This commentary need not distract us from the important issue being heard by the High Court on Tuesday 10 October 2017, as to the eligibility of certain members of parliament to remain in office. But it is interesting to look at the other restrictions under our Constitution – treason, understandably, but also bankruptcy.
The impending High Court hearing concerns s 44(i) of the Australian Constitution, which disqualifies anyone who “is under any acknowledgment of allegiance, obedience, or adherence to a foreign power, or is a subject or a citizen or entitled to the rights or privileges of a subject or a citizen of a foreign power”.
A bankrupt cannot be a member of parliament
But the same section of the constitution, s 44(iii), raises another issue, that a person who is “an undischarged bankrupt or insolvent” cannot be a member of parliament.
Many readers would react, “well of course not!”, which only confirms the inherent adverse perceptions of the populace about bankruptcy which the government is in fact trying to overcome.
National Innovation and Science Agenda (NISA)
The government’s National Innovation and Science Agenda included reforms to lessen the stigma of business failure, purportedly to encourage entrepreneurs to take business risks, and not be unduly focused on the consequences of failure if the brilliant idea does not work. As a consequence, ‘safe harbour’ protection has now been introduced into the law to allow directors some legal protection from insolvent trading while they burn through up-front investor cash in order to establish their new product or idea.
In the NISA package of reforms, the government also said that it would reduce the period of bankruptcy from 3 years down to one, with the same purpose, to reduce the stigma. While NISA is focused on the business and entrepreneur set, there is research to say that such a reduction also has beneficial outcome for consumer bankruptcy, which comprise 80% of all bankruptcies.
The rest of s 44
But then we have the rest of s 44. In the paragraph preceding the bankruptcy restriction, section 44(ii) prevents a person being a member of parliament if they are “attainted of treason”.
Treason is a very serious crime, here and internationally, and historically and at present. Under Part 5.1 of the Criminal Code it has an extensive and extended meaning, but includes actions causing the death of or harm to the Governor-General or the Prime Minister, or imprisoning them, “levying war” against the Commonwealth, or instigating an armed invasion of the country.
Understandably, the penalty is “imprisonment for life”, replacing what would have been death in earlier times.
Our point is that while on the one hand the government wants to reduce the stigma and consequences of bankruptcy, the Australian constitution lists it in the same section as treason as being a disqualifying factor for parliament.
It is but one connection drawn between bankruptcy and serious criminal or other conduct that appears throughout the statute law.
In fact, much of the consequence of bankruptcy appears not in the Bankruptcy Act itself, but in state laws that impose restrictions on persons who are bankrupt, for example, holding certain licences, or practising certain trades or professions. In some cases, that may not be based merely on inferred moral failing, but that the restrictions of bankruptcy – on overseas travel and incurring credit, payment of income contributions – would make it difficult for the person to fully perform their duties. That may not be a real argument given the many other circumstances by which people can be subject to a variety of legal restrictions.
There appears to be no discretion in s 44. In another context, the High Court allowed a man to continue to practise as a barrister despite his conviction for manslaughter, arising out of drink driving. The Court went behind the conviction and found there were ameliorating circumstances associated with the man’s conduct: Ziems v The Prothonotary of the Supreme Court of NSW  HCA 46; (1957) 97 CLR 279.
But while most bankruptcies involve no moral obloquy on the part of the bankrupt person, and many can occur through the conduct of others, the fact of being an “undischarged bankrupt” allows no discretion to look at the circumstances of the bankruptcy and how it arose.
Other laws do not help. Section 13A of the NSW Constitution Act, 1902, disqualifies a legislative councillor from office because of bankruptcy, but also because of convictions for treason or an “infamous crime”, or being a “public defaulter”. Other states have similar restrictions and language.
The NISA document refers to the need to change the language of failure. It would be too clever to simply remove the word “bankrupt” from the statutes. But the history of the term, and its current dictionary meanings – “morally bankrupt”, “bankrupt of ideas” – only go to emphasise the adverse stigma of the legal term. A person subject to a personal insolvency agreement connotes a more positive status.
The name of the government agency administering bankruptcy – the Australian Financial Security Authority – also avoids the term in favour of positive language.
While ever the term bankruptcy remains, even if a one year or lesser period is enacted, the stigma may well remain. Given that the only means by which our Constitution can be changed is by referendum, s 44(iii) will remain in place. The word bankruptcy can be changed in the law; while it remains, even if a one year or lesser period is enacted, the stigma may well remain.
See also Bankruptcy, Treason and Other Crimes,  1 INSLB 138, Murray.
 We put aside the question of when a person might be “insolvent” rather than bankrupt. See Stott v Parker  SAStRp 20;  SASR 98
 “Upon judgment of death for treason, a man shall be said to be attainted”: Blackstone Pt I p 374.
 An infamous crime is not defined though it has a long history but, despite his claim otherwise, it was committed by a parliamentarian who was convicted of falsely representing that a document was signed by certain parties, so as to avoid bankruptcy. He was disqualified, and may have been disqualified through bankruptcy in any event: Re Trautwein (1940) 40 SR (NSW) 371. See also Re Culleton [No 2]  HCA 4.