An overseas publisher has asked me to give an update on the latest in small business bankruptcy law in Australia, for a comparative article, the publisher asking what was the outcome of the various reforms in Australia proposed earlier in the year. That prompted me to review the state of play and come up with this.
Personal insolvency consultation January 2021
The publisher was right, the government did start a law reform consultation in January 2021, on
‘possible changes to the personal insolvency system to inform the government’s ongoing response to address the impacts of the coronavirus. The coronavirus pandemic has had wide reaching personal, employment and economic impacts across Australian communities, businesses, and industry sectors’.
The government wanted to consider the default period of bankruptcy, debt agreements, personal insolvency agreements and offences.
“We also welcome views on any other areas that stakeholders consider may address the impact of coronavirus, including the impact that it has had on unincorporated businesses such as sole traders and partnerships”.
Submissions closed on 12 February 2021.
The outcome of that seems to be limited to these bits and pieces.
- From an earlier consultation, the bankruptcy threshold changed to $10,000, from $5000 from 1 January 2021: reg s 10A.
- New bankruptcy regulations commenced on 1 April 2021, replacing those of 1996, revising a number of issues clarified by practice and by the courts over that time, including for example the service of documents by email. Section 102 of the 2021 Regulations is not as clear, or not clear at all. More on that soon.
- One important regulation maintained is that if a person who is bankrupt dies and they have paid an income contribution, no refund is due to their estate; but if the income contribution is unpaid, the deceased estate in bankruptcy will remain liable to pay it: reg s 38.
- The minimum dividend that needs to be paid has been increased to $50 from $25: reg s 42
- South Australia has new law that ‘bankruptcy’ is not a reasonable excuse for a person to abandon a radiation source, that is, a sealed radioactive source, unsealed radioactive material or radiation apparatus, or any equipment, object, article or thing that emits or may emit ionising or non-ionising radiation when energised, with a penalty of $100,000. Also, if a person licensed or authorised under the Act “becomes bankrupt or insolvent”, the official receiver will be taken to hold that authorisation on the same conditions from the date of bankruptcy or insolvency for at least six months: Radiation Protection and Control Act 2021 (SA). We hope the official receiver knows that.
- With the repeal of the definition of “Australia” in s 5 and the repeal of s 9A, the Bankruptcy Act now applies to Norfolk Island.
- As to COVID-19, AFSA advises that if a debtor has saved some of their COVID-19 supplement payments, say $1000, the trustee would take that $1000 as an asset when they go bankrupt; and such payments would be treated as part of their income for the purpose of paying an income contribution. But economic support payments – are not claimable by the trustee as income or as an asset, regardless of whether the payments are received before or after the date of bankruptcy: My income or employment has changed (or may change) | Australian Financial Security Authority (afsa.gov.au)
- AFSA also gives advice to businesses in financial stress saying that they need to take action and properly manage financial and operational difficulties including to keep records and reporting up to date and monitor cash reserves and ensure cash flows are sufficient to avoid trading insolvent. COVID-19 challenges and seeking advice for small business owners | Australian Financial Security Authority (afsa.gov.au)
- It remains the law that the trustee can employ the bankrupt business owner to carry on their business but only with a view to selling it, to someone else: s 134. The bankrupt can be paid for that work, but that can be challenged. If the bankrupt owned a corporate business, that vests in the trustee as an asset and again, the trustee may need to continue that business with a view to its sale, before winding up the company.
- Bankruptcy matters can now be heard by the Federal Circuit and Family Court of Australia, which, as Attorney-General Senator Cash – explained, is created “to address the confusion, costs and delays that Australian families experienced under the previous two-court structure for federal family law matters”: Commencement of the Federal Circuit and Family Court of Australia | Attorney-General for Australia and Minister for Industrial Relations (attorneygeneral.gov.au). The fcfcoa also hears bankruptcy matters: Bankruptcy: Overview | Federal Circuit and Family Court of Australia (fcfcoa.gov.au); and see Federal Circuit and Family Court of Australia – Division 2 General Federal Law (austlii.edu.au). In bankruptcy, the Federal Court remains as an option.
That’s the sum of Australia’s small business personal insolvency reforms seeking to address the wide reaching personal, employment and economic impacts of the pandemic across Australian communities, businesses, and industry sectors.
It will be a short contribution from Australia for the publisher.