Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020

Administered by Attorney-General's Department

Legislation au F2020L01652 Regulations Not in force Legislative Instrument

Legislation content

bankruptcy amendment (BankrupTCY threshold) RegulationS 2020

 

 

EXPLANATORY STATEMENT
 

 

 

Issued by authority of the Attorney-General

in compliance with section 5 of the Bankruptcy Act 1966

Purpose and operation of the Instrument

The Bankruptcy Act 1966 (the Act) and associated legislation regulate Australia's personal insolvency system and provide a framework to allow people in severe financial stress to discharge unmanageable debts while providing for the realisation of a debtor's available assets for distribution to affected creditors.

 

Section 315 of the Act provides that the Governor‑General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the Act.

 

Section 5 of the Act prescribes a statutory minimum bankruptcy threshold of $5000 unless a greater amount is prescribed. The statutory minimum bankruptcy threshold is the amount of debt required to be owed to a creditor, before that creditor can initiate involuntary bankruptcy proceedings against a debtor.

 

On 24 March 2020, the Bankruptcy Regulations 1996 (the Bankruptcy Regulations) were amended by the Coronavirus Economic Response Package Omnibus Act 2020 to prescribe a temporary bankruptcy threshold of $20,000 in response to the Coronavirus pandemic. This temporary bankruptcy threshold will cease on 31 December 2020.

 

The Regulations amend the Bankruptcy Regulations to prescribe a statutory minimum bankruptcy threshold of $10,000 with a commencement date of 1 January 2021. This means the bankruptcy threshold of $10,000 applies to bankruptcy notices issued, or creditors’ petitions presented, on or after this commencement date. This ensures there is no gap between the ceasing of the temporary bankruptcy threshold of $20,000 on 31 December 2020 and the commencement of the bankruptcy threshold of $10,000 thereafter.

 

Since the Act commenced, the bankruptcy threshold has increased a number of times from $500 to the current statutory minimum bankruptcy threshold prescribed in the Act of $5000. The policy reasons for raising the bankruptcy threshold have been the changing value of money, the increase in levels of personal debt, to discourage bankruptcy action over small debts and to respond to Coronavirus.

 

A bankruptcy threshold of $10,000 accounts for changes in the value of money and levels of debt since the bankruptcy threshold was prescribed at $5000 in 2010. It also addresses concerns about the use of bankruptcy proceedings to pursue small debts without reducing the general availability of credit in the economy.

 

The proposed Regulations will commence on 1 January 2021.

 

Details of the Regulations are set out in Attachment A.

 

The Regulations are a legislative instrument for the purposes of the Legislation Act 2003.

 

Consultation

In August 2019, the Attorney-General’s Department undertook targeted stakeholder consultation on the statutory minimum bankruptcy threshold. Stakeholders consulted included insolvency practitioner industry and member associations, consumer advocates and relevant Australian Government agencies.

 

Regulation Impact Statement

The Office of Best Practice Regulation (OBPR) was consulted on the measures. OBPR advised that the measures were likely to have no more than minor regulatory impacts for business, individuals and community organisations. As such, a Regulatory Impact Statement does not need to be prepared (OBPR reference number 43312).

 

Statement of Compatibility with Human Rights

A Statement of Compatibility with Human Rights is at Attachment B.


Attachment A

NOTES ON SECTIONS

Details of the proposed Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020  

 

Section 1 - Name of Regulations

 

This section provides that the name of the Regulations is the Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020.

 

Section 2 - Commencement

 

This section provides for the Regulations to commence on 1 January 2021.

 

Section 3 - Authority

 

This section provides that the Regulations are made under the Bankruptcy Act 1966.

 

Section 4 - Schedule(s)

 

This section provides that each instrument that is specified in a Schedule to this instrument is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms.

 

Schedule 1 - Amendments

 

Item [1]

 

This item prescribes an amount of $10,000 for the purposes of paragraph (a) of the definition of statutory minimum in subsection 5(1) of the Bankruptcy Act 1966.

 

Consequently, instances of the term ‘statutory minimum’ in the Bankruptcy Act 1966 refers to the prescribed amount of $10,000. For example, the threshold amount for issuing a bankruptcy notice is $10,000 for the purposes of subparagraphs 41(1)(a)(ii) and (b)(ii) of the Bankruptcy Act 1966. Similarly, the threshold amount for filing a creditor’s petition is $10,000 for the purposes of paragraph 44(1)(a) of the Bankruptcy Act 1966.

Attachment B

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020

This Disallowable Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Overview of the Legislative Instrument

The Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 (the Regulations) relates to section 5 of the Bankruptcy Act 1966 (the Act), which provides a statutory minimum bankruptcy threshold of $5000 unless a greater amount is prescribed.

The Regulations amend the Bankruptcy Regulations 1996 to prescribe a statutory minimum bankruptcy threshold of $10,000.

A statutory minimum bankruptcy threshold of $10,000 accounts for changes in the value of money and levels of debt since the bankruptcy threshold was prescribed in the Act at $5000 in 2010. It also addresses concerns about the use of bankruptcy proceedings to pursue small debts without reducing the general availability of credit in the economy.

Human rights implications

This Disallowable Legislative Instrument does not engage any of the applicable rights or freedoms.

Conclusion

This Disallowable Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Overview

The Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 were introduced to amend the statutory minimum bankruptcy threshold from $5000 to $10,000, effective from 1 January 2021. This change was enacted by the Australian Parliament to address the evolving economic landscape, including the changing value of money and increasing personal debt levels. The initial temporary adjustment to a threshold of $20,000, which was introduced in response to the Coronavirus pandemic, was set to expire on 31 December 2020. The new threshold of $10,000 aims to strike a balance between discouraging the use of bankruptcy proceedings for small debts and maintaining the availability of credit within the economy. The regulations were developed following consultations with relevant stakeholders and have been deemed to have minor regulatory impacts. The instrument is also compatible with human rights as it does not raise any associated issues.

Scope and Application

The Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 pertain to the Bankruptcy Act 1966 and are designed to prescribe the statutory minimum bankruptcy threshold, which is the amount of debt required for a creditor to initiate involuntary bankruptcy proceedings against a debtor. These Regulations are applicable to all individuals and entities involved in bankruptcy proceedings in Australia, including creditors, debtors, insolvency practitioners, and relevant government agencies. The jurisdictional reach of the Regulations is nationwide, given the Act's Commonwealth scope. Effective from 1 January 2021, the Regulations amend the Bankruptcy Regulations 1996 to set the statutory minimum bankruptcy threshold at $10,000, replacing the previous temporary threshold of $20,000 that was in response to the Coronavirus pandemic. This change aims to account for the changing value of money and increasing levels of personal debt while also addressing concerns about using bankruptcy proceedings for small debts without impacting the overall credit availability in the economy. The Regulations do not introduce any exclusions or exemptions but ensure a smooth transition from the temporary threshold to the new statutory minimum threshold.

Key Provisions

The Bankruptcy Amendment (Bankruptcy Threshold) Regulations 2020 (Regulations) modify the statutory minimum bankruptcy threshold under the Bankruptcy Act 1966 (the Act) from $5000 to $10,000. This adjustment takes effect from 1 January 2021, as specified in Section 2 of the Regulations. Section 5 of the Act sets out the statutory minimum bankruptcy threshold, which is the debt amount a creditor must owe before initiating involuntary bankruptcy proceedings against a debtor. The Regulations alter this threshold as stipulated in Section 4, specifically in Item [1] of Schedule 1, which amends the definition of "statutory minimum" in subsection 5(1) of the Act to $10,000. This change means that creditors must now owe a minimum of $10,000 to a debtor to initiate bankruptcy proceedings, as outlined in subparagraphs 41(1)(a)(ii) and (b)(ii) of the Act for bankruptcy notices and paragraph 44(1)(a) for creditors' petitions. The Regulations impose clear obligations on creditors and debtors. Creditors must now ensure that the debt owed by a debtor is at least $10,000 before they can initiate involuntary bankruptcy proceedings. This requirement aims to discourage creditors from pursuing bankruptcy actions over smaller debts and to balance the need to address significant debt issues while maintaining the availability of credit in the economy. Debtors, on the other hand, benefit from this threshold by potentially avoiding bankruptcy proceedings over smaller debts, thus reducing the personal and financial impact of bankruptcy actions. Additionally, the Regulations require all involved parties to adhere to the new threshold when dealing with bankruptcy proceedings issued or filed on or after 1 January 2021. Under the Act, failure to comply with the provisions of the Regulations may result in legal consequences. However, the explanatory statement does not detail specific offences, penalties, or civil or criminal consequences for non-compliance with the new threshold. Generally, the Act provides for various penalties for non-compliance with its provisions, including fines and imprisonment. The specific penalties would depend on the nature and severity of the breach, and any enforcement actions would be taken in accordance with the relevant sections of the Act. It is essential for all parties involved in bankruptcy proceedings to be aware of and adhere to the new statutory minimum bankruptcy threshold to avoid potential legal repercussions.

Legal classification tags

Area of Law
Insolvency Law
Instrument
Regulation
Concepts
Definitions & Interpretation
Commencement Provisions
Regulatory Standards

Interactions

Authorises

All Versions

Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.