|Wrinkle in bankruptcy law reform|
Reforms put forward by the Turnbull government to make it easier for people to get out of bankruptcy may not help many people expected to benefit from the scheme, experts say.
Yet for some investors caught up in the collapse of financial institutions entering into bankruptcy might be one of the only options they feel they have left.
The collapse of managed investments schemes such as Timbercorp, Great Southern and Storm Financial left in their wake thousands of investors who had, sometimes without their knowledge through forged signatures and shoddy advice, racked up huge debts as part of their investments.
Now many are looking to move on, or are facing being made to move on as the lenders to these schemes look to recoup their loans to these groups, plus a considerable amount of interest.
In early December the Turnbull government announced a series of proposed reforms to Australia's bankruptcy and insolvency laws aimed at helping businesses and individuals get back on their feet more quickly after experiencing financial hardship.
The key reforms, which will be subject to industry consultation before going through the legislative process in 2017, include reducing the current default bankruptcy period from three years to one year. The government is also considering introducing a "safe harbour" for directors from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company.
An estimated 10,000 bankruptcies occur in Australia each year, meaning there could be up to 30,000 people at any one time who are bankrupt.
Insolvency industry sources conceded there could be a benefit in the changes to some victims of leveraged finance schemes and managed investment schemes who had borrowings tied to their investments.
JP Downey chief Jim Downey said the reforms could help victims of financial collapses facing bankruptcy.
But he warns that despite 90 per cent of bankrupts being "good, honest people" some people facing bankruptcy have caused financial hardship to others – such as financial planners who have forged signatures or given dodgy advice – could also benefit from the changes, an outcome, Downey says few in the community would support.
"I'm a little bit sceptical about how long this experiment might take before everyone says it's all too easy and too many guilty people are getting away with blue murder with it."
Downey also says the social stigma associated with bankruptcy has reduced dramatically over the 35 years he's been working in the trustee business.
"Then you could count bankruptcies almost on one hand, it was a very public thing, everyone knew about it, it was scandalous. Nowadays you're in pretty good company largely because of credit cards and gambling debts."
The government's proposals also contain a significant wrinkle, according to insolvency specialist and registered trustee Stirling Horne, principal of PKF Lawler.
"I would have thought whether you go bankrupt for one year or three years doesn't make a hell of a difference," Horne says.
"Once you go bankrupt the credit-rating people will have you on their radar and they only have to take it off five years after you've been discharged from bankruptcy so that's not going to be of a great help to a person who wants to come back and restore themselves to a way of life or start a new business," Horne adds.
One client of Horne's, a woman with a high-paying job who went bust on some property investments after following the advice of her husband, is a prime example of this wrinkle in the Turnbull government's plan.
"She ended up paying her creditors 100¢ in the dollar and got an annulment of her bankruptcy and here we are two years after that – so she's been annulled and has never been a bankrupt – she still can't get credit," he says.
Horne adds there are also laws that allow trustees to recover assets that were divested or "hidden" by people planning to go into bankruptcy.
Naomi Halpern, a victim of Timbercorp and poor financial advice who is head of the Holt Norman Ashman Baker action group, says reforming bankruptcy laws to help people get back on their feet is a good idea.
"But it should not be one size fits all," she says. "People should not be penalised because they have received poor advice or because in some cases they've been conned."
She adds that it seems "incredible" that some of the people giving the poor advice who have also gone bankrupt should be in the same boat as those people they've advised.
"People are at their wits' end. Some investors could potentially enter bankruptcy. It's awful."
"People in the insolvency industry might say that there isn't any shame in going bankrupt, but there's a lot of embarrassment and shame for victims. First you feel ashamed that you've followed this advice and then you face the shame of losing everything."
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