Shortening the maximum length of time a bankrupt person must serve their penalty before they are discharged was missing from a slender suite of bankruptcy law reforms outlined yesterday by the Attorney-General Mark Dreyfus.
There is only one real reform proposed, with one other conceptual reform – on a Minimal Asset Procedure – thrown open for consultation.
The key reform is: “Removing the proposal, or acceptance, of a debt agreement as an act of bankruptcy”.
This will reduce the number of bankruptcies and, potentially, fan demand for debt agreements.
Dreyfus proposes to tinker with:
• Increasing the threshold for involuntary bankruptcies from $10,000 to $20,000, with the threshold to be indexed each year;
• Increasing the timeframe in which a debtor may respond to a bankruptcy notice from 21 days to 28 days, and
• Reducing the period a discharged bankruptcy is publicly recorded on the National Personal Insolvency Index to seven years following discharge from bankruptcy.
The main talking point will be the Minimal Asset Procedure, a proposal that draws on parallels in the UK and Ireland and New Zealand.
In FY2022, roughly one quarter of personal insolvencies had less than $50,000 in liabilities and less than $10,000 in assets, and it is this cohort that might benefit from a fifth variant of insolvency.
The AG’s department said it considered the following to be potential elements of a Minimal Asset Procedure in Australia:
• there be a maximum debt threshold of $50,000 to enter the Minimal Asset Procedure;
• the Minimal Asset Procedure would last for 12 months, with a period of 4 years post-discharge to be listedon the National Personal Insolvency Index;
• a maximum threshold for income would be determined for eligibility for entry into a Minimal Asset Procedure;
• a maximum threshold of $10,000 in assets with exceptions for tools of trade and a vehicle to be eligible for entry into a Minimal Asset Procedure;
• a debtor may only enter once into a Minimal Asset Procedure during their lifetime; and
• a Minimal Asset Procedure should be less onerous than a bankruptcy.
This discussion paper seeks views about where the Minimal Asset Procedure would best fit, amongst Australia’s current personal insolvency options, and whether the Minimal Asset Procedure would displace any existing options.