Proposed changes to Australia's bankruptcy laws have received support from the Council of Small Business of Australia (COSBOA).
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COSBOA has affirmed support for the Bankruptcy Legislation Amendment Bill 2009 which will ultimately improve the position for many small businesses that experience difficulties recovering small consumer debts.
Statistics have shown that where debt agreements or repayment plans can be negotiated, returns to creditors are on average much better than those achieved through bankruptcy proceedings.
"Businesses recover consumer debts at a rate of 70c in the dollar if people are not declared bankrupt, as opposed to just 2c in the dollar if bankruptcy takes place,"
COSBOA CEO Jaye Radisich said.
"The benefit of increasing the threshold far outweighs the downside risk where some people will inevitably run up bills with many creditors before one gets big enough for action to be commenced.
"It is much more important to legislate to support the majority of people who do the right thing most of the time, instead of second-guessing the actions of the lowest common denominator."
Ms Radisich said an overhaul of the Bankruptcy Act was long overdue, and congratulated the Attorney General Robert McClelland for taking action.
"The priority for small business is the ability to efficiently and effectively collect money that is legitimately owed. To that extent, proposed reforms increasing thresholds and providing a greater opportunity to negotiate the repayment of debts, is likely to result in better outcomes for Australian small business.
"An increase in the bankruptcy threshold from $2000 to $10000 could cause some nervousness among small business owners with small debts to recover - but the best chance of repayment results if bankruptcy is not declared," Ms Radisich said.
"The last thing small businesses need is a fire sale of assets and a liquidator taking a big cut before any creditor gets anything."
The amendments also include an increase in the time allowed for a defaulter to organise matters.
"It makes much more sense to allow 28 days rather than seven days for a defaulter to get their house in order before bankruptcy proceedings commence."
Ms Radisich said other provisions in the Act aimed at streamlining the process are overdue.
As we struggle through the current economic climate, many business owners are going to great lengths to minimise claims on their personal and business assets.
This includes business owners separating from their partners and transferring matrimonial property into their partner’s name to try and defeat creditors.
Unfortunately, many people are still under the false impression that if they separate before declaring bankruptcy they will be successful in avoiding creditors, according to Anton A Richardson, family lawyer at msl (Michael Sing Lawyers).
“When deciding who will win in competing claims between the creditor and the non-bankrupt spouse, we look to specific legislation that deals with this issue,” said Mr Richardson.
The Bankruptcy and Family Law Legislation Amendment Act 2005 addresses what should happen in cases where family law and bankruptcy law collide.
If a court has made an Order for property adjustment and it subsequently comes to the court’s attention that there has been a miscarriage of justice, then the court can overturn that earlier Order.
A miscarriage of justice can be due to fraud, duress, suppression of evidence (including failure to disclose relevant information), false evidence or other circumstance.
The court can also overturn a Binding Financial Agreement if the court is satisfied that either party entered into the agreement with the purpose of defrauding or defeating a creditor of the party, or if either party entered into the agreement with reckless disregard of the interests of a creditor of a party.
An application to the court to overturn the Order or Binding Financial Agreement can be made by a person affected by the Order, including a bankruptcy trustee of the creditor who cannot recover the debt because of the Order.
Once the court has overturned the Order or Binding Financial Agreement then it can make a new Order taking into account the effect of the proposed Order on the ability of a creditor of a party to recover the creditor’s debt.
“If your business is in trouble, before wasting time and money trying to hide your assets, seek professional legal advice to learn how to best address the situation and protect your property,” Mr Richardson advised.
Msl is a one of Queensland’s largest full-service law firms with award winning offices on the Gold Coast and Brisbane CBD.
They have specialists dealing in all areas of law including business and commercial, property and conveyancing, family law, workplace law, migration, litigation, intellectual property, sports law and environmental planning.