One-year bankruptcy is back on the table – Insolvency/Bankruptcy/Restructuring

Australia: One-year bankruptcy is back on the table

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…but it’s not easy for everyone.

You may recall that in October 2017 the government introduced the Bankruptcy (Business Incentives) Amendment Bill modify the Bankruptcy law 1966 reduce the automatic bankruptcy period from three years to one year. The bill lapsed in 2019 but was still floating around the halls of government and the Attorney General put it back on the table soliciting proposals to reform bankruptcy law regarding:

  • Reduce bankruptcy to one year.
  • Promote debt agreements.
  • Target unreliable advisors.

However, not everything is easy for those facing bankruptcy! The government is particularly interested in having stakeholders think about excluding bankrupts from eligibility for a one-year bankruptcy where in the past 10 years they have:

  • went bankrupt
  • was banned as director
  • saw their bankruptcy prolonged by an opposition to the release
  • have been convicted of certain offenses

Went bankrupt

It is proposed that this be staggered so that if the reform comes into effect and you have already had a one-year bankruptcy within a 10-year period, any future bankruptcy will be two years. If you go bankrupt again in the next 10 years, it will be three years. After that (hopefully very few succeed!) it resets to one year.

Was banned as a director

No staging here; bankruptcy is automatically for three years. However, those who are automatically barred as a result of bankruptcy get the one, two, or three years described above.

Had a prolonged bankruptcy through opposition to discharge

So if you have been bankrupt within the last 10 years and the trustee in bankruptcy has opposed your automatic bankruptcy discharge, you are not eligible for a one year bankruptcy.

Have been found guilty of certain offenses

If you have been convicted of a bankruptcy law offense or a fraud-related offense, you are directly sentenced to the maximum of three years.

Promote debt settlements and target untrustworthy advisors

The government is concerned about the reduction of part IX, the use of debt agreements. National volumes increased from 11,549 in the 2018-19 period to 3,731 in the 2020-21 period. There is no doubt that part of the reduction is due to the financial responses of the government and major lenders to the pandemic. However, since the numbers have not increased significantly, it is envisaged to:

  • extending the term of debt agreements from three to five years
  • increase the debt and income eligibility thresholds (currently $121,030 and $90,772.50 respectively) to match the asset eligibility threshold (currently $242,060)
  • reduce the exclusion period from 10 years to 7 years for those who have previously been in bankruptcy, in a debt agreement, or a part X, personal insolvency agreement,
  • proposing that a debt agreement is not an “act of bankruptcy”.

To further detect and weed out pre-insolvency advice from untrusted advisers, the Attorney General is seeking input from stakeholders on expanding bankruptcy law to:

  • Require bankrupts to disclose details of pre-insolvency counseling.
  • Require registered trustees in bankruptcy to inquire about pre-insolvency advice and provide this information to the Australian Financial Security Authority (AFSA).
  • Include as an offense advising, instructing, aiding or advising any person to commit or attempt to commit existing offenses under the Bankruptcy Act.

Consultation details are available heresubmissions ending February 25, 2022.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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