Why are we looking at minor reforms in bankruptcy when provisions in the Bankruptcy Act described as fictitious, artificial and antiquated lie untouched?
And why are we looking at insolvency reform at all while insolvency law reform consideration by the Productivity Commission is pending?
See Some-proposed-personal-insolvency-reforms-in Australia
The Bankruptcy Act
The Bankruptcy Act 1924 went through years of debate from 1908. The difficulty was in getting the various colonies or states to agree. One particular issue was the doctrine of relation back whereby a trustee could claim title to property relating back in time to the first act of bankruptcy committed by the debtor, like keeping house.
In the debate of the Bankruptcy Bill 1908, relation back was said to be a
“useless doctrine approaching almost final extinction in England”,
but nevertheless retained.
It passed scrutiny by the Clyne committee in 1965 but with significant exceptions.
The 1988 Harmer Report recommended its abolition along with bankruptcy notices and acts of bankruptcy, describing relation back as a
“fictitious, artificial and abstract concept … rarely understood”.
New Zealand did away with it in 2006 as an
“antiquated concept that pre-dates the emergence of modern bankruptcy statutes”.[1]
Calls for its repeals have appeared in Keay’s Insolvency since 2005.
It remains as a rather embarrassing concept. From an economics perspective it is a barrier to exit.
One year labelling
From another economics perspective the ongoing debate as to the length of a person’s public labelling as a bankrupt was effectively finalised with the government accepting the Productivity Commission’s 2015 recommendation that a one year bankruptcy be adopted. The timorous response is consistent with views expressed elsewhere about Australia’s culture.
Delayed discharge is said to be in various studies a dampener on business activity.[2]
Reduction to one year seems to have been such a frightening concept that it has been deferred into the future.
The real option available is simply to remove the label of bankruptcy: s 5. Many laws impose a restriction on a person for a period without calling the person names.
The ingrained need of bankruptcy to publicly punish is hard to remove in Australia.
Directors of inanimate entities
But of course not if you are A Director. AD might ineptly run her small business and lose creditors $1 million. ST might run his sole trader business well only to be laid low by injury from a car accident and lose creditors $100,000. AD can start again the next day. ST will be out for 3 years.[3]
But at least ST will have had 28 days to comply with the bankruptcy notice.
Meanwhile other important reforms for small business have been ignored.
Productivity Commission
Thankfully perhaps we now have the Productivity Commission looking at our bankruptcy laws which from an economics perspective might see much of consumer bankruptcy as a facilitated outcome to support the credit industry; that is,
“that since most western societies accept, if not encourage’ the benefits of lending, the insolvency regime should be viewed as representing ‘a sort of trade-off for deregulation of consumer lending”.[4]
In particular, establishing the purpose of insolvency, as recommended by the PJC, and the Productivity Commission, is fundamental. That needs data to ensure that any claimed purpose can in fact be achieved – a prime purpose of paying money to creditors must nowadays be in doubt.
Unsubstantiated law reform leads to “legislating in the dark”.[5]
Or, as Assistant Treasurer Dr Andrew Leigh has said, data allows us to
“move from anecdotes and prejudice to analysis and pathways”.[6]
The Productivity Commission report including as to personal insolvency will be out in November 2026.
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[1] Brown & Telfer, Personal and Corporate Insolvency Legislation, Guide and Commentary to the 2006 Amendments, Lexis Nexis, 2007, p 12.
[2] The Economic Impacts of Insolvency Regimes, Menezes & Gropper, World Bank, 2025
[3] See Murray & Mason, Harmonising the responsibilities of directors of insolvent companies with those of bankrupts (2023) 22(5) INSLB 76.
[4] QUT Law Review Volume 14, Number 3, 2014, New Zealand’s No Asset Procedure: A Fresh Start at no Cost, Trish Keeper.
[5] Garrido et al, IMF Working Paper – The Use of Data in Assessing and Designing Insolvency Systems, February 2019.
[6] https://ministers.treasury.gov.au/ministers/andrew-leigh-2025/speeches/address-maximizing-use-linked-and-integrated-administrative
