Media reports of reviewing bankruptcy thresholds

ARITA responds to media coverage on proposed increase of bankruptcy threshold.

ARITA noted this week’s media coverage that indicates the Attorney-General may be considering a review of elements of the Bankruptcy Act. See for example: 'Sledgehammer to crack a walnut': $5000 bankruptcy threshold under review (SMH/Age Nov 19).

Today we wrote to the Attorney-General reminding him that we believe that this again highlights the need not for another piecemeal review, but a root and branch review of Australia’s entire bankruptcy and insolvency system with a view to substantial simplification, cutting of red tape and costs and a better capacity for rehabilitation and turnaround of individuals and companies in financial distress.

Announcements about the Commissioners who will lead our Financial Recovery Law Reform Commission are now imminent after final framework approval at a Board meeting earlier this week.

In our letter to the Attorney-General, we again sought the Government’s support for this important initiative which, in our view, needs to be completed ahead of any future economic downturn.

Dealing with the specific issues around increasing the bankruptcy threshold, we urged the Attorney-General to consider both the moral hazard issue and the impact on creditors – especially SME creditors – that this may have.

We noted that Registered Liquidators and Bankruptcy Trustees’ primary role is to recover money for creditors, and, to that end, we are possibly the only voice to represent that diverse community.

It’s the considered view of some of our most senior Bankruptcy Trustees that the signalling this involves is likely to lead to people gaming the system and possibly further impacting already constrained credit markets. Bankruptcy Trustees tend to deal with the more complex and non-compliant bankrupts and their view is that a significant increase in the threshold will create more issues within this cohort – which is often the most high-profile cohort.

We also noted the availability of alternatives to bankruptcy such as debt agreements that already provide a simplified avenue to address financial distress for those who are prepared to work with their creditors.