AFSA has released a report on personal insolvencies in 2023-2024, with some predictions as to the future. State of Personal Insolvency Report released for 2024 | Australian Financial Security Authority The report also refers to AFSA’s regulatory processes and achievements.
Low numbers
Of Australia’s adult population of around 18 million, there were only 11,644 new personal insolvencies in 2023-24, an increase of 17.3% from the previous year but still below the previous 5-year average of 12,564 and the previous 10-year average of 21,252. These numbers are said to be supported by low unemployment levels, and the stable credit risk trend in personal and home lending.
The numbers are also well below the 37,000 post GFC.
AFSA has forecast that personal insolvencies will rise by 15% to 13,400 in 2024–25 and by a further 12% to 14,950 in 2025–26. This economic prediction may be so although previous predictions by AFSA have been a little over-stated.
AFSA reports that just over a quarter (25.1%) of personal insolvencies were business-related. They accounted for 75% of the personal insolvency system’s total debt ($17.3 billion), with a total value of $13.2 billion in liabilities. A more accurate figure is to look at the proportion of business bankruptcies, usually over 40%. These are often associated with corporate liquidations, a sector separately administered by ASIC.
Debtors with low liabilities continue to represent a significant proportion of new personal insolvencies in 2023-24, with 49% of debtors having liabilities of less than $50,000. Comparable low asset levels are reported on company liquidations.
Most personal insolvencies were incurred by males (55.4%), with females making up 42.3%. Large metropolitan areas had higher rates of personal insolvency than regional areas. Sydney and Melbourne had the most and second most personal insolvencies, with 17.3% (2,019 personal insolvencies) and 13.6% (1,583 personal insolvencies) respectively.
The ATO is the largest creditor in the personal insolvency system with $2.5 billion in liabilities during 2023–24, including $1.7 billion for business-related and $0.8 billion for non-business related personal insolvencies. The ‘Big Four’ Banks represent the next largest group of creditors with liabilities of $1.1 billion and $0.9 billion for business-related and non-business-related personal insolvencies, respectively.
Trustee regulation
At the end of 2023–24, AFSA had regulatory oversight of 128 insolvency firms.
Of the 128, 9 firms (including the Official Trustee) are responsible for administering 75% of all active personal insolvencies worth a total of $1.4 billion.
Across the personal insolvency system, AFSA regulated $17.3 billion in liabilities in 2023–24 owed by 40,214 individuals, of which $13.2 billion stemmed from business-related personal insolvencies. The top 4 industries in which debtors were employed were construction (12.2%), health care and social assistance (11.1%), other services (9.6%), and retail trade (9.5%).
As to regulation of trustees, AFSA says it is
“putting our regulated cohort on notice to ensure fair outcomes for debtors and creditors”;
fairness presumably not meaning a financial return.
AFSA says it is also making greater use of its legislative powers, including its section 12 coercive powers to interrogate misconduct by debtors, creditors, and trustees.
As an example, AFSA refers to its Federal Court action to challenge an unfair Part X agreement.
There is also the Federal Court action against former trustee Mr Paul Leroy in relation to missing moneys in a bankrupt estate, Mr Leroy having been a member of the “regulated cohort of registered trustees …” under scrutiny from AFSA. The Inspector-General appears as amicus curiae in that matter.
AFSA says it is sending a clear message to all stakeholders that it will not tolerate system misuse. It is
“operationalising [its] Regulatory Action Statement to ensure it is translated into definite actions”.
The future
AFSA says it is positioning itself to respond to current and future challenges.
As to which, the Attorney-General announced proposed reforms to increase the threshold for involuntary bankruptcies from $10,000 to $20,000 (indexed); to increase the timeframe in which a debtor may respond to a bankruptcy notice from 21 days to 28 days; reduce the period a discharged bankruptcy is publicly recorded on the National Personal Insolvency Index to seven years; and removing the proposal, or acceptance, of a debt agreement as an act of bankruptcy for the purposes of subsection 40(1) of the Bankruptcy Act.
AFSA says it is working closely with the Attorney-General’s Department to support the development of these reforms. There is also the proposed introduction of a Minimal Asset Procedure (MAP).
The government is yet to respond to the 2023 PJC recommendation for a comprehensive review of insolvency law.
AFSA says it wants to reduce the
“administrative burden to promote efficiency in the system and allow debtors and creditors to swiftly return their focus to more productive economic activities”.
Nevertheless, the legal burden of a minimum 3 year period of bankruptcy remains.
Other view
For a, more dramatic, account of this AFSA report, see the Australian “personal insolvency cases set to jump“, 19 December 2024.
Annual statistics
AFSA has yet to issue its Annual administration statistics for 2023-2024 which provide annual information on a financial year basis on the administration of personal insolvencies, including as to average value of any dividends to creditors, average value of assets realised and average trustee remuneration paid.
