Bankruptcy in a year, liquidation in a month; here’s to 2016!

Well what a way for 2015 to finish. Everyone was flat out, windings up remained high, the ATO stance has not waned, oil prices are down, the market ends almost where it started and the issue of the need to continue to boost the future of our economy again cycles to the forefront; but this time with the suggestion that a twelve month period of Bankruptcy will be the cure all!

It is interesting to note that originally, the period of three years was actually set in Roman times by the Roman Senate when they introduced laws dealing with the inability of individuals to pay their debts and it has essentially remained so ever since.  At that time the process of law making was potentially very similar to the way it is now, but the communication and data access available to the then common man (well let’s get real, anyone actually!) was very different to the modern day.  So why is this relevant do I hear you say?

Well I’m not sure that simply changing the period of Bankruptcy will actually have any real effect other than maybe more will go bankrupt, they may do it for less and life as a whole will not change.  Let’s have a look at some issues that are far more likely to have a far greater impact, if that’s what we really want to achieve.

Firstly, in one matter we did some years ago a director faced financial troubles with his business due to a downturn in trade and some bad debts, and as a result worked to implement a Deed of Company Arrangement to fix the problem.  There was a bank involved with security over the whole of the business (and the family home) in respect of its $150,000 overdraft and they were kept fully aware of the process and its result all the way through.  However, as per normal they sought to maintain a ‘non-involvement’ stance.  Nonetheless the proposal was ultimately accepted by Creditors and life moved on; the business began to recover.

Approximately seven months later the bank made a policy decision not to support ANY customer who had previously had ANY involvement with ANY insolvency legislation.  Thus the businesses overdraft was closed, and the Bank sought to recover both the business and home loan debts predominantly from the Directors home.  The business, which was still on ‘the-improve’ at the time, collapsed leaving many Creditors even deeper in debt than where they had been in the first place.  The assets were realised and went to pay the Bank and costs.  The Bank realised the house and recovered, including costs, in full.  The balance went to pay a couple of secured trade debts as a partial reduction of those debts.  The Director and his wife went bankrupt.  Clearly what is needed here is some sort of law that says you can’t change your mind if it has serious financial consequences for others!

Secondly, one of the most common problems we face with Bankrupts for many years after their bankruptcy is their Credit Reports.  Now under that part of the system the law allows the detail to remain for a period of seven (7) years! Not three!  (Even better the internet can make it last forever!)  Another issue is that it’s all there; even if you end up paying your creditors in full you remain tagged for seven years!  I know because I’ve had discharged Bankrupts yelling at me about the irresponsibility of the actions that are taken against them years later.   As far as they are concerned, it’s MY fault.  The system is simply absolute, it provides no allowance for anyone that endeavours to make any effort to do the right thing.

Thus, it really doesn’t matter how long you’re Bankrupt because the databases will make sure it’s never forgotten.  Maybe we should have a law to more effectively manage the public management of data?

Thirdly, we don’t let someone onto the road in a car until that person has demonstrated that they are proficient in driving the vehicle.  That way hopefully they won’t kill someone or alternatively cost someone to lose massively financially due to reckless damage done by an untrained driver.  Believe it or not in some cases licences can take years to get and even some people actually never pass the test.

So why is it that we can unleash someone into business with absolutely no training; you only need to be breathing to buy a company!  Regrettably often there is a lot of damage done to themselves and their families that is often not fully accounted for.  Yes, regrettably, I have come back to a matter in the morning only to find that the Debtor/Director had committed suicide overnight.  Maybe what we need is a law that ensures people are properly prepared for what they are about to do in business.

Fourthly, and well maybe fifthly and sixthly and so forth, there are a number of issues that we need to fully consider, the removal of guillotine clauses, processes that seek the preservation of value over mindless administrative process, a genuine acceptance of an appropriate level of risk by all and a Court system that accepts and understands all of this and is capable of resolving issues economically and in a timely manner.

So where am I?  I have seen some people who simply never learn, and here I would seriously say that gambling is a disease; it accounts for my most significant repeat offenders, the shorter duration will simply mean they are back sooner.  On the other hand though, I have seen a number of people come through the process and go on to lead very successful lives.  The difference?

Well it’s not the time they served but the fact that they learnt lessons, acted honestly, worked hard, paid what they could when they had to, did not put others down, focused on what they had and could build not what they need to be better than their neighbour, and maintained a positive, even if dented, vision of the future.

If someone thinks they can achieve all of this for someone by merely reducing the period of Bankruptcy by two years they have rocks in their head; but then, it might just save some administrative cost somewhere in the system.

Let’s all have a great 2016!