Submission: The bankruptcy system and the impacts of coronavirus

ARITA made a submission in the response to the Attorney-General's Department discussion paper issued on 13 January 2021 on possible changes to the personal insolvency system to inform the Government’s ongoing response to address the impacts of the coronavirus. This includes reconsideration of reforms to reduce the default bankruptcy period from three years to one year.

ARITA’s key points in relation to each of the elements covered in the discussion paper are:

Default period of bankruptcy

The default bankruptcy period should not be reduced in responses to the current economic circumstances. It would be more beneficial to conduct a comprehensive review of Australia’s insolvency system which establishes a simple, efficient, and effective regime and a clear pathway for those dealing with financial distress. A reduced bankruptcy period should apply as an exception, rather than a rule, and a ‘simplified bankruptcy’ option is the preferred alternative.

Debt agreements

Other than legislating the same high level of professionalism and competence for registered trustees and debt agreement administrators via academic requirements, no change should be made to the debt agreement system in response to coronavirus.

Personal insolvency agreements

Personal insolvency agreements (PIA) continue to be a valid option for certain debtors, without amendment, however they are costly and other options are available which will result in the same outcome. Creditor support for PIA proposals can be troublesome.

Offence provisions

Should the default bankruptcy period be reduced, amendments should be made to strengthen the objection to discharge regime to ensure the one-year default period for bankruptcy is not abused by serial, non-compliant bankrupts. With a view to reducing the prevalence and harm caused by dodgy pre-insolvency and phoenix advisers, ARITA continues to advocate for all providers of insolvency/solvency advice to be licensed and subject to the same legal duties as insolvency practitioners or lawyers.

Read ARITA's submission

Attorney-General's Department consultation: The bankruptcy system and the impacts of coronavirus