New bankruptcy laws could hurt SMEs

A leading insolvency expert says changes to bankruptcy laws, which will raise the threshold at which a creditor can trigger bankruptcy from $2,000 to $10,000 will restrict the ability of SMEs to recover unpaid debts.

Mark Robinson, president of the Insolvency Practitioners’ Association of Australia, is concerned that the changes, which the Rudd Government has tried to paint as providing protection for low income earners, could actually end up hurting small business owners.

“The Government has basically said this is to protect the battlers with their credit card debts from the big bad banks, but we’re worried about the impact on small business.”

He gives the example of a tradesperson who has done $7,000 or $8,000 worth of work for a private individual, only to find the customer has not paid up.

“That is a big financial impact on a small business and to restrict their recovery option because it falls below that $10,000 threshold is an area of concern. The small business that might be caught with a string of debts below $10,000 is an even bigger concern.”

Robinson says his organisation recommended a threshold of $5,000, which could then be linked to inflation.

But Robinson is pleased with the Government’s decision not to decrease the amount of time before an individual can be released from bankruptcy from three to one year.

“General push back from the IPSA and the Australian Bankers Association said that one year was an inadequate time period to conduct an investigation. We congratulate the Government on this change.”

The other major change introduced yesterday by Federal Attorney General Robert McClelland is an increase in the period between when a creditor declares their intent to file a bankruptcy petition and when they actually start taking action to recover debts from seven to 28 days.

“Increasingly, bankruptcies tend to involve people who have simply fallen on hard times rather than unscrupulous debtors trying to avoid paying their debts,” McClelland said.

“The Government is committed to ensuring our bankruptcy laws are able to deal with personal insolvency issues quickly and efficiently so that people can get back on their feet as soon as possible.”

As part of its carrot and stick approach, the Government has also increased penalties for debtors who tried to hide income and avoid paying debts.

According to Government documents, the number of personal insolvencies climbed 11% in 2008-0 to 36,479.