SME insolvency reforms – a one year bankruptcy and more

The Australian government’s 2015 proposal to reduce the 3 year period for the imposition of the restrictions of bankruptcy to 1 year remains on foot; and there is no indication that any period of restriction will be imposed in the parallel corporate failure situation on a director of a liquidated company. 

As to a one year bankruptcy, according to Senate committee proceedings on 22 October 2020,[1] the government said at one stage that it remains “committed to the progress of the bill through the parliament and, prior to the election, the government’s consultation with stakeholders on potential amendments to the bill. The process will continue following the re-election of the government and the bill be reintroduced to parliament at an appropriate time”.

As at October 2020, the government is said to still be considering a number of concerns about whether a one-year default period for bankruptcy would be sufficient in all circumstances, following a 2018 review. At the same time, COVI-19 has

“created a new set of circumstances which also require that the government thinks about how best to approach personal insolvency reform”.

Just to be clear

  • if a company goes into liquidation owing $2 million to creditors, because of the director/shareholder A’s ineptitude in business, A can set up another company the next day, or the day before.  There is no immediate or on-going restriction on A’s business activities.
  • if B goes bankrupt owing $20,000 to creditors because of the unavoidable impact of COVID-19 on B’s otherwise well-run business, B remains in bankruptcy and subject to its personal and business restrictions for at least 3 years, say 2023 or 2024.

And for further clarity

The Australian SME corporate insolvency reforms currently proposed deal only with A’s business, not B’s business, even though a large proportion of SME businesses are sole proprietors.

The Treasurer is responsible for those SME corporate insolvency reforms, relevant to A, and Treasury, along with ASIC, which registers and regulates company liquidators, but not trustees.

The Attorney-General is responsible for any SME sole trader insolvency reforms, relevant to B, and the AGD, along with AFSA, which registers and regulates trustees, but not liquidators; and also for the Fair Entitlements Guarantee scheme, which mainly applies in SME corporate insolvency, relevant to A, under Treasury and ASIC.


Other details of the intersection and operation of Australia’s insolvency laws are well explained in the transcript of these Senate committee proceedings.



[1] Senate Legal and Constitutional Affairs Legislation Committee Estimates (Public) 22 October 2020 Canberra – “We’re going around in circles here, aren’t we?”

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