Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

The new Attorney-General and business bankruptcies

As the new Attorney-General, Senator Michaelia Cash[1] will find her portfolio encompasses the current law reform debate about whether and for how long there should be a period of restriction on a person after the date of their bankruptcy, as opposed to after their corporate failure.  Senator Amanda Stoker[2] as Assistant Minister to the Attorney-General, likewise. They in fact have a few broader issues to consider.

Bankruptcies and small business

Senator Cash was previously the Minister for Small Business, and others. It was in that context that she was recently asked questions about the government’s insolvency law reform for small business, given that her then portfolio covered the Small Business Ombudsman – ASBFEO, and the extent to which there was consultation about that reform by Treasury.[3]

That background will be useful for her in assessing the proposed reforms to the Bankruptcy Act being considered by her department, seeking to continue to impose restrictions on failed business owners for 12 months or more.[4]

The significance is that, as the ASBFEO has explained,[5] over 60% of small businesses do not operate as companies, and even of those that do, the SME corporate insolvency laws do little to protect an owner from liabilities under personal guarantees and other personal liabilities.

AFSA’s revised business and non-business statistics

In that respect, it is interesting to note that within the Attorney’s portfolio, AFSA has revised its business and non-business statistics time series going back to 2007.

The revised figures appear to show a far greater proportion of business bankruptcies than had earlier been reported.[6]

That revision has occurred through the new Bankruptcy Online system which commenced on 2 January 2020 and which introduced changes to the bankruptcy Statement of Affairs (SOA) form. AFSA’s method of defining business related personal insolvencies has changed, with a new definition for a ‘business-related personal insolvency’.  That is now defined as one where the individual operated as a sole trader, including as a contractor, subcontractor or similar; or who had been involved in a partnership, or been a director/secretary in a company, or held a management role in a company.

The superseded SOA, on which the old statistics relied, simply asked debtors to choose the main cause of their personal insolvency from a list which separated business and non-business-related causes. The new SOA allows debtors to report one or many reasons for their insolvency.

AFSA has published comparisons between the historical and new definitions of business and non-business-related personal insolvency statistics.

As one example, whereas the previous percentage of business bankruptcies in Australia for the 2015-2016 year was 24.3%, the revised figure is now 40.4%.

Bankruptcy law reform should take note of this change.

International

As well, as Attorney, Senator Cash will also be aware of the current work being done by UNCITRAL[7] on SME insolvency, one issue in particular being the need for countries to have a simplified insolvency regime for small business “irrespective of the legal structure through which their economic activities are conducted (limited liability company, partnership, sole trader, etc.)”.  Similar approaches are recommended by the World Bank.

Having said that, few jurisdictions manage that alignment, Australia included, though the current review of the Bankruptcy Act provides an opportunity.

Why bankruptcy?

Senator Cash could however query why her department deals with bankruptcy law at all, with, for example, the UK and New Zealand handling it within their relevant economic portfolios – in which case this may assist: Move bankruptcy from the Attorney-General to Treasury? | Murrays Legal Commentary

[1] LLB (Hons) (University of London) et al.

 

[2] LLB (Hons) (University of Sydney) et al.

[3] Where’s personal insolvency nowadays? Australian parliamentary confusion | Murrays Legal Commentary

[4] Should a person be subject to restrictions after an insolvency? | Murrays Legal Commentary

[5] Does small business count? | Murrays Legal Commentary

[6] Changes to business and non-business statistics | Australian Financial Security Authority (afsa.gov.au)

[7] Working Group V (Insolvency) | UNCCA

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