Personal Insolvency Agreements/Part X Arrangements
An alternative to bankruptcy for an insolvent individual is to put forward a proposal for a Personal Insolvency Agreement under Part X of the Bankruptcy Act, 1966 (Cth) (“PIA”).
In order for a debtor to put forward a proposal for a PIA he or she must appoint a registered bankruptcy Trustee or a solicitor or the Official Receiver from the Insolvency & Trustee Service Australia (“ITSA”) to act as Controlling Trustee. The Controlling Trustee will take control of the debtor’s property and conduct investigations into the debtor’s affairs in order to prepare a report to the debtor’s creditors, commenting on his or her investigations and providing a recommendation to creditors as to whether or not they should accept the debtor’s proposal for a PIA. The Controlling Trustee will then convene a meeting of the debtor’s creditors and the debtor’s proposal for a PIA will be successful if it is accepted by a majority in number and at least seventy-five percent in value of creditors present and voting at the meeting. If the debtor’s proposal for a PIA is accepted it will allow the debtor to avoid bankruptcy and the agreement will be binding on all of the debtor’s unsecured creditors, whether or not they voted for or against the proposal.
A PIA may involve one or more of the following which will often result in creditors receiving a better return than what they would in the debtor’s bankruptcy:
- A lump sum payment to the Trustee of the PIA either from the debtor’s own assets or funds or from assets or funds from third parties, for example from family or friends; and/or
- The transfer of assets to the Trustee of the PIA or the payment of the sale proceeds of assets to the Trustee of the PIA; and/or
- The making of regular contributions to the Trustee of the PIA over a period of time; and/or
- Certain creditors agreeing not to claim in the PIA (most commonly creditors who are related parties of the debtor).
The benefits to a debtor of a successful proposal for a PIA may be:
- The debtor will avoid bankruptcy.
- The debtor is able to put forward a proposal which provides for the contribution of certain assets and/or funds to his or her Trustee. In bankruptcy all of a debtor’s assets which are divisible property are able to be realised by the Trustee.
- The debtor will not be subject to some of the restrictions placed upon a bankrupt, including restrictions relating to trading businesses and incurring credit.
- A debtor’s debts are consolidated and a debtor is only required to make payments to their Trustee on terms agreed upon in the PIA.
- The debtor will not be required to make income contributions, which are required to be paid in bankruptcy if a debtor’s income is over a certain indexed level.
- There are no restrictions on traveling overseas, whereas in bankruptcy certain restrictions on overseas travel may apply.
For further information on PIAs you may wish to contact one of the staff at Pearce & Heers, or alternatively further information can be obtained from ITSA’s website by following the link below.