By Harold Peng, a Solicitor of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.
The Australian Financial Security Authority (“AFSA”) has released a draft Inspector-General Practice Guidance (“the IGPG”) on Gambling Offences. The paper explains how gambling and “hazardous speculation” may be treated where they contribute to a person’s bankruptcy, and particularly as they relate to the criminal offence contained in s 271 of the Bankruptcy Act 1966 (Cth) (“the Act”).
What does the law say?
Under s 271 of the Act, it is an offence to engage in gambling or “speculations” (unconnected with a trade or business) which in the circumstances was rash or hazardous, if within two years before a petition leading to bankruptcy, this has materially contributed to, or increased the extent of, the bankrupt’s insolvency, or alternatively, if it has led to the loss of property between the presentation of the petition and the date of bankruptcy. A conviction carries a maximum penalty of one year’s imprisonment.
In practice, prosecutions under s 271 are rare. Proving that conduct was both “rash” or “hazardous”, and that it materially contributed to insolvency, is a difficult evidential hurdle.
What does academia say?
A 2007 article by John Duns, “Other People’s Money: Gambling and Bankruptcy” (Monash University Faculty of Law Legal Studies Research Paper No. 2007/33 Melbourne University Law Review, Vol. 31, No. 1, 2007), offers several observations that remain relevant almost 20 years later:
- Gambling debts may warrant different treatment from other debts because gambling creates a “perverse incentive” for debtors to risk creditors’ money in the hope of an unlikely win.
- Trustees often struggle to recover gambling losses under the avoidance provisions of the Act, as gambling transactions are usually treated as providing “market value” in the chance for a win, and the recipient of the bankrupt’s gamble may have limited knowledge of the bankrupt’s insolvency.
- The offence in s 271 of the Act has been rarely used and may actually encourage concealment of gambling, rather than deterring it. Duns suggests gambling would be better addressed through discharge rules (for example, delaying discharge or restricting the release of gambling debts).
In short, Duns invites us to question whether criminalising gambling-related conduct is compatible with modern understandings of vulnerability, responsibility and fairness. His insights remain highly relevant as AFSA refines its guidance.
Read the article by Duns here
Key points from the draft
The IGPG Gambling Offences draft is expressed to be for the purposes of assisting bankruptcy trustees in knowing whether to refer a bankrupt for possible prosecution under s 271 of the Act.
- AFSA emphasises that only conduct that is objectively “rash and hazardous”, having regard to the bankrupt’s financial position, falls within s 271. Isolated bets or modest wagers are unlikely to meet the threshold.
- AFSA’s view is that “rash and hazardous” refers to someone who “has recklessly decided to gamble having regard to their financial situation”.
- AFSA acknowledges the link between gambling and issues such as mental health, addiction, and trauma, suggesting a shift away from purely punitive interpretations, and noting the consideration whether prosecution is in the public interest.
- Rather than referring all cases to prosecution, AFSA may issue an Official Caution where appropriate, reserving referrals to the Commonwealth Director of Public Prosecutions for serious or high-risk cases (e.g. clear criminality, fraud, or repeat offending).
- AFSA expects people experiencing problem gambling to seek help. Evidence such as counselling records, exclusion orders, or medical reports may be relevant when AFSA considers whether to prosecute.
- Trustees as having a statutory duty under s 19(1)(h) of the Act to consider whether the bankrupt has committed an offence, and under s 19(1)(i) to refer any evidence of an offence to the Inspector-General. In addition, AFSA’s draft IGPG adds:
- Trustees are expected by AFAS “to request evidence relating to the person’s gambling, and treatment if available, and include it in the referral to AFSA; and
- Trustees “are legally obliged to refer any evidence of an offence under the Act to AFSA for investigation” (emphasis added).
The focus of this last point is not entirely clear – if it is suggesting that any evidence of gambling must be referred to AFSA this would seem to go beyond the legislation. It must be evidence “of any offence”, which means evidence that the gambling is “rash and hazardous” and has materially contributed to the debtor’s insolvency in the last 2 years (or to loss of property between presentation of a petition and bankruptcy). If Trustees identify gambling of speculation by a bankrupt, it would be prudent to record consideration of these other elements in order to document the decision why a matter involving gambling was, or was not, referred for prosecution.
Likewise, the expectation that Trustees will request evidence regarding gambling and treatment is presumably in the context of an identified possible offence. Trustees have other duties, including to avoid unnecessary expense, and act in a commercially sound way (s 19(1)(j) and (k) of the Act). Enquiries and investigations based on existence of a lottery ticket are presumably not what the Inspector-General has in mind.
Why does this matter?
Australia records some of the highest gambling losses per capita in the world. Gambling-related bankruptcies are increasingly common, both in the statistics and in the lived experience of insolvency practitioners.
John Duns’ analysis highlights the broader policy question: should behaviour driven by addiction or desperation be dealt with through criminal punishment, or is it better addressed through support, treatment, and system-level responses? AFSA’s draft guidance leans towards a balanced approach that recognises both accountability and vulnerability.
For creditors, the draft clarifies when gambling-related conduct may justify referral, reinforcing fairness and asset protection. For bankrupt individuals, it confirms that reckless speculation can have significant legal consequences even beyond bankruptcy. For Trustees it is important to note AFSA’s focus on this area and ensure possible offences are investigated and referred where required.
What happens next?
Submissions are open until 12 September 2025.
AFSA is inviting feedback from insolvency practitioners, financial counsellors, creditors, and the public. The final guidance will set the tone for future trustee conduct and enforcement.
Our view
This draft guidance is particularly important in an environment where online gambling and speculative ventures (e.g. crypto trading) increase both accessibility and financial risk. The Act was not drafted with modern harms in mind, but the IGPG helps update enforcement frameworks to modern realities.
John Duns’s article reminds us of the policy dilemmas at play, and reinforces the importance of calibrating responses with an understanding of why people gamble, and the broader consequences of criminalisation versus support.
Our insolvency, restructuring, and debt recovery team will continue to track developments and advise on how the new guidance shapes trustee actions and client risk.
If you are concerned about gambling-related debts, either as a creditor or as someone facing bankruptcy, we offer nuanced, confidential advice tailored to your situation.
Read the draft guidance here.
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group.
