You call that a lockdown? Australia’s bankruptcy laws

If those in small business think the lockdowns are tough, for weeks or even months at a time, the government has a much longer lockdown for them if their business happens to succumb to the financial pressures and they find themselves bankrupt. 

While bankruptcy is sold as being able to “release you from most debts, provide relief and allow you to make a fresh start”, it comes at a heavy price in Australia.[1]  For some it is worth it, but not for many and maybe not for those in business.


Let’s say Brenda’s business as a tourism operator, or builder, cafe owner or toy shop owner has failed, leaving her with many debts, her rented home and a few assets, and she is made bankrupt.  That means she becomes and remains a “bankrupt” – for 3 years and one day, at least.[2]  For every extra day she takes to compile details of her personal affairs, all her creditors, assets in years past, income, dependants, cars, shares, and business equipment, those extra days are added on to the 3 years.

She must behave, and if she doesn’t, like changing her phone number without telling her trustee, the 3 years could become 5 years,[3] or for some defaults, 8 years, for no given reason.

She “must request permission from [her] trustee to leave Australia”,[4] though not if she is going to Christmas Island.

Brenda must, for those 3 years “attend [her] trustee whenever the trustee reasonably requires” and she must attend to some tasks “forthwith”.[5]

She must account for any financial interest in her jointly owned assets, give up her Ford Ranger used for her business, and while that business might in the end have been worth something, she can’t buy it back, though her employees, or a competitor, could. She must provide family, personal and financial details about herself and about her business and its employees, hand over the business records, face her local and bank creditors and answer queries about her affairs, sometimes in open court.

Brenda could try to start another business again but if ‘buying goods or services on credit, by hire purchase or by cheque, leasing, hiring or promising to pay for goods or services, or to supply goods or services in return for payment’, for more than $6,017, she must disclose that she is “a bankrupt”, and she would already have been told about the 3 years jail consequences of not doing so, under “s 269(1)(a), (aa), (ab), (ac), (ad) and s 304A(1)(j) of the Bankruptcy Act”.[6] Her bank would already know that because her trustee in bankruptcy would have already been in touch, so to speak.


So, maybe by 2025, the government would be happy for Brenda to be released from her bankruptcy lockdown hoping she has learned her lesson and will not again go into business and be unable to handle the economic impact of a world pandemic, costing her creditors, in Brenda’s case, $40,000.

Wise up

And by then, Brenda might have wised up and instead of dealing directly with customers and will operate behind the legal fiction of a $2 limited liability company, paying less tax, from which she can keep her distance when it fails owing $1m to numerous creditors, walk away and set up another company and another business the next day.

Take advice

The government has the bankruptcy regulator AFSA administering these laws and AFSA sets out the consequences.  Consequences of bankruptcy | Australian Financial Security Authority (



[1] Fortnightly bankruptcy and personal insolvency statistics | Australian Financial Security Authority (, as to numbers. Small Business Counts report (2020) | Australian Small Business and Family Enterprise Ombudsman ( as to proportions; Counts of Australian Businesses, including Entries and Exits, July 2017 – June 2021 | Australian Bureau of Statistics (  As to which, who knows?

[2] What is bankruptcy? | Australian Financial Security Authority (

[3] OFFICIAL TRUSTEE PRACTICE STATEMENT 5 ( “The relevant objection ground in 149D(1) that relates to Rose not advising the trustee of her new telephone number is 149D(1)(j), which will extend her bankruptcy to five years”.

[4] Can I travel overseas during bankruptcy? | Australian Financial Security Authority ( Emphasis not added.

[5] Section 77 Bankruptcy Act.

[6] Indexed amounts | Australian Financial Security Authority (

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published.