Personal Insolvency Consultation

2. Despite these well-entrenched and historical perceptions towards debtors in the led up to 2020 and the social stigma attached to bankruptcy, the Australian Government considered what could only be described as its moral and economic imperatives to stave off creditors during the global pandemic based on general utilitarian principles. One of the instruments deployed by the Coronavirus Economic Response Package Omnibus Bill 2020 to achieve this goal was a moratorium concerning acts of insolvency following the issue of bankruptcy notices for a period of six (6) months, having previously been for a period of 21 days under the Bankruptcy Act 1966 (Cth). Similarly, the statutory minimum for issuing a bankruptcy notice based on a judgment debt was increased to $20,000, up from the previous amount of $5,000.
3. Although these changes to the Bankruptcy Act did not mean a creditor was unable to seek to enforce his or her or its debt by ways of other means, such as garnishee orders or writ for the levy of property, it severely shifted the focus between debtors and creditors in a way that favoured the interests of debtors over creditors. In practical terms, those changes stymied a creditor's ability to seek recovery of monies owing, and after that, invoke any insolvency jurisdiction of a federal court for the benefit of all the debtor's creditors.
4. The moratorium, although temporary, ran from 25 March 2020 and ceased on 31 December 2020. On 1 January 2021, the statutory minimum to issue a bankruptcy notice was permanently changed to $10,000, doubling the previous $5,000 amount.
5. Predominantly, bankruptcy has the added benefit of rehabilitating the bankrupt, almost akin to the sentence imposed upon an offender for the crimes committed. Borrowing from the analogy of criminal offending, it also has the added advantage of deterring a debtor in the future. Similarly, the process releases the bankrupt from the burden of their debts, protects them from future debts and after that educates the debtor such that the events, in theory, are not repeated.
6. Further, bankruptcy as a system of benefits and disadvantages between the creditor and debtor has the advantage of providing at least some return on a creditor's debt. It also facilitates economic growth by allocating risk between lenders and borrowers where creditors are encouraged to lend money to borrowers. With that encouragement comes the added risk of bankruptcy for borrowers; however, without the available return to a lender, the process is likely to stop in its tracks.
7. The current monetary threshold of $10,000 is far too low. That meagre level is informed by the recent and consistent increases in interest rates and the general increase of inflation across all households. An unpaid debt of $10,000 should not be regarded as a statutory minimum capable of constituting an act of insolvency when it is likely to be a sign of temporary liquidity. It should therefore not be used to punish a debtor with such serious consequences.
8. The inadequacy of this monetary level is also demonstrated by the cost and expense required to then move on this act of insolvency to obtain a sequestration order through the courts. Amongst the costs of filing fees, process servers, preparation of affidavits of services and appearances both contested and uncontested hearings to obtain an order, which far outweigh an unpaid debt of $10,000, creditors should be discouraged from resorting to bankruptcy proceedings for amounts of $10,000. It is more than likely that debts in that vicinity are not complicated, and the person is not in fact insolvent, but that this process of bankruptcy notices have been deployed to pressure payment. There are far more cost-effective measures available to creditors to enforce debts through State and Territory Court procedures such as garnishee notices and writs over property. They should be relied upon instead of resorting to bankruptcy proceedings.
9. In all these circumstances, together with the associated costs and lack of complexity to debts in the amount of $10,000, there are strong grounds to warrant the figure being increased to a much higher amount such as $20,000 or even more.

10. Once a higher threshold is achieved there should also be a period of transition for those creditors who have had bankruptcy notices issued between $10,000 and $20,000 or $50,000 to avoid the relevant courts being flooded with applications to set aside the bankruptcy notices on the ground that the debt is below the statutory threshold.

11. The issue underpinning an increase to the time permitted for a debtor to satisfy a bankruptcy notice or otherwise file an application to have it set aside is a vexed question given the surrounding sections in the Bankruptcy Act consistently contain 28 day periods. This is also the same with respect to the commencement of legal proceedings in most State courts, that permit a 28 day period in which someone is able to file a defence to a statement of claim.
12. There can be no doubt that the COVID period of 6 months in which an act of bankruptcy had been committed was far too indulgent for a debtor. By the same token, there is force in the argument that 21 days is too little for a debtor to consider the notice, obtain legal advice and file an application to set it aside or simply pay out the debt if there is no real defence to the claimed amount. That is particularly so given that personal service is not required under the Bankruptcy Regulation 2021 reg. 102 and so the notice may not actually come to the notice of the debtor until some later time. Although 21 days may be considered enough time to respond given the notice will be based on a pre-existing judgment, that does not diminish the seriousness that failing to address a bankruptcy notice can have, as well as noting the additional technical factors required to prepare a valid bankruptcy notice that are beyond merely re-serving of a judgment. This is also given that many judgment underpinning notices have been obtained on a default basis.
13. A longer period of 28 days provides a good balance between a debtor obtaining sound advice as to how they properly respond to the notice. In particular, it permits a debtor to prepare a concurrent application in another court if they consider that they have a valid “counter-claim, set-off or cross demand” within the meaning of sections 40(1)(g) and 41(7) of the Bankruptcy Act as per the Court’s remarks in Re Judd; Ex parte Pike [1924] NSWStRp 59; (1924) 24 SR (NSW) 537 at 539-540. Further time should also result in less meritless applications that do no more than clog up the courts’ system thereby delaying other more meritorious applications.
14. In short, the debtor is required to undertake a broad assessment within a 21-day period that is beyond whether the money demanded ought to be paid. Further time is required but should be limited to fairly balance the interest of both creditors and debtors.

15. As per my answer regarding transition periods, there should be a transitionary period to avoid further dispute about the validity of a creditor’s petition if it is filed prematurely without the jurisdictional predicate of an act of insolvency.