Temporary insolvency relief measures introduced in March last year as part of the government’s COVID response ended last month but there is more change in store for the bankruptcy system.
Attorney-General Christian Porter has released a discussion paper, outlining a range of possible permanent changes to the system.
Following the end of the temporary measures:
- the minimum amount of debt that can trigger bankruptcy dropped down from A$20,000 to $10,000 (before the COVID relief measures were put in place the minimum amount of debt that could trigger a bankruptcy was $5000);
- the minimum amount of debt that can trigger a statutory demand has come back from $20,000 to $2000;
- the amount of time an individual has to respond to a bankruptcy notice or a statutory demand has come back from six months to 21 days;
- and temporary debt protection, which provides relief from creditors, has come back from six month to 21 days.
The government has been down this path before. In 2017 it announced that it would reduce the default period from three years to one but after public consultation it withdrew the proposal.
It said at the time that stakeholders were concerned that “rogue, reckless and repeat” bankrupts would abuse a default period of only one year.
The discussion paper asks whether views about this have changed and whether current economic circumstances make a one-year default a good option.
It also asks whether the terms of debt agreements should be adjusted to make them a more useful alternative to bankruptcy for businesses owners. Adjustments could include eligibility thresholds and a different term limit (currently three years).
And it asks whether the process for establishing personal insolvency agreements could be streamlined to make them more attractive and accessible.