A strong insolvency system gives people the confidence to start businesses, seek credit and take measured risks. It provides an orderly way to resolve debts when things go wrong, ensures creditors are treated fairly and allows individuals and small firms to re‑enter economic life. When this framework works well, it supports the flow of capital and ideas that keeps the economy moving.
When it works poorly, hesitation sets in. Transactions slow, lenders grow cautious and unnecessary costs accumulate.
Insolvency is not a peripheral legal process; it is part of the structure that allows enterprise, investment and innovation to occur with confidence.
Australia has good reason to pay attention to this foundation. Young firms create most new jobs, and the fastest growing among them play a significant role in lifting productivity. Their success depends not only on ingenuity but also on a system that makes it possible to try, fail and try again.
A clear and trusted insolvency framework encourages renewal. A system that is opaque, punitive or open to exploitation discourages it.
Recent cases illustrate the stakes. In one, a personal insolvency agreement proposed returning just 0.15c in the dollar on debts running into the hundreds of millions of dollars.
That figure was far outside normal expectations, prompting regulatory intervention to ensure creditors had accurate information and could vote on a realistic proposal.
In another case, fabricated creditors and offshore entities were used to manipulate the voting process. The courts dealt with it accordingly.
Incidents like these are uncommon, but they undermine confidence and increase costs for everyone.
The Australian Financial Security Authority, the federal agency that administers personal insolvency, has responded by focusing on 2 essentials: strengthening professional culture and ensuring credible enforcement.
Clear expectations make it easier for most practitioners to meet high standards. Decisive action against serious misconduct protects the integrity of the system.
The infrastructure that supports day‑to‑day transactions also matters. The Personal Property Securities Register underpins hundreds of billions of dollars in secured lending and is used millions of times each year by businesses checking title and managing risk. Its reliability depends on accurate, up‑to‑date entries.
Too often, registrations remain long after debts are settled, creating delays or derailing sales. That matters for households selling cars, for small businesses working to tight deadlines and for Australia's net‑zero transition, where a well‑functioning second‑hand electric vehicle market is essential.
The Australian Government is moving ahead with reforms begun by former attorney‑general Mark Dreyfus to make Australia's bankruptcy system fairer and more in step with today's lending environment.
One important change lifts the minimum debt needed to start an involuntary bankruptcy from $10,000 to $20,000, with the threshold to be indexed each year so it keeps its real value.
Another gives people a little more time to respond to a bankruptcy notice, extending the window from 21 to 28 days.
Both changes are about giving individuals more room to sort things out before matters escalate.
The package also shortens how long a person's name stays on the National Personal Insolvency Index after they have been discharged. Instead of being listed for life, they will be listed for 7 years, which means a better chance of moving on once debts are resolved.
Together, these reforms aim to ease unnecessary hardship while keeping the system credible and balanced.
These changes share a simple goal: resolve financial failure fairly, without allowing it to define a person's future. Most insolvencies stem from job loss, illness, relationship breakdown or business downturns.
Accountability is essential, but so is the ability to rebuild.
We're also considering other productivity‑boosting reforms. The Parliamentary Joint Committee on Corporations and Financial Services has noted that decades of incremental reform have resulted in a framework that is complex for individuals and small business owners, whose personal and corporate finances often overlap.
Any future improvements will need to reflect real‑world experience, not just legislative tidy‑up.
A modern insolvency system should encourage business formation, ensure creditors are treated consistently, protect against misconduct and give people a second chance when life turns against them. It should be comprehensible, proportionate and coherent.
Nearly a century ago, economist Joseph Schumpeter popularised the phrase 'creative destruction': the idea that innovation is built on change, and renewal depends on the orderly winding up of what no longer works.
A fair and trusted insolvency system helps that renewal occur without needless damage.
It gives people space to fall without being written off, and space to rise when they are ready to build again.
