given a statutory priority under section 109 of the Bankruptcy Act.

 

In West v West [2007] FMCAFAM 681 the case concerned a 30 year marriage, where the husband became bankrupt after failing to pay a $8,000 debt to a car loan company, who were, effectively the only creditor. The husband and wife owned between them a total of $146,000.00 By the time the matter got to trial the costs and expenses of the bankruptcy had risen to $69,000 (including the costs of the petitioning creditor, legal fees etc.)

 

Prior to these amendments, one would expect the property would be sold, the trustees’ fees would be paid and the balance distributed to the unsecured creditor, and then the property settlement between the parties to follow.

 

However, under the new amendments, the Family Court ordered that the wife re-pay the finance company the $8,000 owed to them and proceeded to ignore the costs and expenses of the trustee, and divided the property assets in accordance with the usual “4-step” family law regime. 

 

It was found that section 75(2) (ha) referred to the interests of creditors and not the fees o0f the trustee, and also that it would not be just and equitable to remove the wife from the family home.

This result will no doubt be if interest to trustees deciding whether or not to be joined to proceedings or whether they should pursue assets of the other spouse in cases where there are small asset pools.

 

This rationale has been recently followed in the cases of :

 

Lemnos v Lemnos [2009] FAMCAFC 1058.

 

This case involved a 30-year marriage where the husband was solicitor who became bankrupt due to a $3M debt owed to the ATO. The net value of the assets vested in the Trustee was $2.5M, being mainly the marital home.  An order was made that the property be sold and the assets divided equally. This meant that the husband should meet his tax debt through his own resources.

 

Worsnop & Worsnop (No 2) [2007] FAMCA 1315 where the tax debt of $12M completely dwarfed the $4.75M value of the matrimonial home. Here, the wife was found to be an innocent party and the property was ordered to be sold and the assets divided.

 

Pippos v Pippos[2008]FAMCA 542, where the Trustee fared slightly better.

 

In this case there was a net asset pool of $189,000, the creditor were owed $28,000 and the Trustees fees and disbursements were $31,500. The debts which led to the bankruptcy, however, were post separation debts.

 

After going through the ‘4-step’ process the Court divided the asset pool 70:30 in favour of the wife. The orders made required the wife to make a payment (after borrowing money) to the trustee in return for keeping the matrimonial home. This meant that after payment of the trustees’ fees the creditor would receive a dividend of 29 cents in the dollar. This is significantly less than they would have received had the usual bankrupty principles applied.  

 

Conclusion

 

These cases show that the family Court is taking their exclusive jurisdiction in such matters seriously. They are applying the usual 4 step family law approach. This means that the non-bankrupt spouse receives their share and the trustee is left to deal with the share allocated to the bankrupt spouse, from which can be taken all the costs of the bankruptcy.

Where one spouse may become bankrupt

 

In cases involving potential bankruptcy, the non-bankrupt spouse will often if not always be significantly better off taking matters to the Family Court sooner rather than later if for no reason other than their non-monetary contributions to the marriage.

 

A question for devious minds: Would a happily married couple nevertheless seek property orders in the Family Court as a viable alternative to normal bankruptcy of the one spouse?

 

Till death do us part ….  or till we part with the debt….and live happily ever after?

 

Any Trustee who is involved or is contemplating becoming involved in family law proceedings should give careful consideration to these cases.

 

Make sure that the lawyer you brief has a good understanding not only of bankruptcy law, but also family law to avoid coming up empty handed.  

 

By Bill Loukas ©

 

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Loukas & Co Business Lawyers can provide a broad range of legal services including :

 

Bankruptcy and Insolvency

Business advice

Drafting contracts and commercial agreements

Commercial Litigation

Insurance Law

Trade Practices

Employment

Taxation

Commercial and Residential Sales and Leasing

Family Law, Wills & Estates

Fraud and Commercial Crime

 

If you require any further information or legal assistance, please do not hesitate to contact

 

Bill Loukas of Loukas & Co, Business Lawyers on:

 

Tel: (02) 9264 3000  Fax: (02) 9264 9440

 

Sydney Office: Level 7, St Martins Tower, 31 Market Street Sydney, NSW 2000

ŸDX 13033 Sydney Market St                                                                                Fax: (02) 9264 9440

email:   bill.loukas @whiteheads.com.au

Westpac Chief concedes recession is inevitable

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Gail Kelly conceded yesterday that Australia would slip into recession this year.

“There is no question we’ve seen the market deteriorate in the past quarter. It’s also clear we’re not certain how deep and how long the downturn will be.”

Yesterday the chief executive confirmed what forecasters had predicted since the publication of the last set of national accounts – growth had gone backwards.

In a 12-page slide presentation Kelly said Australia would be “unable to avoid a recession in 2009″, and gross domestic product was expected to contract by 1 per cent.

That was in line with what the ANZ chief, Mike Smith, had outlined at the same conference the day before, but he didn’t use R-word that made Ms Kelly’s address stand out.

Bankruptcy rates rise for middle class

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Personal insolvencies have jumped 12% in the past year, running at more than triple the pace of the last recession, exposing the financial frailty of more middle-income earners.

The rise in bankruptcies has grown more prevalent among families and professionals, according to a report by University of Melbourne professor Ian Ramsay and researcher Cameron Sim, indicating debt-stress is becoming a more mainstream problem.

”This is strong evidence that bankruptcy is becoming more of a middle class phenomenon,” said Professor Ramsay in a statement.

”Bankrupts are increasingly coming from higher status occupations, have increasing levels of personal income and household income, and have increasing asset and property ownership levels.”

Managers, administrators and professionals accounted for more than a quarter of bankruptcies last year, or 27%, the report said.

In the final three months of 2008, the economy contracted for the first time since 2000, raising the likelihood Australia will tip into an official recession this year. Economists expect more financials strains to worsen as more people lose their jobs.

Significantly, rates of personal insolvency in Australia had been growing in recent years even before the global downturn, Professor Ramsay said.

”Now that we are experiencing very difficult economic times, the rate of personal insolvency is increasing and we can expect to see it grow across more parts of Australian society.”

As unemployment grows from its current 5.2% to at least 9% by the end of 2010, according to JP Morgan projections, consumers will find their ability to repay debts further hampered.

”The study shows that bankruptcy is now a real issue for parts of the Australian middle class and also for older Australians,” Professor Ramsay said.

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