Back to FAQs

Part X and Personal Insolvency Agreements

What is Part X of the Bankruptcy Act?

Part X (Part 10) is a part of the Bankruptcy Act that provides a mechanism for people to propose a formal agreement with their creditors to satisfy their debts without becoming bankrupt. This agreement is called a Personal Insolvency Agreement (PIA).

How do you start the Part X process?

A debtor completes the following three forms:

(i) An authority under section 188 of the Bankruptcy Act (this starts the process);
(ii) A statement of affairs, detailing their personal and financial (asset and debt) information; and
(iii) A daft personal insolvency agreement to be proposed to creditors.

The debtor also needs to obtain a Consent to Act from a solicitor, a registered trustee or the official trustee. They do this by having one of these people complete and sign the bottom part of the section 188 Authority. These documents are then filed with the Insolvency & Trustee Service Australia (ITSA) and the debtor is placed under a Controlling Trusteeship. The person that gave the Consent to Act is know as a controlling trustee for this period.

What can be included in a Part X proposal?

Any legal and commercial arrangement can be proposed and can contain any combination of factors. Most proposals provide for the payment of money over time, possibly the sale of some assets by the trustee and for these monies to be distributed by the trustee to the creditors in accordance with the provisions of the Bankruptcy Act.

What will be acceptable to Creditors?

Generally creditors will accept a proposal if the dollar return will be greater than a dollar return from a bankruptcy. However there are times when commerciality will not be the deciding factor. If a debtor has been dishonest or caused creditors significant grief, those creditors may decide not to accept a proposal and push for bankruptcy.

How is a Part X Proposal Accepted?

The initial phase of the Part X process (the controlling trusteeship) ends with a meeting of creditors. The creditors will decide whether to accept the proposed agreement, or whether to push for the bankruptcy of the debtor. Creditors cannot bankrupt the debtor at this meeting.

Do creditors need to attend meetings?

No. Creditors can ignore the meeting process and still prove for a dividend. Creditors can appoint proxies to represent them if they do not want to attend meetings but want their voice heard. But creditors are bound by any resolution passed at a meeting (including the acceptance of a PIA), whether they attend or not.

Can a debtor deal with their assets while under a PIA?

The debtor cannot deal with assets that are controlled by the trustee under the provisions of the PIA. Usually these assets are specified in the PIA as ones to be sold by the trustee. They may deal with all other assets without restriction.

Can the debtor keep assets acquired during the PIA?

Any assets that are not included in the agreement can be kept by the debtor.

Can the debtor borrow money while under a PIA?

Yes. The restrictions that apply to a bankrupt obtaining credit do not apply to a debtor under a PIA.

What happens if the debtor cannot comply with a PIA?

The PIA can be terminated if a default is not rectified within the specified period. A default notice will be issued shortly after the default occurs and the debtor will be given a time period to rectify the default. The debtor may request that a meeting of creditors be called to consider a variation to the agreement. If the default is not rectified or the agreement varied, the PIA will usually be terminated. This does not automatically bankrupt the debtor.

When will the PIA end?

A PIA ends on one of the following:

• all of the provisions of the PIA have been fulfilled;
• there is an automatic termination under the terms of the PIA;
• the trustee terminates the PIA, either by using the terms of the agreement or with the approval of the creditors;
• a meeting of creditors resolves to terminate the agreement; or
• an application made to the Court to terminate the agreement is granted.

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.

 Back to FAQs

Last updated: 16.1.2008