Bankruptcy changes on the table
We’ve put together a brief overview of the proposed bankruptcy reforms below, however if you’d like to know more please feel free to give us a call. Here we go….
In October 2017 the Federal Government introduced the Bankruptcy Amendment (Enterprise Incentives) Bill 2017, which among other initiatives, proposed to reduce the default period of bankruptcy from three years to one year. This Bill lapsed in 2019 without taking effect. However, on the back of the recent COVID-19 pandemic the government is looking at a number of initiatives to assist individuals to recover from the impacts of the pandemic – the reintroduction of a one year bankruptcy is back.
Current reforms to the Bankruptcy Act being considered are:
- reduce bankruptcy to one year
- promote debt agreements, and
- target untrustworthy advisors.
One Year Bankruptcy
The proposed reintroduction of a one year bankruptcy is not without constraints. Many of the features of the initial proposal remain, such as:
- Retrospective discharge (if you are bankrupt now and the new law passes you will have your three years reduced to one – which may mean immediate discharge for some)
- The Compulsory Income contributions regime will continue to be three years despite a one year bankruptcy term
However, the Government is planning to exclude from eligibility for one-year bankruptcy persons who have, in the previous 10 years:
- been bankrupt
- been banned as a director
- had a bankruptcy extended through an objection to discharge, or
- have been convicted of certain offences.
In addition, considerations are being given to strengthen the ‘Objection to discharge’ provisions to help ensure that bankrupts provide their bankruptcy trustee with the information necessary for them to investigate and administer the estates. Offence provisions are also to be tightened to target those individuals who abuse the shorter period of bankruptcy. For example, subsection 265(8) of the Bankruptcy Act – contracting a debt with no expectation to pay – has a current maximum penalty of one-year imprisonment.
Promote Debt Agreements
Debt agreements offer a statutory alternative to bankruptcy and a solution for managing personal debt.
Over recent years there has been a decline in their use and the Government is keen to promote them by:
- extending the default term limit for debt agreements to five years (currently three);
- increasing the eligibility thresholds for debt agreements;
- reducing the exclusion period for proposing debt agreements from 10 years to seven for those that have (for example) been previously bankrupt
- proposing that a debt agreement will not be an ‘act of bankruptcy’. Currently, if an individual lodges a proposal then creditors can rely upon this as precondition to commence involuntary bankruptcy proceedings.
Target Untrustworthy Advisors
Concerns abound within the industry and government about the provision of pre-insolvency advice by untrustworthy advisors (UAs), particularly those that are unregulated. To combat these UAs the government is proposing to strengthen UAs detection in the marketplace by requiring that:
- bankrupts disclose details of advisors who have provided pre-insolvency advice to them
- registered trustees make preliminary enquiries about pre-insolvency advice a bankrupt has received, and
- registered trustees provide information about these enquiries to the InspectorGeneral in certain circumstances.
In addition to detection, the government is considering making it an offence to advise, instruct, assist or counsel any person to commit or attempt to commit an offence. Eg: helping to conceal a bankrupt’s property with the intent to defraud creditors.
Questions or concerns about these proposed bankruptcy amendments? You can email us here, or call us on 9882 6666.