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Skyrocketing living costs and interest rates expected to cause more personal bankruptcies and company liquidations in 2023


Over the past few years, we have seen some of the most significant reforms in history to Australia’s insolvency framework introduced to try to support businesses battling financially from the fallout of the COVID-19 pandemic. Although we are now living with COVID, the rising costs of living and interest rates are adding further pressure to families and businesses. Attwood Marshall Lawyers Commercial Litigation Partner and Accredited Specialist in Dispute Resolution Charles Lethbridge reviews the bankruptcy and insolvency law reforms that were proposed this year with an aim to support businesses moving forward as they navigate financial difficulties.


First it was COVID-19 that wreaked havoc on business owners across Australia, now the cost of living and ongoing interest rate rises has thrown fuel on the fire with expectations that inflation will blow out debt for many companies, with more Australians set to fall into bankruptcy as the end of 2022 nears.

During the 2021-2022 financial year, 3,917 liquidations or administration appointments for companies across all industries were reported. Unfortunately, these appointments will have a flow on effect with many business owners facing personal insolvency as they accept personal liability for outstanding debts.

In this article we look at the reforms the Government has implemented in a bid to support business owners as they face rising debts and navigate potential liquidation for their company and personal bankruptcy.

Insolvency Reforms

Insolvency reforms that commenced on 1 January 2021, created a simplified liquidation and debt restructuring process for small-to-medium enterprises. The reforms provided directors with greater control and flexibility which they needed to either restructure or wind-up their company. These reforms aimed to lessen winding up costs and to maximise returns for shareholders and creditors in a liquidation.

With a new government in place, there are questions as to whether the Albanese Government will continue the reforms or seek to make further changes.

Here’s what we know:

One-year bankruptcy

The Attorney-General proposed to shorten the automatic term of bankruptcy from 3 years to 1 year. This amendment was proposed in 2017, 2021 and most recently in February 2022. One of the advantages of a reduced term of bankruptcy is that it permits an individual to again become a company director after one year, as opposed to being excluded from holding such office for 3 years.

However, the proposal may prohibit bankrupt individuals from being eligible for the reduced term where, in the last ten years, they have:

  • been bankrupt,
  • been banned as a company director,
  • had their bankruptcy extended through an objection to discharge, or
  • have been convicted of a particular offence.

It is now up to the Labor Government to determine when these reforms will be implemented.

Review of safe harbour provisions

In 2021, The Treasury sought a review of the insolvent trading safe harbour provisions and requested feedback from industry stakeholders.

Essentially, the safe harbour provisions offer company directors a defence from claims they traded a company whilst it was insolvent. The director must acknowledge that the company is struggling financially and put a plan in place to save the company and its business, which would lead to a better outcome than liquidation. In March 2022, the Government responded to the independent review of the insolvent trading safe harbour provisions, which included the below key recommendations.

For the complete list of recommendations made by the independent review and the Government’s response, click here.

Improving schemes of arrangements

In 2021, “schemes of arrangement” were identified by The Treasury as an area that needed improvement.

A scheme of arrangement involves a corporate restructuring process regulated by the Corporations Act 2001. The scheme can be used to assist financially distressed but solvent companies to restructure and avoid liquidation.

Reforms in this area could further support the use of this process as a means of restructuring more severely distressed companies. By helping larger companies reorganise and survive, it benefits not only the company, but also their employees, creditors, and suppliers.

The consultation process, which closed on 10 September 2021, looked at a number of issues, with one of the primary focusses being whether the lack of a moratorium was impacting the usefulness of the scheme. Currently, no automatic moratorium is applied during the formation of a scheme arrangement. This is a key difference from other strategies, like voluntary administration, where a moratorium is automatically applied to give the company breathing space during the process.

Further information is yet to be released as to whether the Government intends to apply an automatic moratorium on creditor claims now that the government consultation process has ceased. 

Unfair preference claims

The government is striving to simplify the rules governing unfair preference claims by liquidators.   

Under the latest reforms, transactions of less than $30,000, or transactions made more than three months prior to a company entering external administration, will no longer be able to be clawed back. This is on the proviso that those transactions are within the ordinary course of business and involve unrelated creditors.

From 1 July 2023, the Government will be providing an additional $20 million in funding over two years to the “Assetless Administration Fund”, a grant that is administered by ASIC. The “Assetless Administration Fund” pays for preliminary investigations and reports by liquidators into the failure of a company with few, or no, assets.

What else should you be aware of?

Financial practitioners should be conscious of the following:

Promoting debt agreements

The government has put forward additional measures to promote debt agreements as a feasible alternative to bankruptcy. A debt agreement is a legally binding agreement between an individual and his or her creditors. The agreement is a formal way of resolving debts to avoid going bankrupt and represents a good option, particularly for smaller businesses.

A debt agreement allows an individual to negotiate to pay a percentage of their combined debt that they can afford over a specified period. Repayments are made to the debt agreement administrator, rather than individual payments to the creditors. To enter into a debt agreement, the individual must talk to a registered debt agreement administrator who can submit the proposal on their behalf.

Virtual meetings

Financial professionals should be aware of the recent changes to the Bankruptcy Regulations 2021, which allow  virtual meetings. These amendments were previously introduced temporarily due to the COVID-19 pandemic. However, the permanent nature of these changes reflects the realities of working in a post-pandemic environment. These changes commenced on 6 April 2022.

Additionally, there are some minor amendments to the Insolvency Practice Rules, which took effect on 5 July 2022.

The changes to Bankruptcy Amendment (Service of Documents) Regulations 2022 ensures documents permitted by the Act can be given, sent to, or served on a person electronically, without the need for prior consent from the recipient.

Attwood Marshall Lawyers – helping business owners navigate difficult times

It is important to stay up to date with complex law reforms and to be aware of what changes may be around the corner.

With a dedicated litigation and dispute resolution team, it is our intent to support businesses which are facing difficult times, helping them understand their options and what processes they need to follow to either get their business through financial uncertainty, or to wind-up a business as cost effectively as possible. We work closely with specialist insolvency accountants in this area to ensure you get the right advice on all aspects of this complex area of law.  

With over 75 years’ experience helping businesses of all shapes and sizes, we thoroughly understand the processes and ramifications of insolvency and the toll this can take on business owners.

For more information or further advice, please contact our Commercial Litigation Department Manager Amanda Heather on direct line 07 5506 8245, mobile 0425 260 837, or email

Read more:

Will 2022 be the year for mass insolvencies?

Welcome change for the new year – new Insolvency Reforms activated to put business owners back in control

Are you facing bankruptcy or is your business facing liquidation? It doesn’t need to be a stressful process


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Charles Lethbridge - Partner - Commercial Litigation

Charles Lethbridge

Commercial Litigation

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The contents of this article are considered accurate as at the date of publication. The information contained in this article does not constitute legal advice and is of a general nature only. Readers should seek legal advice about their specific circumstances. 

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