by Paul Gidley30.06.16

Why are the laws changing?

In December 2015, the Federal Government unveiled its innovation package with 24 measures aimed at revitalising innovation in Australia. As part of this package, a number of changes to insolvency laws have been proposed and the Insolvency Law Reform Act 2016 (“Reform Act”) is due to become effective on 1 July 2017.

Reducing the bankruptcy period to one year

The current bankruptcy period is 3 years and 1 day, from the day that the Statement of Affairs is filed. The proposed changes will reduce the stigma attached to bankruptcy and encourage bankruptcy to re-enter the business arena, reducing the bankruptcy period to 1 year.

Ongoing obligations of a Bankrupt

Even after a person is discharged from their bankruptcy, they may still have ongoing obligations to assist their Trustee in realising and distributing their property. The Reform Act will amend the bankruptcy act to ensure the obligations on a bankrupt to assist in the administration of their bankruptcy remain, even after they have been discharged.

Income Contributions

Generally, a bankrupt can continue their employment and continue to earn an income after their bankruptcy. However, where a bankrupt’s after tax income exceeds the relevant thresholds, they are required to pay 50% of the excess to their Trustee for the duration of their bankruptcy. The Reform Act proposes to separate the obligation to pay income contributions from the default bankruptcy period. Accordingly, bankrupts will still be required to pay income contributions to their estate for the 3 year period even though the default period has been reduced to 1 year. Even in the event that the Trustee extends the bankruptcy for a further 5 to 8 years, income contribution liabilities will still be required to be paid during this period.


Currently, a bankrupt upon discharge from bankruptcy retains a record of their bankruptcy on their commercial credit file for a period of 5 years. The Reform Act proposes to reduce this period to 1 year subject to any extension to as a result of misconduct.


A bankrupt is restricted from travelling overseas during their bankruptcy, without the prior approval of their Trustee. With the reduction of the default bankruptcy period to 1 year, once the bankrupt has been discharged from their bankruptcy, the restriction on the overseas travel will no longer apply.

Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.