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Part IX Debt Agreements

What is Part IX of the Bankruptcy Act?

Part IX (Part 9) of the Bankruptcy Act are a set of provisions that provide people who have limited assets, debts and income with a mechanism for satisfying those debts without becoming bankrupt or going through the more detailed Part X process. These arrangements are called Debt Agreements.

Who can propose a Debt Agreement?

Certain monetary restrictions determine whether someone is eligible to make a proposal to their creditors under Part IX. The main restrictions are:

(i) the amount of income of the debtor,
(ii) the amount of their debts and
(iii) the value of their assets.

The amounts of these limits are calculated from the threshold for income contributions in bankruptcy. The asset and liability limits are double the income threshold amount for no dependants, and the income limit is one and one-half that threshold amount. The current threshold and the Part IX limits can be found on the Figures page on this web site.

How do you propose a Debt Agreement?

A debtor must complete a Part IX statement of affairs and Debt Agreement proposal which:

• identifies the property or the funds to be made available to creditors under the Debt Agreement;
• specifies how that property or funds are to be dealt with and distributed amongst creditors;
• specifies a person to administer the terms of the Debt Agreement; and
• specifies how the person administering the Debt Agreement will be paid.

These documents are lodged with ITSA (Insolvency & Trustee Service Australia). The debtor can also give an authority for ITSA to delegate the duties of putting forward the proposal to creditors and monitoring the debtor's compliance with the Debt Agreement to another Debt Agreement Administrator. The relevant Debt Agreement Administrator will forward the proposal to creditors and conduct the vote.

How is a Debt Agreement accepted?

ITSA or the person delegated by ITSA will provide details of the Debt Agreement to the creditors and the creditors will vote - usually in writing - on whether to accept the proposal or not. The process is intentionally made to be as quick and easy to ensure that the process is also as inexpensive as possible.

What can be included in a Part IX proposal?

Any legal and commercial arrangement can be proposed and it can contain any combination of factors. Most proposals involve the payment of money over a time period and/or the sale of some assets. These monies would then be distributed to creditors by the Debt Agreement Administrator.

What will be acceptable to creditors?

Generally creditors will accept a proposal if the dollar return will be greater than a dollar return from any alternative. Usually creditors want the most amount of money in the shortest time period.

However there are times when commerciality will not be the deciding factor. If a debtor has been dishonest or caused creditors significant grief, they may decide not to accept a proposal and push for the bankruptcy of the debtor.

What happens if the debtor does not comply with the Debt Agreement?

If the terms of the Debt Agreement cannot be fulfilled or the debtor does not comply with the agreement, the person administering the Agreement must inform the creditors and provide them with the opportunity of terminating the Debt Agreement.

Alternatively, any creditor may apply to the Court for an order terminating the Debt Agreement if:

(a) the creditor can show that the debtor has not carried out the terms of the Debt Agreement and that the termination is in the best interests of creditors;
(b) that the continuation of the Debt Agreement would cause injustice or undue delay to the creditor; or
(c) for any other reason and it is in the creditor's interests.

When does the debtor's obligations under a Debt Agreement end?

A debtor's obligations end when he or she fully satisfies the requirements of the Debt Agreement, or when the Debt Agreement is terminated by one of the methods mentioned above.

Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.

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Last updated: 19.1.2010