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Changes to the personal insolvency system, including reducing the default period of bankruptcy from three years to one year and tougher sanctions against dodgy advisers, have now been floated by the government.
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Attorney-General floats bankruptcy changes, tougher sanctions against untrustworthy advisers
18 January 2021
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9 minute read
The Attorney-General’s department has now released a discussion paper on possible changes to the personal insolvency system to address the impacts of the coronavirus pandemic.
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One of the changes includes cutting the time period that must pass before a bankrupt is discharged from three years to one year in a bid to reduce stigma, encourage entrepreneurs to re-engage in business, and encourage people to pursue their own business ventures.
The paper notes that the Bankruptcy Amendment (Enterprise Incentives) Bill 2017 had proposed to introduce the change but had faced significant concerns from the community, with the bill eventually lapsing with the calling of the 2019 federal election.
However, the Attorney-General’s department believes additional safeguards, including strengthened offence provisions and criteria that would exclude a bankrupt from the default period of one year, will help ameliorate stakeholder concerns.
Targeting untrustworthy advice
It has also floated new or expanded offence provisions to target pre-insolvency advisers, “who advise people under financial stress how to defeat the legitimate interests of creditors, generally through the creation and/or use of false information”.
“While illegal phoenix activity is generally associated with corporate insolvency, analogous behaviour in the personal insolvency system by debtors as well as their advisers is the subject of the department’s ongoing consideration,” the discussion paper said.
“For example, it is an offence punishable by up to five years’ imprisonment to conceal property with the intent to defraud creditors under paragraph 263(1) of the Bankruptcy Act. However, these types of provisions are generally aimed at the behaviour of the bankrupt rather than at the behaviour of those who advise them to take certain actions.
“The department notes the possibility that the offence provisions prescribed in the Bankruptcy Act could be enhanced by the inclusion of new provisions and the expansion of current offence provisions to target the provision of untrustworthy advice.”
The Attorney-General’s department is also considering reforms to the debt agreement system to make it more “useable” for those with business-related debts, such as sole traders.
It is also seeking feedback on possible changes to personal insolvency agreements to “make them more attractive or more accessible” for individuals with business-related debt.
View the Attorney-General’s discussion paper here.
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