Private schools and strata bodies drive surge in cases, FCA calls for credit law overhaul

There have been 128 bankruptcy filings by schools since 2021, 45 of which occurred in the last fiscal year.

The top five schools were all in Victoria and led by 13 schools launched last year by Melbourne-based Sirius College, followed by Oakleigh Grammar, Overnewton Anglican Community College, Trinity Grammar and Wesley College.

Actions of strata bodies against residents increased. They accounted for just 2 per cent of insolvency cases in 2020-21, but last year the proportion reached 12 per cent.

The Australian Treasurer’s Office found strata bodies in NSW, Victoria and the ACT were becoming increasingly aggressive in recovering fees from residents. Half of compulsory bankruptcies in the ACT last year were caused by strata debt, a level the FCA labeled as “severely disproportionate”.

In NSW, 16 per cent of all insolvencies last year were caused by the actions of strata, with 152 people directly affected.

FCA CEO Domenique Meyrick said changes were needed to the country’s insolvency laws.

He said too many people lose their homes because of $10,000 in debt, which often consists of legal fees, court costs and penalty interest charges.

“Compulsory bankruptcy is one of the most serious tools available to creditors and should only be used as a genuine last resort. Our report shows that without stronger safeguards and modern legislation, Australians risk needlessly losing their homes and livelihoods due to relatively modest debts,” he said.

“Forced insolvency occurs most frequently in sectors that lack strong consumer protections, including hardship support or fair dispute resolution rights. Simply put, it happens where safeguards are minimal.”

The Australian Taxation Office is responsible for 13 per cent of bankruptcies as it takes tougher action to recoup tax debts.

Big banks have halted almost all insolvency proceedings, which the FCA attributes to better hardship practices and codes of conduct.

But other lenders, including vehicle finance companies, are stepping into this breach.

Since 2021-22, the country’s four largest banks have initiated 39 insolvency proceedings. During the same period, Mercedes-Benz Finance launched 41 and BMW Finance launched 34.

Vehicle finance companies account for 12 percent of all bankruptcy cases in the financial sector; This rate is more than the sum of banks and insurance companies combined.

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While banks account for a large share of overall lending, there has been strong growth in non-bank lenders focusing on small businesses and sole traders.

Bizfund, a lender that bills itself as a business specialist and provides loans of $5,000 to $1 million without preliminary credit checks, has initiated 153 insolvency proceedings since 2021-22, including 64 in 2024-25.

Other small lenders that have filed for bankruptcy in large numbers include Flexicommercial (59), TimberCorp Finance (29) and Metro Finance (23).

The Australian Accountant’s Office has found that small non-bank lenders are now taking almost as many credit cases against customers as the Tax Office.

“This means that largely unregulated lenders have the same enforcement authority as the country’s tax authority but with far fewer checks and balances,” he said.

In July last year, then-attorney general Mark Dreyfus announced that the government would reform bankruptcy laws, with the biggest change being that the threshold for starting proceedings would be raised to $20,000. The threshold will be indexed annually.

Consultations on the changes are ongoing.

The Australian Treasurer’s Office said the government should move quickly to implement reforms, while also demanding state and territory governments overhaul strata rules to provide relief to those at risk of insolvency.