Bankruptcy – up or down?

Recent media has commented on the figures released by the Australian Financial Security Authority (AFSA) indicating that the current trend in the number of Bankruptcies being entered into has been downward. The only increases being recorded in Western Australia and the Northern Territory. Some of the commentators even went to the extent of expressing a degree of surprise in the trend, and suggesting that whilst down they may well return to new highs.

From a Practitioners point of view this trend is not a surprise and I suspect is quite likely to continue. Over the past few years there has been two factors that have played significantly on the reduction. The first is the closure of the then Insolvency Trustee Service of Australia (ITSA), now AFSA, shop fronts. Appointments are made by phone where necessary and can be well delayed. In the interim people seeking such assistance will approach Firms like ours, occasionally paying to have forms completed but not uncommonly, unless they are being pursued by someone, walking away from the issue as they had anticipated it would all be done for free.

The other and more significant reason is the decrease in the number of people pursuing debtors to Bankruptcy. The reasons for this are multiple, certainly one that can be cited is the fact that the legislation was changed to increase the amount of a debt that someone could be bankrupted on from $2,000 to $5,000. This removed the minor ones. But the most significant factors are firstly the increasing cost of taking the action in the first place, an issue that starts with increases in Court fees and ends with rising professional costs, and secondly the fact that those taking the action are really only doing it if they see some likelihood of a recovery. Thus you are only likely to be pursued to Bankruptcy if you have an interest in land, shares or other known valuable assets.

I do not see the above trend changing. Many stick their head in the sand and hope that the Statute of Limitations will do their work for them, others are just oblivious to their financial plight.

Thus the increase in Western Australia and the Northern Territory has been related to the down turn in mining. That is probably correct but overriding that is that when things were on the up in those states there were players (now why does the name Tinkler come to mind?) that knew this could never end and spent as if the world would never change; and thus when it did, they were forced to take the pill of completion as penance for their behaviour in the “good times” and more importantly their blindness to reality.

With that surge pretty much out of the way my future belief will trend backwards rather than forwards. Unless of course we have a significant collapse in the business sector; now that will significantly change the scenery!