Insolvency law reform may steer more to debt agreements

Up to forty per cent more stressed debtors will become eligible for part nine debt agreements under proposed changes to bankruptcy law.

The attorney general, Robert McClelland, proposes to increase the income and debt thresholds for debt agreements by twenty per cent.

Currently the thresholds are after tax income of less than $62,735.40 and unsecured debts of less than $83,647.20.

In the financial year to June 30 2009, insolvency activity was up 11 per cent. Part IX and XI bankruptcies were up 5.9 per cent to 27,503 new bankrupts. Part IX agreements were up 29.5 per cent to 8567 new agreements started.

Creditors receive 76 cents in the dollar from the average debt agreement, while less than two cents is received from the average bankrupt.

The dominant player in the Australian debt solutions industry, Fox Symes, currently administers 54 per cent of all new debt agreements in Australia.

Fox Symes is very supportive of the proposed new bankruptcy laws, says executive director Deborah Southon.

"These are very minor changes really but we could see a thirty to forty per cent increase in the number of people eligible for a debt agreement."

McClelland has made it clear he wants the new laws to favour debt agreements over debtor-petition bankruptcy.

Southon said Fox Symes receives a fee averaging twenty per cent on all debt agreements that it manages, not forty per cent as previously reported.

Submissions on the draft legislation close today - September 14.