Response 931680250 to Possible reforms to the Bankruptcy system - Attorney-General's Department

Response 931680250

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Reduce Bankruptcy to one year and strengthen objection to discharge provisions and offence provisions.

Please provide any views you have about reducing the default bankruptcy period from 3 years to one year.

A vote loser as small business and retailers (the losing creditors) will have to carry the financial losses and burden of no consequence to personal debt which will create a domino effect in bankruptcies accelerating the numbers and losses. An economic disaster in the making. Stressed businesses will fall at astonishing rates under crippling losses accelerated by no consequence debt.

Credit providers will tighten up and restrict supply to COD for many to safeguard themselves from losses created by no consequence to debt. This will again have dire effects for those struggling to survive financially.

If the default period for bankruptcy is reduced to one year, which of the following reasons should exclude someone from a one-year bankruptcy? You may select more than one.

Please select all that apply

They have been bankrupt before

They have been banned as a director

They had a bankruptcy extended through an objection to discharge, or

They have been convicted of certain offences.

None of the above, anyone should be able to access a one-year bankruptcy

Here you may elaborate on your response to the above question.

Credit providers don’t care if a bankruptcy is one year or three, they will not lend for seven years as this is how long credit records last.
It encourages repeat offending with credit as there will be no consequence.
The Vanstone findings of the Early Discharge provisions need to be read by the Dept.
Early discharge of consumer bankruptcies with no assets nor potential to pay contributions, may be eligible, at the Trustee’s sole discretion (not reviewable by the Inspector General in Bankruptcy), for early discharge under strict guidelines.
Two years is not a long enough period for a bankrupt to rehabilitate, replan and readjust his finances and financial plans.
If a bankrupt has a bankable concept, he can get backing and funding and get a S73 annulment with creditors satisfied.

Are there any other reasons that someone should be excluded from a one-year bankruptcy?

Please select one item

Yes

Please list other reasons that should exclude someone from a one-year bankruptcy and why.

one year bankruptcy should not exist as it will promote economic chaos from no consequence debt.

If the default period of bankruptcy is reduced to one year, do you think someone who has been bankrupt in the preceding 10 years should be able to apply for an early discharge from a 2-year or 3-year bankruptcy if they meet certain eligibility criteria (e.g. the person has satisfied all their tax obligations, has not engaged in voidable transactions, has been cooperative throughout the bankruptcy process etc)?

Early discharge of consumer bankruptcies with no assets nor potential to pay contributions, may be eligible, at the Trustee’s sole discretion (not reviewable by the Inspector General in Bankruptcy), for early discharge under strict guidelines.
Two years is not a long enough period for a bankrupt to rehabilitate, replan and readjust his finances and financial plans.
If a bankrupt has a bankable concept, he can get backing and funding and get a S73 annulment with creditors satisfied.
The whole concept described here of varying one, two, three, five or eight year bankruptcies is an administratively confusing disaster ready to happen. The nativity of the concepts is breath-taking.

Please provide any views you have about proposed new grounds for objection to discharge, as listed below and in the options paper.

Please enter your response here:

All the mentioned offences and issues are objectionable offences already in the legislation. What needs review is the fact that the regulator acts with literal interpretations of minor aspects of the Act to over-rule RT’s objections and this often occurs in no funds jobs whereby an AAT or Court review is not possible. The onus of proof should be on the bankrupt to prove he did not offend.
As with “contracting a debt with no expectation to pay’ I have never heard of a prosecution under this section and I do not expect it to ever happen as the offenders will be low income earning consumer bankrupts who furnish a house courtesy of Harvey Norman and then submit a debtors petition for a one year bankruptcy.

Are there certain Bankruptcy Act offences which could have penalties strengthened to target abuse of a one-year bankruptcy?

Please select one item

Yes

Please list any offences provisions that could have penalties strengthened and why.

Please enter your response:

One year bankruptcy will see an explosion in UA activity and no offence section in the Act will deter it as there is little likelihood of prosecution. Penalties attaching to offences which make the UA personally liable for any quantifiable shortfall may assist deterrence if prosecuted. Most will then bankrupt themselves for a one-year bankruptcy and just continue.
No creditor will bother with recovery actions in Court for a one-year bankruptcy as it is not worth the filing fee as it will be abused and nothing will be recovered and there will be no Registered Trustees to perform detailed investigations as RT’s will leave the industry as it will be unviable to operate. Being an RT will become unviable and the OT will have to administer all bankruptcies when the RT numbers dwindle to less than 50.

Promote debt agreements

Should the default term limit for debt agreements be extended to 5 years?

Please select one item

Yes

Here you may elaborate on your answer to the above question.

The Debt Agreement concept was made unviable with the limitation of DA’s to three years. Also, what debtor will sign up to repay creditors for five years (or even three years) when he has the ability to serve a non-consequential one-year bankruptcy and pay nothing.
One year bankruptcy will kill off Debt Agreements for good. They will be a useful as the Small Business Restructure folly in the Corporations Act.

If the default debt agreement term is extended to 5 years, should the home ownership exception remain, to allow a debtor with a real interest in property to propose a longer debt agreement beyond a 5 year default term?

Please select one item

Yes

Here you may elaborate on your answer to the above question.

No information is provided to elaborate but I assume it is to allow a Debt Agreement to be secured by a mortgage over property. If this is the case, creditors will want the equity immediately and pursue to Part IV bankruptcy. I have never heard of creditors accepting less than what is available now, over five years. No practicable application.

Section 185M of the Bankruptcy Act gives debtors the flexibility to vary their debt agreement to up to 5 years if they suffer a substantial and unforeseen change in circumstances. What form should this variation exception take if the default term for debt agreements is extended to 5 years?

This is open to abuse and will come under the old “wearing the creditors down” issue with Part X of the Act. This should only be allowed with the DA’s recommendation that it is in the creditor’s best interest.

Should the exclusion period for lodging a debt agreement proposal be reduced from 10 years to 7 years?

Please select one item

Yes

Here you may elaborate on your answer to the above question.

Debt Agreements will be irrelevant if there is one year bankruptcy.

Should debtors that have previously been party to only a debt agreement be provided with a specific exclusion period of 5 years (rather than the proposed 7 years)?

Please select one item

Yes

Here you may elaborate on your answer to the above question.

DA's will be abused as tax minimisation schemes if allowed every five years.

The lodgement of a debt agreement should no longer be considered an ‘act of bankruptcy’.

Please select one item

Agree

Disagree

Here you may elaborate on your answer to the above question.

S40 of the Act makes extensive commentary of the definition and seeking protection under the Act is a core act.

Targeting untrustworthy advisors

Please provide any views you have about the proposed requirements to provide and collect information about pre-insolvency advisors and advice, as detailed below and in the options paper.

In an effort to target untrustworthy advisor activity, which of the following Bankruptcy Act offences should include an offence to advise, instruct, assist or counsel any person to commit, or attempt to commit, that offence? You may select more than one.

Please select all that apply

subsection 263(1) – concealing a bankrupt’s property with the intent to defraud creditors

subsection 267(2) – making a false declaration or statement which the person knows to be false

subsection 268(3) – making a false representation or committing any fraud when executing a personal insolvency agreement with the intention of obtaining the consent of creditors

Are there any other existing Bankruptcy Act offences which should include an offence to advise, instruct, assist or counsel any person to commit or attempt to commit that offence?

Please select one item

Yes

Please list other offences that should be included and why.