THE HON MARK DREYFUS KC MP
ATTORNEY-GENERAL
CABINET SECRETARY
MEMBER FOR ISAACS
AFSA SUMMIT
Rydges World Square, Sydney
13 November 2024
I acknowledge the traditional owners of the land on which we meet, the Gadigal people of the Eora Nation, and pay my respects to their Elders, past and present. I also extend that respect to Aboriginal and Torres Strait Islander people here today.
It’s a pleasure to deliver the opening address to the second annual Australian Financial Security Authority Summit and to see so many of you here this morning.
The unending nature of law reform
Recently I had the honour of delivering the 2024 Colin Tatz Oration, where I talked about the unending nature of law reform.
I likened it to Sisyphus, a figure from Greek mythology forever consigned by the gods to push a boulder up a hill.
I noted it’s a tough, relentless assignment – but not a futile one.
We persist because society isn’t static and few laws – even the best ones – stay fit for purpose forever.
Looking at personal insolvency, for example, if we lived by the laws of ancient Greece, debtors would be enslaved – along with their spouse, children and servants – working off their debts through physical labour.
If England’s 1542 Statute of Bankrupts Act prevailed today, we’d imprison debtors and farm out their assets to their creditors.
Fortunately, we have a much more humane approach today, based on more sympathetic attitudes towards debtors and the realisation that draconian measures do little to help creditors get their money back.
Debtors and creditors are also getting much better at working together to resolve issues of financial hardship.
This has driven a marked decrease in personal insolvencies, particularly in the past eight years.
From a high of over 37,000 personal insolvencies a year after the Global Financial Crisis, we now see levels of about 12,000 a year.
This remains well below pre-COVID levels and the 10-year average of 21,000 insolvencies a year.
A fundamental principle of personal insolvency today is minimising losses for creditors, while enabling people in financial difficulty the opportunity to get back on their feet.
It’s an important principle which prioritises fairness and encourages the flow of credit in the economy.
While today’s system is a vast improvement on the approaches of the past, we can always do better, particularly as the insolvency landscape – and our society – evolves.
Getting the regulatory settings right
This quest for continuous improvement is framed in my Ministerial Statement of Expectations of AFSA, as one of the three principles of regulator best practice.
It calls on AFSA and other regulators to adopt a whole-of-system perspective, working continuously to improve performance, capability and culture.
It calls on them to manage risk proportionately while minimising the regulatory burden and for open, transparent and consistent engagement with stakeholders to maintain competent and innovative regulatory practices.
We need strong regulatory settings, to help boost productivity and competitiveness.
There’s a lot riding on getting the regulatory settings right.
Many of you may have noticed a change in AFSA’s regulatory posture, as the agency works to uphold the expectations I’ve set.
This involves a more proactive education, compliance and enforcement posture – investigating and acting against system misuse, while elevating efforts to assist people in financial vulnerability.
The establishment of the Education and Outreach function helps people get the right information when they need it.
AFSA is also finalising a Vulnerability Strategy to better inform how it manages vulnerable people caught up in the personal insolvency system.
Other initiatives are ensuring AFSA’s regulatory approach recognises that people who are financially vulnerable may also experience poor physical health, mental health issues, family abuse or other harms.
Bankruptcy reform
In July this year I announced reforms to meaningfully improve the personal insolvency system and ensure Australia’s bankruptcy system is fairer and operates in the best interests of all Australians.
These reforms are informed by the robust and productive discussions I had with stakeholders at the Roundtable I convened last year and responses to a public consultation process.
First, the threshold for involuntary bankruptcies will be increased from $10,000 to $20,000, with that figure to be indexed yearly. Doubling this threshold will prevent people from being forced into bankruptcy for relatively minor debts, while minimising the opportunities for debtors to continue to incur additional unmanageable debt.
Noting the potentially lifelong impacts of bankruptcy, it will provide a debtor with more time to consider their financial circumstances and encourage the use of alternative personal insolvency options for lower value debts. Importantly, annual indexation better reflects the wider economic factors that contribute to the accumulation of debt.
Second, the timeframe in which a debtor may respond to a bankruptcy notice will increase from 21 days to 28 days. The 28-day period will allow further time for debtors to obtain appropriate and timely advice in response to receiving a bankruptcy notice, without unfairly impacting creditors–noting creditors may also be individuals or small businesses.
Third, the proposal or acceptance of a debt agreement will be removed as an act of bankruptcy in the Bankruptcy Act. This change will encourage eligible debtors to explore debt agreements as an alternative to bankruptcy.
In particular, it is intended to mitigate the reluctance felt by debtors who may not enter into a debt agreement because submitting a proposal is considered an act of bankruptcy, which can then be a trigger for involuntary bankruptcy. The reform recognises the debt agreement system as a vital part of Australia’s consumer finance framework.
Fourth, the period of time that a bankruptcy is publicly available on the National Personal Insolvency Index will be reduced to seven years. A listing on the National Personal Insolvency Index is currently a permanent record and this reform is consistent with the objective of allowing individuals to make a fresh start, and not be burdened by the stigma of bankruptcy for their lifetime – for many years after they have been discharged.
Personal insolvency reforms are not simple. The personal insolvency system impacts a range of people and sectors, each facing unique challenges within the system. And it is critical to maintain the balance between creditor and debtor interests. This is why I am so appreciative of the active engagement from stakeholders in the system on what they see as the challenges and opportunities in the system.
Need for further insolvency reform
The Government’s bankruptcy reforms aim to assist these vulnerable people, particularly debtors with low debts and low assets.
These debtors feature heavily in the Australian personal insolvency system.
As AFSA’s data shows, almost half of those entering personal insolvency have liabilities less than $50,000, covering a range of mostly unsecured debts. Many of these debtors also have less than $10,000 in assets.
The lack of assets means there is little or no return to creditors in these matters.
Equally, some bankruptcies are uncommercial for Registered Trustees and may be costly and lengthy for the Official Trustee to administer.
In these circumstances, bankruptcy might not be the most efficient process, for debtors, creditors, practitioners or for the wider system.
We also know that cost of living pressures fall heaviest on the most vulnerable, contributing to higher levels of financial stress.
That stress can be compounded when people resort to non-traditional credit such as buy-now-pay-later options to pay the bills.
For all our collective efforts to provide people experiencing financial vulnerability with a fresh start, there remains a stigma associated with bankruptcy, which can stay with people for a long time, and sometimes for life.
We should continuously be examining the settings we have around personal insolvency to ensure the system works as it’s intended.
These are some of the considerations that prompted the reforms I announced earlier this year.
Working together for a fairer system
In framing these reforms, we’ve drawn on the expertise in this room and across the sector.
As I mentioned, the consultation process began in earnest in March last year when I convened a national roundtable of 23 organisations from across the personal insolvency, credit, finance, accounting, legal and consumer sectors.
The roundtable discussed – and firmed up – many of the approaches now framed in our bankruptcy reforms.
These ideas were then further tested through a discussion paper and public consultation.
This is how good policy happens - through robust discussion of the issues among those with the greatest experience of the system.
You work in this system every day. You see its strengths and where it can be improved. You can identify the merits and unintended consequences of change.
That’s the sort of intelligence government needs to deliver effective reform with the greatest benefit to individuals, the economy and Australian society.
Minimal Asset Procedure
A recent example of this is the public consultation on a potential new personal insolvency option – the Minimal Asset Procedure.
The objective of the Minimal Asset Procedure is to clear a person’s debt and allow access to a fresh start sooner than bankruptcy, where that person has no other way to repay their debt.
The Minimal Asset Procedure would potentially benefit the roughly one-quarter of people entering personal insolvency who have low income and minimal assets, allowing them to clear their debts and obtain a fresh start sooner than they would through bankruptcy. Generally, creditors do not receive dividends from these bankrupt estates.
It would also remove the stigma of bankruptcy from this cohort.
Drawing on international experience
International experience has been important to the development of our reforms.
I was encouraged by feedback from Tim Beresford following his recent visit to Washington for the annual conference of the International Association of Insolvency Regulators.
Several of Tim’s counterparts already preside over similar arrangements to the Minimal Asset Procedure.
The elements of these arrangements helped shape the proposal for a potential Minimal Assistant Procedure in Australia that was put forward for public consultation.
Conclusion
Today, as you conduct this Summit, 32 people in Australia will enter personal insolvency.
It will likely be one of the most stressful and traumatic moments of their life leaving many to feel a deep sense of loss and failure.
It will be just as stressful for people and businesses owed money for goods and services they have provided and who themselves may now be placed in financial stress as a result of these defaults.
Managing these competing interests is the constant balancing act of the personal insolvency system.
It is a responsibility that falls on government but also to you as regulators, practitioners, counsellors and system participants.
The government’s reforms are designed to make this process simpler and fairer, ensuring the system operates in the best interests of all Australians.
They mark the first significant change to personal insolvency laws in many years.
Thank you again, and I hope you find the Summit fruitful and productive.
ENDS
