Significant changes to the Bankruptcy Act


Posted By on 13/12/17 at 10:28 AM

By Kate Davey (Senior Associate) and Paul Welling (Principal Solicitor)

Under a bill introduced into Parliament earlier this year, the default period for bankruptcy in Australia is proposed to be significantly reduced from three years to one year (along with various other reforms).

According to the Explanatory Memorandum which accompanied the Bankruptcy Amendment (Enterprise Incentives) Bill 2017, the reforms aim to:

“… foster entrepreneurial behaviour and to reduce the stigma associated with bankruptcy. Reducing the automatic discharge to one year will reduce stigma, encourage entrepreneurs to re-engage in business sooner and encourage people, who have previously been deterred by the punitive bankruptcy laws, to pursue their own business ventures”.

Other time periods associated with bankruptcy will be reduced to one year including:

  • disclosure of bankruptcy when applying for credit;
  • seeking permission for overseas travel;
  • obtaining certain licences; and
  • entering into certain professions.

Positively for creditors, changes will also be made to Part VI Division 4B of the Bankruptcy Act so that discharged bankrupts, who are assessed as eligible to make income contributions to the trustee, will continue to be liable to make those payments for two years following the discharge of their bankruptcy. This measure is intended to ensure that high income earners do not abuse the system by simply reducing their income for one year, hiding their assets, accruing extensive debts and then only being subject to contribution obligations for one year.

Other obligations which will extend beyond the discharge of bankruptcy are the obligation to disclose property and other information to the trustee (Section 265) and to keep and produce books/records as to income, employment and financial transactions or dealings conducted by the bankrupt (Section 277A).

Objection to automatic discharge

The trustee or Official Receiver can object to the automatic discharge in the same way and on the same grounds as already provided for in Part VII Division 2 of the Act. The objection must be filed with the Official Receiver prior to the discharge.

Existing bankruptcies

All bankruptcies on foot at the commencement date, except those which are subject to an objection, will be discharged if one year has expired since the bankrupt filed a statement of affairs with the Official Receiver. Remaining bankruptcies will be discharged on the day after the first anniversary of the filing of the statement of affairs with the Official Receiver. Bankruptcies extended prior to the commencement date pursuant to an objection to discharge will remain on foot.

Watch this space!

It is important that our bankruptcy laws strike the right balance between encouraging entrepreneurs, protecting the rights of creditors and providing a disincentive to individuals from acting irresponsibly with their finances.  We will have to wait and see if the proposed changes, should they become law, strike this balance.

The Bill was referred to the Senate Legal and Constitutional Affairs Legislation Committee on 30 November 2017, and submissions have been sought from affected individuals and organisations.

A report must be provided by the Committee by 19 March 2018.

Paul Welling Principal Solicitor

Paul Welling leads our litigation team.  Paul spent over a decade at a top tier national law firm and is a highly experienced litigator specialising in all areas of complex commercial litigation and... Read More