29 Nov Amending the Bankruptcy Stigma
The Federal Government announced in 2015 that as part of its National Innovation and Science Agenda, the period of bankruptcy in Australia will be reduced from three years to one year.
It was believed that the current bankruptcy period may discourage a culture of innovation and reduce the number of new start-up businesses. The aim of the reduction in the bankruptcy period is to encourage entrepreneurship and alleviate some of the restrictions applicable to bankruptcy, as well changing the current ‘stigma’ that it is often associated with.
On 19 October 2017, the Bankruptcy Amendment (Enterprise Incentives) Bill 2017 (the Bill) was introduced into Parliament for its first reading.
The Bill has now been referred to the Senate Legal and Constitution Affairs Legislation Committee on 30 November 2017, to ensure that the Bill receives a detailed scrutiny of its implications and consequences. It is expected that submissions will be received from the financial industry, individual community stakeholders and the government. The Senate Committee is required to provide their report by no later than 19 March 2018.
The Bill contains measures to implement significant reforms to our bankruptcy laws, by not only reducing the default time period to one year, but also reducing other time periods associated with bankruptcy:
- seeking permission to travel overseas;
- disclosure of status when applying for credit;
- and attainment of certain licenses and the entering into certain professions.
The Bill also contains measures to:
- ensure credit providers continue to have sufficient personal insolvency information to accurately assess a person’s creditworthiness;
- ensure personal insolvency practitioners are able to adequately and appropriately administer estates;
- maintain the integrity of the regulatory and enforcement frameworks under which the Australian Financial Security Authority operates.
The Explanatory Memorandum attached to the Bill outlines that income contributions associated with a discharged bankrupt will extend for a further two years post discharge, unless the bankruptcy is extended due to non-compliance, extending the period to five to eight years.
All bankruptcies on foot as at the day the amendments come into operation will be automatically discharged if the one year period from the commencement of their bankruptcy has expired. Remaining bankruptcies will be discharged one day after the anniversary of the bankruptcy, provided no objection has been lodged.
The proposed commencement date of the above reform is six months from the date of Royal Assent, to allow Trustees, debtors and creditors sufficient time to adjust to the new amendments.
Will these amendments be a good thing and encourage entrepreneurship? I guess only time will tell….
Article written by Joshua Robb, SV Partners NSW.