Exciting changes to bankruptcy to promote entrepreneurial activity

23 October 2017

Readers may remember the Commonwealth government previously announcing a plan to reduce the term of an ordinary bankruptcy from three years to one year. On 19 October 2017, the bill to give effect to this plan was introduced to parliament. The key features of the bill are:

  • to discharge the bankrupt after one year from the date on which the bankrupt filed his or her statement of affairs;
  • the discharge after one year will have consequential effect in reducing other time periods associated with bankruptcy to one year, most importantly the ability to be company director;
  • whilst the term of the bankruptcy is being reduced to one year, income contribution obligations of discharged bankrupts will extend for at least two years following discharge – keeping income contributions are the existing three years;
  • the changes apply retrospectively to existing bankruptcies, except those subject to a section 149B objection;
  • the trustees’ ability to extend bankruptcies to five or eight years for non-compliance remains unchanged;
  • The one year discharge will commence six months after the bill becomes law. This will give trustees time to prepare any section 149B objections and relevant stakeholders time to consider whether a one year licensing or professional restriction is appropriate for their purposes.


The bill should come as a relief to those in small business and those who are engaged in heavily debt laden enterprises such as property development. Creditors are also benefited in three ways:

(a)   one year is ample time to collect in and realise a bankrupt’s assets – the reduction in time thus does not cause creditors to lose out on assets

(b)  The three year income contributions is retained – thus creditors keep their existing rights to three years’ worth of income contributions;

(c)  reduction in estate administration costs by bringing forward the discharge from bankruptcy by two years.

Lastly, given this is only a bill at this stage, we wait to see what amendments are made in the Senate to secure its passage.