A one year bankruptcy or a 5 year debt agreement – Senate recommendations

The reports of the Senate Legal and Constitutional Affairs Committee on the one-year bankruptcy (BAEI Bill) and the debt agreement bill (BADAR Bill)[1] have accepted the reduction in the period of bankruptcy to one year, subject to a curious recommendation based on the views of ASIC. 

That recommendation is to amend the Corporations Act

“to ameliorate the risk of the one-year default period being made available to bankrupts for whom such a concession is not a desirable or justifiable outcome”.

That is, to continue the three year period of disqualification of ex-bankrupt directors under s 206F of the Corporations Act. This seems to serve to reinforce the stigma of bankruptcy and retain it as an easy criterion available to ASIC to justify a long period of three-year oversight. It also seems inconsistent with the policy of these new laws under the innovation agenda. However, ASIC’s policy department, Treasury, made no public submission to clarify this.

The committee otherwise recommended that the Senate pass the BAEI bill.

As to the BADAR Bill, the committee recommends that the government consider amending it to allow for debt agreements implemented under a 3 year cap to be capable of being extended by up to an additional two years – to 5 years – by agreement of the debtor, creditors, and debt agreement administrator.

The committee also recommends that the government consider “including provision in the BADAR bill to require the minister to have regard to the cost of living for low-income households, the average cost of housing, and potential CPR increases, when setting the payment to income ratio, and whether differential payment to income ratios based on a debtor’s ability to cover costs of living at a reasonable standard could be appropriate”.

Otherwise, the committee recommends that the BADAR bill be passed.

It is now for parliament to decide.

 

 

[1] Bankruptcy Amendment (Enterprise Incentives) Bill 2017, Bankruptcy Amendment (Debt Agreement Reform) Bill 2018

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