The Policy
The Australian Government has introduced a Bill which proposes a reduction in the default bankruptcy period from 3 years to 1 year, furthering their efforts to spark innovation in the economy.
During the bankruptcy period, individuals must disclose their bankruptcy status to potential creditors, adhere to stringent reporting requirements, and cannot obtain certain licences and enter specific professions.
The Bill retains a minimum 3 year period for certain obligations, such as the requirement for an individual to disclose information to the bankruptcy trustee, and to keep and produce books that record the individual’s income, employment and transactions.
The Position
The policy is targeted at reducing the stigma associated with bankruptcy, which stems from a regime focussed on penalising bankrupts. The Government contends that entrepreneurs will often fail several times before realising success. Accordingly, we require a framework which enables risk taking rather than penalising it.
The policy seeks to achieve its aims by allowing bankrupts to re-enter the marketplace earlier and engage with potential creditors without reservations. This is one of many initiatives announced as part of the National Innovation and Science Agenda which seeks to facilitate the growth of the nation’s innovation economy.
The Argument
Critics argue the policy will have little effect in driving economic growth, given the majority of bankruptcies currently result from consumer debts rather than commercial failures.
The policy may also have wider implications by exposing creditors to additional risk and forcing bankruptcy trustees to act faster in deciding whether to extend the bankruptcy period. The Government has recognised these concerns and retained a 3 year period for key disclosure and repayment obligations to mitigate risk.
When evaluating the policy, it is important to consider the suite of initiatives introduced under the National Innovation and Science Agenda. Whilst there are legitimate concerns regarding the risks exposed to creditors under the new rules, the reduction in the bankruptcy period may be necessary to drive a cultural shift in our perception of business failure.
Further Information
- The Bankruptcy Amendment (Enterprise Incentives) Bill 2017
- The Explanatory Memorandum accompanying the Bill
- The National Innovation and Science Agenda public consultation webpage
Corporate Quick Take 