News

Bankruptcy Law Reform: Parliament Raises Threshold to $5,000

On 24 June 2010, Federal Parliament passed the Bankruptcy Amendment Bill 2009. Among the amendments included in the bill is an increase in the threshold of indebtedness entitling a creditor to issue a Bankruptcy Notice and a Creditor’s Petition, which are the two significant steps in the most commonly employed process by which a creditor may obtain a sequestration order against a debtor — or, in simple terms, make the debtor bankrupt.

For more than 10 years, the minimum debt entitling the issue of a Bankruptcy Notice or a Creditor’s Petition was $2,000. With the amendments, the minimum debt for both will be $5,000. These amendments will not come into force until 28 days after the bill receives royal assent, which is likely to be in early August.

Since a Creditor’s Petition cannot be issued before the Bankruptcy Notice has been served and the debtor has been given 21 days to comply with it or to make application to have it set aside, we recommend that no new Bankruptcy Notice be issued in respect of debts of less than $5,000 in order to ensure that it can, if necessary, be followed by a valid Creditor’s Petition.

The Government had originally intended the threshold to be lifted to $10,000, but the bill was amended prior to being passed.