Australia is on the cusp of implementing various changes to the Bankruptcy Act 2001 (Cth) that will likely increase the number of people voluntarily entering into personal bankruptcy.
The Bankruptcy Amendments (Enterprise Incentives) Bill 2017 was introduced in the Senate on 19 October 2017. The Bill follows from reforms proposed in the National Innovation and Science Agenda (from which the ‘Safe Harbour’ Reforms also originated).
The proposed amendments to the Act are an effort by the Government to promote entrepreneurship and innovation and to reduce the stigma currently associated with bankruptcy within business circles. This is to be achieved by reducing the time in which an individual is restricted from re-entering into business as a sole trader or serving as a director.
The most noteworthy amendment contained in the Bill is the reduction of the default term of bankruptcy from the current three years to only one year from the date of bankruptcy.
As a consequence of this reduction, associated restrictions prescribed by the Act will also reduce from three years to one year, such as:
- A bankrupt’s ability to travel overseas without the permission of his/her trustee in bankruptcy;
- Disclosure of bankruptcy status when applying for credit over the prescribed amount (currently the sum of $5,647.00); and
- A bankrupt being a director of a company.
With the reduction of the default term of bankruptcy comes a corresponding extension of the ‘prescribed period’ as defined in the Act to a period of three years from the date on which the bankrupt files its Statement of Affairs. Within this three years, the bankrupt must continue to:
- Disclose to a trustee in bankruptcy information about his/her property, dispositions of property, conduct and examinable affairs.
- Keep and retain books that record the bankrupt’s income, transactions and other financial affairs.
Further, a discharged bankrupt is required to comply with his/her income contribution obligations for a minimum period of two years following his/her discharge or, in circumstances where the bankruptcy term has been extended due to non-compliance by the bankrupt, for five to eight years.
It is suggested by the Government that increasing the time in which a discharged bankrupt must comply with his/her income contribution obligations will ensure that high income earners do not abuse the reduction in the default term of bankruptcy proposed.
Before the changes proposed in the Bill become law they must first pass through Parliament. Notably, the reduction in term is intended to operate with immediate effect which will act to cut down bankruptcies which have commenced at the time the Bill becomes law.
Cowell Clarke has significant experience in acting for both people in financial difficulty and trustees in bankruptcy. Please contact Peter Leech if you want to discuss what these reforms may mean for you.