Millions of Australians have been affected financially by the COVID-19 crisis, whether by loss of employment or business downturn. It is expected that the financial impacts of COVID-19 are likely to persist for months, and even years. So, does this give us cause to reconsider our personal insolvency laws?
Some temporary changes have already been made, including:
- extending the period of temporary debt protection (from 21 days to 6 months);
- increasing the debt threshold required before creditors can issue a bankruptcy notice against a debtor (from $5,000 to $20,000); and
- and giving debtors six months (instead of 21 days) to respond to a bankruptcy notice.
While these changes are welcome, the coming months provide an opportune time to consider a holistic review of our personal insolvency system, given that the insolvency system as a whole was last reviewed more than 30 years ago (the 1998 Harmer report). Such a review could ensure that Australia’s personal insolvency laws reflect the changes that have occurred since 1988, and are also fit for the social, economic and environmental challenges that Australia may face in future. Associate Professor Michael Murray and Professor Jason Harris have suggested that: “Put simply, another Harmer Report is long overdue.”* Although the comment was made in the context of corporate insolvency, it is equally relevant for personal insolvency.
Among other things, a holistic review could consider the role of bankruptcy discharge. This would include the arguments for reducing the length of bankruptcy, which, at 3 years, is currently longer than many of Australia’s counterparts such as England, Canada and the United States (for Chapter 7 bankruptcy).
In 2017, the government introduced legislation to reduce the standard bankruptcy period to 12 months, with the aim of encouraging entrepreneurship and innovation. To date, the proposal has not been revived in the current Parliament.
In a recent article, QUT Senior Lecturer Nicola Howell looked at this proposal in the light of the entrepreneurship rationale and the reality that most bankruptcies are not reported as business bankruptcies. She argued that a focus on the impact on consumer debtors may provide a more coherent, comprehensive and supportable basis for reforms to the duration of bankruptcy.
* Michael Murray and Jason Harris (2018) Keay’s Insolvency Personal and Corporate Law and Practice (10th edition) 43.
About Nicola Howell
Nicola researches legal and policy issues in consumer financial services, consumer credit and other consumer transactions, and personal insolvency. Nicola teaches in areas including insolvency, commercial and personal property, consumer, and financial services law.
You can learn more about Nicola and her research and publications in her staff profile.