Attorney General Enquiry into Personal Insovlency

Great to see personal insolvency also getting some government attention. Personally, I think reform here is more needed and urgent than in the corporate insolvency space.

The six key areas I'd like to see looked at:

1: Shortening or eliminating the 'term' of bankruptcy

The current bankruptcy term of three years is far too long and punitive. There have been proposals floating around for at least half a decade to shorten that term to one year, but I question whether a 'term' of bankruptcy is required at all. Changing bankruptcy to a point-in-time event that capture current debts and assets seems the cleanest solution to me.

2: Remove all prohibitions on managing a company

Currently bankrupts cannot be directors of a Company. This is arbitrary and should be removed. ASIC has the power to ban individuals from being a director if their conduct warrants it, and that is the better way for this outcome to be achieved.

3: Allowing cross appointments

Often business and personal dealing are intertwined and this can necessitate the liquidation of a company and bankruptcy of the directors. Currently that requires engaging and paying for two different professionals to complete these roles.

The law should allow the same professional to act as both liquidator and trustee in bankruptcy to simplify these kind of appointments, especially for small businesses.

4: Fix or Remove Income Contributions

A combination of low wage growth, high inflation, and indexing now means that only very high income earners now pay income contributions. This was clearly not the intention of the original scheme. We either need reform to fix contribution thresholds, or the removal of the scheme (which would fit well with a rethinking of bankruptcy as a point-in-time event rather than a period).

5: Make is cheaper and easier for creditors

Currently, making an individual bankrupt is a time consuming and expensive process for creditors. This process should be streamlined and simplified so that creditors can quickly and cheaply enforce their debts. This would go hand in hand with a reduction or elimination of most of the punitive aspects of the current bankruptcy regime (a move to a point-in-time bankruptcy), allowing both creditors and debtors to quickly resolve debt issues and get on with their lives and businesses.

6: An SBR style process for individuals

Personal insolvency laws currently have two 'restructuring' options. But neither are currently fit for purpose. The PIA process is too cumbersome and expensive, and the Debt Agreement process too rigid and inflexible. We need a flexible, SBR style process to allow individuals to cheaply and quickly deal with business debts.

https://www.afr.com/companies/financial-services/dreyfus-to-explore-urgent-changes-to-insolvency-laws-20230131-p5cgvp