Bankrupt parliamentarians – ok or not?

At a time when the government has a Bill before Parliament to reduce the period of bankruptcy from three years to one, partly in order to reduce the stigma associated with bankruptcy, a Parliamentary Joint Committee has issued its report on s 44 of the Australian Constitution, one aspect of which is the prohibition in s 44(iii) of anyone who is bankrupt from being eligible for parliament.

In the context of the stigma of bankruptcy, I have commented on the juxtaposition in s 44(iii) of being bankrupt with being attainted of treason, in s 44(ii), an unhappy combination when the societal move is towards amelioration of the position of people who have got into a state of unmanageable debt: see Bankruptcy, Treason and Other Crimes [2001] 1 INSLB 138.

When the constitution was framed, treason was then, and remains now, a serious offence, in particular in the context of being a parliamentarian. Bankruptcy was probably, at that time, seen in a similar way, its historical connection with criminality being well documented.

That persists.

One submission to the PJC inquiry said, in a back-handed comment on bankrupts, that ‘every Australian should be entitled to stand for parliament’ and the suitability of criminals and bankrupts ‘should be left to the electorate, rather than any rigid rule.’

In fact, the criminal offence of treason is treated rather lightly in the report, which says that its reason for being in s 44 is that “a person under sentence for an offence is subject to the control of the executive government”, but like any custodial sentence. It also adds that parliamentarians should be beyond moral reproach, which is better, but not by much.

The report gives two comparable bases for excluding bankrupts. One is that a bankrupt is subject to the control of their trustee, and creditors, and has various restrictions, for example in relation to travel. The other is the same need to ensure that parliamentarians are beyond moral reproach, again bringing morality into bankruptcy, along with treason.

Putting bankruptcy into context, a parliamentarian can be a sole director of a small company which collapses, losing its creditors millions of dollars, but with no legal restriction on that person thereafter; or be an employer who underpays her workers, or an importer of unsafe children’s toys, or an employer with an unsafe workplace. None of those, unless resulting in a criminal conviction, is, per se, an impediment to parliament. Nor is there any legal impediment if the parliamentarian is being sued by a creditor and is being subjected to an examination in court about their capacity to pay back the creditor.

The practical impediment, as it should be, is the electorate.

One proposed change to s 44 raised in the report was that a person should “within 3 months of being elected take all reasonable steps to renounce, discharge or discontinue [their] bankruptcy or insolvency …”. While the aim of that idea is apparent, it may be easier than it sounds, and in that time frame, and it is counter to the long-established ‘fresh start’ purpose of bankruptcy.

The word insolvent is also in s 44, which would appear to mean a formal insolvency, under the Bankruptcy Act, rather than simply being insolvent, which many people may be.

While that is relatively clear, s 45 of the Constitution then muddies the concept by saying that in effect, a parliamentarian must vacate their office if they become bankrupt or insolvent, or if he or she “takes the benefit, whether by assignment, composition, or otherwise, of any law relating to bankrupt or insolvent debtors”.

This wording harks back to old bankruptcy law under Part X of the Bankruptcy Act, and to English law before that. What it adds to being “insolvent” is not clear, unless it be a catch-all.

The two sections end up saying that being bankrupt or an insolvent is an impediment to holding office, but that if the parliamentarian must vacate their office of they become bankrupt or insolvent during their period of office, or, separately, if they take the benefit, whether by assignment, composition, or otherwise, of any law relating to bankrupt or insolvent debtors.

It might finally be added that the report notes that New Zealand has no bankruptcy restriction on its parliamentarians.

There are many current issues with s 44 identified in the report. This is but one, and in the scheme of things, of lesser significance. Its retention will not cause too many problems.

The wider significance is that the retention of bankruptcy in s 44 will remain as but one of many on-going impediments to the government’s attempts to reduce the stigma of bankruptcy, even if the one-year period of time becomes law.

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