TO BE (ONE YEAR) or NOT TO BE (ONE YEAR) – That is the question…

We were told in 2017 with the introduction of the Insolvency Reform Act that the changes contained therein would be the last we would see in the profession for a substantial period of time.?However, within the 5ish years hence, the bombardment of additional law reform has been significant.?Granted, some of this change has been in response to the COVID-19 crisis, but this doesn’t provide a wholly universal explanation.

With the release by the Attorney-General’s Department in January 2022 of the “Bankruptcy System – Options Paper” (Options Paper) stakeholders are being asked for at least the third time since 2017, whether the default period of bankruptcy should be reduced to 1 year.

SMB Advisory provided a submission in the original inquiry (which can be found here), following which the author gave evidence to the inquiry into the Bankruptcy Amendment (Enterprise Incentives) Bill 2017 and the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018.

The Enterprise Incentives Bill subsequently lapsed, only for the concept of a one-year bankruptcy being raised again in recent years, seemingly as a response to the COVID 19 crisis.?Stakeholders at that time noted that any change should not be as a result of the Coronavirus Pandemic but should be met with a “longer term approach to reform”.

So here we are again debating the benefits or otherwise of a one-year bankruptcy regime.

Whilst it appears as though the Government is keen to introduce a reduced period of bankruptcy, the structure around such reform is uncertain.?In previous submissions, there have been obvious calls from stakeholders for there not to be a “one-size fits all” reduction to the bankruptcy term, but perhaps instead an option for Trustees in Bankruptcy to apply, in certain circumstances, for certain bankrupts to be discharged in an earlier timeframe, if certain conditions are met.?

Instead of going down this path in the most recent iteration, however, the Government has looked to appease stakeholder concerns by considering excluding from one-year bankruptcy, individuals who, in the previous 10 years have:-

·??????Been bankrupt;

·??????Been banned as a director;

·??????Had a bankruptcy extended through an objection to discharge, or have been convicted of certain offences.

The Canadian bankruptcy system, as noted in SMB’s 2017 submission, at that time, had a “waterfall” effect when it came to addressing periods of bankruptcy.?The system offered a nine-month period for first-time bankrupts (unless there is surplus income), a 24-month period for a second bankruptcy and if an individual becomes bankrupt three times they have to have their discharged determined by the Court.

The current Options Paper, however, looks to increase the length of bankruptcy from one year, to two or three years, depending on whether a person has been bankrupt in the past 10 years.

If this was to come into force (and including various potentials for objections to discharge), there would be no less than nine (9) possible periods of bankruptcy that could apply to a debtor, depending on their circumstances.

Tune in on Wednesday 23 February at 9am AEST for a special instalment of Insolvency bites, where Stacy Miller and I will be ?discussing the contents of the Options Paper, where we have come from and where, potentially, we might be heading in the area of bankruptcy reform.

??This article is intended to provide general information only in summary format on relevant issues. It does not constitute legal or financial advice, and should not be relied on as such.