Attorney-General contemplates bankruptcy reforms and tougher sanctions against untrustworthy advisers
[fusion_builder_container hundred_percent=”no” hundred_percent_height=”no” hundred_percent_height_scroll=”no” hundred_percent_height_center_content=”yes” equal_height_columns=”no” menu_anchor=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” status=”published” publish_date=”” class=”” id=”” background_color=”” background_image=”” background_position=”center center” background_repeat=”no-repeat” fade=”no” background_parallax=”none” enable_mobile=”no” parallax_speed=”0.3″ video_mp4=”” video_webm=”” video_ogv=”” video_url=”” video_aspect_ratio=”16:9″ video_loop=”yes” video_mute=”yes” video_preview_image=”” border_size=”” border_color=”” border_style=”solid” margin_top=”” margin_bottom=”” padding_top=”” padding_right=”” padding_bottom=”” padding_left=””][fusion_builder_row][fusion_builder_column type=”1_1″ layout=”1_1″ spacing=”” center_content=”no” link=”” target=”_self” min_height=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” background_color=”” background_image=”” background_image_id=”” background_position=”left top” background_repeat=”no-repeat” hover_type=”none” border_size=”0″ border_color=”” border_style=”solid” border_position=”all” border_radius=”” box_shadow=”no” dimension_box_shadow=”” box_shadow_blur=”0″ box_shadow_spread=”0″ box_shadow_color=”” box_shadow_style=”” padding_top=”” padding_right=”” padding_bottom=”” padding_left=”” margin_top=”” margin_bottom=”” animation_type=”” animation_direction=”left” animation_speed=”0.3″ animation_offset=”” last=”no”][fusion_text columns=”” column_min_width=”” column_spacing=”” rule_style=”default” rule_size=”” rule_color=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=””]On 13 January 2021, the Attorney-General’s department released a discussion paper on possible changes to the personal insolvency system. This followed reforms to corporate insolvency laws and the raising of the threshold amount required to issue a bankruptcy notice from $5,000 to $10,000, both of which came into effect on 1 January 2021.
The discussion paper aims to address the financial impacts of the coronavirus pandemic on individuals, especially small business owners operating as sole traders or in partnerships who might be experiencing personal insolvency as a result of business-related debt incurred during the COVID-induced downturn.
Suggestions floated in the discussion paper include
- reducing the default period of bankruptcy from three years to one year;
- reforms to Part IX debt agreement and Part X personal insolvency agreements to “make them more attractive or more accessible” for individuals with business-related debt; and
- tougher sanctions against untrustworthy pre-insolvency advisers.
Cutting the default period of bankruptcy from three years to one year
The discussion paper proposed to reduce the default time period required for a bankrupt to be discharged from three years to one year in a bid to reduce social stigma associated with bankruptcy, encourage entrepreneurs to re-engage in business, and encourage people to pursue their own business ventures.
This change was previously proposed in the Bankruptcy Amendment (Enterprise Incentives) Bill 2017, which elicited community concerns that it might enable unscrupulous individuals to abuse the personal insolvency system as an instrument to avoid paying debts. The Bill eventually lapsed before the 2019 election.
The Attorney-General’s Department asserts that those concerns can be ameliorated by introducing additional safeguards, including strengthened offence provisions and additional criteria that would exclude a bankrupt from being discharged after the default period of one year.
Targeting untrustworthy advisers
The paper also contemplated tougher offence provisions to punish serial, non-compliant bankrupts as well as dodgy pre-insolvency advisers who facilitate transactions that defeat the legitimate interests of creditors.
Although existing personal insolvency laws stipulate that concealing property with the intent to defraud creditors is an offence, these provisions are generally aimed at the behaviour of the bankrupt rather than those who advise them to take such actions.
To deter the provision of untrustworthy advice, the discussion paper floated enhancing the offence provisions prescribed in the Bankruptcy Act by introducing new provisions and expanding existing ones. Similar measures aimed to curb illegal phoenixing activities and punish dodgy advisors who abet such operations was introduced into corporate insolvency through the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2019, which commenced operation on 18 February 2020 and might serve as a reference.
View the Attorney-General’s discussion paper here.[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]
