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Over the last 10 years, there has been an ongoing discussion regarding an alternative to bankruptcy where the debtor has limited assets and there is little prospect of a return to creditors.

A proposal for a 1-year bankruptcy was put before Parliament, but didn’t proceed.  The Government has now proposed a new alternative, the Minimal Asset Procedure (“MAP”).   The potential elements of the MAP are:

• there be a maximum debt threshold of $50,000
• the MAP would last for 12 months, with a period of 4 years post-discharge to be      listed on the NPII
• a maximum threshold for income would be determined for eligibility for entry into a MAP
• a maximum threshold of $10,000 in assets with exceptions for tools of trade and a vehicle to be eligible for entry into a MAP
• a debtor may only enter into a MAP once during their lifetime
• a MAP should be less onerous than a bankruptcy

The proposal is still at the discussion stage, so watch this space.

The Federal Court recently ruled with regard to Australian Financial Complaints Authority (AFCA) compensation claims paid to undischarged bankrupts. 

The Court determined that the funds received from these claims are in the nature of compensation payments in respect of personal injury or wrong done to the bankrupt (whether before or after the date of bankruptcy) and as such are not divisible property of the bankrupt estate (s.116(2)(g) Bankruptcy Act 1966).

As the funds do not vest in the bankrupt estate, the bankrupt is entitled to retain these funds.

Official Trustee in Bankruptcy v Kent [2023] FCA 1211
New figures from the Australian Financial Security Authority (AFSA) revealed that insolvency numbers fell in every state and territory except Tasmania, which recorded an increase of almost 13% from the previous year.
Of the new insolvencies in 2021-22, 63% were bankruptcies and 36% were debt agreements. The remainder were personal insolvency agreements and deceased estates.  
AFSA Chief Executive Tim Beresford noted that while numbers are at an historic low, overall there are signs of increased insolvency activity.
‘In the June quarter, we saw 2,301 new personal insolvencies nationally – up from 2,215 in the March quarter,’ Mr Beresford said.
‘It’s no secret that Australia is facing ongoing economic challenges and we know this is likely to impact some individuals.
‘We expect there will be a reversion towards pre-pandemic volumes over the next two years.’ 

  Christopher Michael Brown of WA was convicted this week and sentenced to 6 months’ imprisonment, to be released on a recognisance release order in the amount of $5,000 to be of good behaviour for 6 months.
The sentencing comes after Mr Brown pleaded guilty to one count of intentionally making a false statement in an affidavit used for the purposes of the Bankruptcy Act 1966.
The charge against Mr Brown was the result of an AFSA investigation into Mr Brown in relation to falsely stating, in a sworn affidavit, to have sufficient funds in his account to cover all his debts. The affidavit included an annexure indicating Mr Brown had a cash balance over approximately $172 million with the National Australia Bank (NAB), which he knew to be false.
It is an offence under section 263A of the Bankruptcy Act to make a false statement in an affidavit to be used for the purposes of the Bankruptcy Act.

Mr Brown became bankrupt by sequestration order on 10 May 2021, triggered by his grandparents as the petitioning creditors, who were owed $82,050.

With frequent news articles and commentary about the “cost of living crisis” it would be easy to expect that the number of personal insolvencies in Australia are “through the roof”.

This is not in fact the case, AFSA reports that in the 2023-24 financial year there were only 11,644 personal insolvencies, compared to 10-year average of 21,252 per annum.  Whilst personal insolvency numbers are predicted to increase this financial year, the number is projected to only increase to approximately 13,400.

See the attached report for further information on AFSA’s findings. 

Link - State of Personal Insolvency Report released for 2024 |Australian Financial Security Authority