Personal Insolvency in Australia: An Increasingly Middle Class Phenomenon
| DOI | 10.22145/flr.38.2.5 |
| Author | Cameron Sim,Ian Ramsay |
| Published date | 01 June 2010 |
| Date | 01 June 2010 |
| Subject Matter | Article |
PERSONAL INSOLVENCY IN AUSTRALIA:
AN INCREASINGLY MIDDLE CLASS PHENOMENON
Ian Ramsay
and Cameron Sim
I INTRODUCTION
In 2009, Australia experienced a record 'high' of 36 487 personal insolvencies.1 The
magnitude of this figure, which represents all bankruptcies, debt agreements, and
personal insolvency agreements in that financial year, is augmented whe n placed in
the context of the 300 per cent increase seen in the number of Australian personal
insolvencies between 1990 and 2009.2 This gro wth far exceeded the 28 per cent increase
in the Australian population during that period.3 It is indisputable that personal
insolvency is affecting a growing number of Australians.4
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Harold Ford Professor of Commercial Law and Director, Centre for Corporate Law and
Securities Regulation, Melbourne Law School, The University of Melbourne.
Research Assistant, Centre for Corporate Law and Securities Regulation, Melbourne Law
School, The University of Melbourne.
The authors are grateful for the suggestions made by anonymous referees.
1 Insolvency and Trustee Service Australia, Annual Report by the Inspector-General in
Bankruptcy on the Operation of the Bankruptcy Act 2008-2009 (2009) 7
<http://www.itsa.gov.au/dir228/itsaweb.nsf/docindex/about+us-%3Epublications-
%3Eannual+reports> at 24 July 2010. This article als o draws in part on the findings of our
research report on Australian personal insolvency: see Ian Ramsay and Cameron Sim,
Trends in Personal Insolvency in Australia (2009) Centre for Corporate Law and Securities
Regulation, The University of Melbourne <http://cclsr.law.unimelb.edu.au/go/centre-
activities/research/research-reports-and-research-papers/index.cfm> at 24 July 2010. The
report outlines the data on trends in Australian personal insolvency between 1990 and
2008. In this a rticle, we analyse the key implications of the data from the report in relation
to what we consider to be middle class personal insolvents.
2 Ibid. The population figure is based on current Australian Bureau of Statistic estimates: see
Australian Bureau of Statistics, Australian Demographic Statistics December 2009, Cat. No.
3101.0 Table 4 <http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage
/3101.0Dec%202009?OpenDocument> at 20 August 2010.
3 Ibid.
4 See further Ian Ramsay and Cameron Sim, 'Personal Insolvency Trends in Australia 1990–
2008' (2009) 17 Insolvency Law Journal 69.
284 Federal Law Review Volume 38
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This rise in the number of personal insolvencies took place over periods of
economic expansion a nd low interest rates, as well as the converse. This indicates that
the increase is not attributable solely to prevailing economic conditions.5 In this article
we suggest that one important feature of the significant increase is that personal
insolvency in Australia has become an increasingly middle class phenomenon. Whilst
the concept of middle class is not readily quantifiable, we suggest that increases in the
proportion of insolvents with certain characteristics reveals that personal insolvency is
affecting a broad section of the population, and i ncreasingly it is affecting those who
might commonly be perceived to represent middle class Australians.
We begin with a brief explanation of Australian personal insolvency law. This is
followed by background information including details on the methodology of our
study; the increasing rate of Australia n personal insolvencies; and the results of similar
studies conducted in the US. Then we evaluate the concept of middle class, before
considering several factors which we suggest indicate that personal i nsolvency in
Australia is becoming a middle class phenomenon. We detail how insolvents are
increasingly coming from h igher status occupations; have increasing levels of personal
income and household income; and have increasing asset and property ownership
levels.6 Finally, we consider some implications of our findings for the role, function
and importance of Australian personal insolvency laws and we also consider the
connections between personal insolvency laws and broader social issues such as rising
debt levels.
II AUSTRALIAN PERSONAL INSOLVENCY LAW
The Bankruptcy Act 1966 (Cth) ('the Act') sets out A ustralian law relating to the
insolvency of individuals, deceased debtors and partnerships.7 Under the Act, there
are three regulated forms of personal insolvency: bankruptcies under Part IV and Part
XI; debt agreements under Part IX; and personal insolvency agreeme nts under Part X.
Bankruptcies make up the large majority of personal insolvencies (27 483 or 75 per cent
of personal insolvencies in 20 09), followed by the increasingly popular debt
agreements (8567 or 24 per cent in 2009) and the less frequent personal insolvency
agreements (437 or 1 per cent in 2009).8 In this section we set out a brief summary of
Australian persona l insolvency law relating to Part IV bankruptcies and Part IX debt
agreements.9
A Bankrupt cy (Part IV of the Bankruptcy Act)
Bankruptcy offers debtors protection from creditors, however th is protection comes
with serious consequences for the debtor involved. A debtor may become bankrupt on
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5 See further ibid.
6 For the purposes of our analysis we use the term 'insolvents' to include both bankrupts and
debt agreement debtors. We exclude Part X insolvents as a result of their small numbers.
7 Corporate insolvency is governed by the Corporations Act 2001 (Cth).
8 Insolvency and Trustee Service Australia, Annual Report, above n 1, 11.
9 A more detailed ex planation of the Australian personal insolvency regime, including
further detail on Part IV bankruptcies, Part IX debt agreements, bankruptcies under Part
XI, and current and former Part X arrangements, is available in our report: see Ramsay and
Sim, Trends in Personal Insolvency in Australia, above n 1, 29–38. See further Michael Murray,
Keay's Insolvency: Personal and Corporate Law and Practice (6th ed, 2008).
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