In light of the eminent group usefully being convened in Melbourne tomorrow, 12 December 2025, to discuss what is proposed as a “minimal asset procedure”, offering a one year of bankruptcy restrictions and stigma to those with minimal assets and debts, I re-read my views in Reforms to Australian personal insolvency law — (2024) 23(3&4) INSLB 20. Reforms to Australian personal insolvency law — (2024) 23(3&4) INSLB 20
One perspective of the MAP might be that instead of keeping a clearly impecunious bankrupt, so labeled, on close scrutiny for 3 years, the MAP will only do so for one year, for which the bankrupt should be so grateful.
It may be that the 12 December group, apparently in favour of MAP, will offer me some counters to my INSLB views, which I will necessarily take on board.
Views
As to my views, by way of brief recap:
Piecemeal, avoidance-type reforms
Many of the reforms to bankruptcy law recommended by the 1988 Harmer Report – removing the act of bankruptcy — “a relic from the past where debt carried social stigma and public approbation” – were never implemented.
I had thought, post-PJC Report of 2023, that we might have entered the root and branch, comprehensive stage of law reform, but further reforms – increasing the days for a debtor’s compliance with a bankruptcy notice from 21 to 28 – not only confirms not, but also shows we remain in the days of piecemeal law reform.
A 1-year period of bankruptcy was first proposed to be implemented in 2015. The 2023 ‘roundtable participants’ continued to identify it as a “long-term” reform priority, and hence the government, no doubt pleased that it could avoid this long-running issue.
Perhaps they were concerned about the impact of the change in assisting organised crime, as one submission claimed.
Imposing restrictions on a failed business owner for 3 years, hardly supports a “dynamic economy [where] entry and exit both work efficiently”, as Assistant Minister Dr Leigh has said, allowing business failure to be handled in a way that is “fair, orderly and not socially catastrophic”. In contrast, “a system that is punitive discourages innovation”.
The root and branch supporters, and the government, should at least explain why we need any period of bankruptcy, except so as to support exceptions like the MAP.
Those outside the MAP category
Those 75% outside the MAP category would remain subject to a 3-year bankruptcy.
Overall, like the MAP category, the majority don’t pay a dividend – (referring to 2022–23 figures) only 15.3% of bankruptcies paid a dividend. Overall, unsecured creditors in bankruptcies received an average dividend of 2.19c/$.
The law reform proposal gives no assistance to debtors who do not meet the proposed criteria, but from whose bankruptcy creditors would still not benefit and for whom the label of “bankrupt” can have “potentially life-long consequences”, as the discussion paper explains. Well done!
Among this group might be the upwards of 40% of bankruptcies that arise from business failure, including of sole traders and of company owners. For them, the minimum 3-year bankruptcy continues to apply, and in many cases restricting their work options.
But of course not if they operated through the legal fiction of a company, and lost $5 million, in which case they can start again the next day, after liquidation.
In particular, there is no law reform support for the majority of small businesses that fail due to economic conditions or otherwise, in contrast to the government’s ready support for those operating through a company – see Part 5.3B Corporations Act. While the pandemic prompted this small corporate business restructuring process in 2021, proposals for some comparable relief for small trader businesses did not proceed.
2023 PJC Report on Corporate Insolvency
These personal insolvency reforms are proceeding in advance of any comprehensive review prompted by the PJC Report on Corporate Insolvency. Among the PJC recommendations, there are fundamental issues to examine such as the principles and objectives of insolvency law generally, and the interaction between personal and corporate insolvency. I assume the MAP has been considered in that context.
May be useful
In the end, these personal insolvency reforms may be useful in their limited context.
I am open to being persuaded or enlightened, if anyone considers that is relevant in any event.
