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Part IX Debt Agreements

What is Part IX of the Bankruptcy Act?

Part IX (Part 9) of the Bankruptcy Act provides people who have limited assets and debts 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 restrictions determine whether a debtor is eligible to make a proposal 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.

These limits are calculated from the threshold for income contributions in bankruptcy. The asset and liability limits are double the threshold amount for no dependants, and the income limit is one and one-half that threshold amount. The current threshold can be found on the "Figures" page on this web site under Income Contribution Thresholds.

How do you start the process?

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;
• specifies a person to administer the terms of the Debt Agreement; and
• specifies how the person administering the Debt Agreement will be paid.

These 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.

What can be included in a Part IX proposal?

Any legal and commercial arrangement can be proposed and can it contain any combination of factors. Most proposals involve the payment of money over a time period and 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. 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 bankruptcy of the debtor.

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 put to them or not.

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

If the terms of the Debt Agreement cannot be fulfilled, the person administering the Agreement must inform the creditors and provide them with the opportunity of terminating the Agreement.

Alternatively, a 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 a Debt Agreement end?

A debtor's obligations end when he or she fully satisfies the requirements of the Debt Agreement.

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: 14.1.2008