Ms Stoker said the government is considering the personal insolvency system to “ensure it remains fit for purpose and supports our ongoing economic recovery.”

Changes floated include cutting the time period that must pass before a bankrupt is discharged from three years to one year in a bid to reduce stigma, encourage entrepreneurs to re-engage in business, and encourage people to pursue their own business ventures.

The paper noted that the Bankruptcy Amendment (Enterprise Incentives) Bill 2017 had proposed to introduce the change but had faced significant concerns from the community, with the bill eventually lapsing with the calling of the 2019 federal election.

However, the Attorney-General’s Department believes additional safeguards, including strengthened offence provisions and criteria that would exclude a bankrupt from the default period of one year, will help ameliorate stakeholder concerns.

It has also floated new or expanded offence provisions to target pre-insolvency advisers, “who advise people under financial stress how to defeat the legitimate interests of creditors, generally through the creation and/or use of false information”.

“While illegal phoenix activity is generally associated with corporate insolvency, analogous behaviour in the personal insolvency system by debtors as well as their advisers is the subject of the department’s ongoing consideration,” the discussion paper said.

“For example, it is an offence punishable by up to five years’ imprisonment to conceal property with the intent to defraud creditors under paragraph 263(1) of the Bankruptcy Act. However, these types of provisions are generally aimed at the behaviour of the bankrupt rather than at the behaviour of those who advise them to take certain actions.”

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The discussion paper noted that legislation, which would have reduced the default period for bankruptcy from three years to one year – the Bankruptcy Amendment (Enterprise Incentives Bill) – lapsed before the 2019 election over concerns about it being available to those “for whom a concession is not a desirable or justifiable outcome”. 

“The department notes the possibility that the offence provisions prescribed in the Bankruptcy Act could be enhanced by the inclusion of new provisions and the expansion of current offence provisions to target the provision of untrustworthy advice,” the discussion paper noted.

“The abuse of the personal insolvency system to avoid paying debts is a concern that is frequently raised by stakeholders.”

The paper said consideration is being given to “criteria that would exclude a bankrupt from the default period of one year and strengthened offence provisions”.

Ms Stoker said the Attorney-General’s Department is also considering reforms to the debt agreement system to make it more useable for those with business-related debts, such as sole traders.

It is also seeking feedback on possible changes to personal insolvency agreements to “make them more attractive or more accessible” for individuals with business-related debt.

“We are committed to ensuring that the system continues to balance the interests of debtors and creditors and remains clear, fair and efficient for people navigating the personal insolvency process,” Ms Stoker said.