Proposed reforms to Australia’s bankruptcy system were announced by the Attorney General in July 2024. It is said that the objective of the reforms is to “ensure Australia’s bankruptcy system is fairer and operates in the best interests of all Australians” [1].

The key changes to be introduced are:

• increasing the threshold for creditor petitions from $10,000 to $20,000 (with the threshold to also be indexed each year);
• increasing the timeframe for compliance with a bankruptcy notice from 21 days to 28 days;
• reducing the period a discharged bankruptcy is publicly recorded on the National Personal Insolvency Index to 7 years following discharge (currently the listing is permanent);
• removing the proposal or acceptance of a debt agreement as an act of bankruptcy under the Act.

There is no immediate proposal to shorten the automatic discharge period of bankruptcy from 3 years to 1 year, however this is something that has been continually flagged as a potential change so is expected to be looked at more closely in the future.

The government has also announced a consultation process to be commenced on a Minimal Asset Procedure, which is based on a similar regime which currently exists in New Zealand. The concept is designed to “clear a person’s debts and allow a fresh start sooner than a bankruptcy”.

The process would last for 12 months with a 4 year post discharge public listing on the NPII.

The regime would be available to debtors who:

• have maximum debts of $50,000 or less
• have no more than $10,000 in assets (with an exception for tools of trade and a vehicle)

A maximum income is yet to be determined. The process would only be available once to debtors.

The “no asset procedure” (NOA) has been in place in New Zealand since 2007. It is available to debtors who owe less than $50,000 with no assets available. In the financial year 2022/2023, 476 applications were accepted under the New Zealand process. In 2023/2024, 413 applications were accepted [2]. Approximately 24% of applications made were rejected (presumably as not meeting the eligibility requirements).

The regime, similar to the small business restructuring regime introduced in 2021, is designed to offer debtors with minimal debts a fresh start without the cost of formal bankruptcy which often result in minimal return to creditors and are costly to administer. It is suggested that it will have minimal impact on creditors who would likely not have received any return in a formal bankruptcy scenario and reduce overall administration costs which are borne by the Australian Financial Security Authority.
 

_{[1] Media release www.ministers.ag.gov.au/media-centre/bankruptcy-law-reforms-08-07-2024}

_{[2] www.insolvency.govt.nz/about/statistics/insolvency-procedure-statistics…}