Reforms to personal bankruptcy law, including a proposed automatic discharge from bankruptcy after one year, look set to be passed despite grave concerns from the industry and its regulators.
‘We can’t believe the government is doing this’: Mid-tier up in arms over bankruptcy reform
Last month, the Senate Legal and Constitutional Affairs Legislation Committee looked at 20 submissions on the Bankruptcy Amendment (Enterprise Incentives) Bill 2017 and recommended the bill be passed with minor amendments.
Broadly, the bill proposes an automatic discharge from bankruptcy after one year, down from three years, as it aims to “foster entrepreneurial behaviour and reduce the stigma associated with bankruptcy”.
A significant number of submission raised concerns over the reduction of the default period, including mid-tier firm Pitcher Partners who said the reform would reward bad behaviour, encourage fraud and lead to the exploitation of creditors.
ASIC raised similar concerns, stating that the shortened period could unintentionally promote excessive risk-taking and that a one-year default period may not be sufficient to “undertake appropriate education and skills development training to reduce the risk of future failures”.
Speaking to Accountants Daily, Pitcher Partners senior manager Innis Cull said the committee’s report supporting the passage of the bill was worrying, considering the risk of abuse by some bankrupts and has suggested a mechanism to identify eligible early discharge bankrupts.
“This is a really serious problem and we can’t believe the government is doing this,” said Mr Cull.
“We actually got a lot of traction from the Senate committee members when we ventilated our concerns, but if you read the committee’s report, they’ve listened very much to the attorney-general who said, ‘look it’s going to be too hard to actually police what police Pitcher Partners is proposing which is this application procedure’, which in our view is not a hard thing to police at all. We proposed a very straightforward means of it being administered.
“Under the Bankruptcy Act, a trustee has the power to object to a person being discharged from bankruptcy and there’s a list of grounds a trustee can rely on in lodging this objection, and if they are lodging this objection, the bankruptcy will be extended to five years or nine years depending on how serious the bankrupt’s conduct is and it includes things like if the bankrupt hasn’t paid income contributions, if the bankrupt hasn’t disclosed assets, if the bankrupt has refused to do things that the trustee needs to do, etc.
“That regime would apply in that first year anyway, but a trustee needs to move very quickly to try and identify if these grounds of objection for discharge exist, and if the government is the trustee, good luck, they are not going to look at these things and it’s going to be a whole bunch of people going into bankruptcy and coming out after 12 months who in our view should not be receiving that.”
Mr Cull further said that the firm would be updating its submission in a bid to add weight to its argument but fears that it might be too late.
“The door is closed from the committee’s point of view in that the Senate has given its report recommending the bill,” said Mr Cull.
“Whether or not it is now a foregone conclusion, these amendments are going to occur without any changes that we’ve recommended is yet to be seen, but it is highly likely that the law is going to change and in the form that the government has proposed.”