The Hidden Dimension of Business Bankruptcy in Australia

Abstract

This study is the first empirically based analysis of business bankruptcy to be conducted in Australia. It aims to identify key differences between debtors who declare business bankruptcy and those who declare non-business or “personal” bankruptcy, and to explore the extent to which there might be a “hidden” population of business debtors among those formally identified as personal debtors. This question is significant in light of the Government’s imminent changes to bankruptcy law, which will reduce the period of bankruptcy from three years to one in a bid to promote entrepreneurship. Some commentators suggest that these reforms should only apply to business debtors. However the authors find strong evidence that there are clusters of “personal” debtors whose bankruptcies are in fact wholly or partly business-related. The authors conclude that any changes to the bankruptcy regime should apply to all debtors. Given the difficulty of drawing sharp distinctions between business and personal bankruptcy, this is both more practical and more desirable, as a matter of public policy.

Keywords: bankruptcy, personal insolvency, business bankruptcy, entrepreneurship