Debt Recovery - Personal Insolvency Agreements

Date: August 04, 2009

Authors: LAC Lawyers

If you find that you are overwhelmed with debt and cannot pay all those debts as and when they are due but at the same time you do not want to be declared a bankrupt, you may still have the option of entering into a Personal Insolvency Agreement (“PIA”).

What is a PIA?

A PIA is an agreement between a debtor and its creditors under Part X of the Bankruptcy Act (the “Act”) which allows a debtor to pay off its debts to creditors without the need for an action in bankruptcy to take place. Section 188 of the Act provides certain requirements for a PIA and must:

  1. identify the debtor's property (whether or not already owned by the debtor when he or she executes the agreement) that is to be available to pay creditors' claims; and
  2. specify how the property is to be dealt with; and
  3. identify the debtor's income (whether or not already derived by the debtor when he or she executes the agreement) that is to be available to pay creditors' claims; and
  4. specify how the income is to be dealt with; and
  5. specify the extent (if any) to which the debtor is to be released from his or her provable debts; and
  6. specify the conditions (if any) for the agreement to come into operation; and
  7. specify the circumstances in which, or the events on which, the agreement terminates; and
  8. specify the order in which proceeds of realising the property referred to in paragraph (a) are to be distributed among creditors; and
  9. specify the order in which income referred to in paragraph (c) is to be distributed among creditors; and
  10. specify whether or not the antecedent transactions provisions of this Act apply to the debtor; and
  11. make provision for a person or persons to be trustee or trustees of the agreement; and
  12. provide that the debtor will execute such instruments and generally do all such acts and things in relation to his or her property and income as is required by the agreement.

Provided that the debtor:

  1. is personally present or ordinarily resident in Australia;
  2. has a dwelling‑house or place of business in Australia;
  3. is carrying on business in Australia, either personally or by means of an agent or manager; or
  4. is a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;

The debtor may authorise a solicitor or registered trustee under section 188 of the Act to put forth a proposal acceptable to all the parties.

Advantages of PIA’s
Some advantages for the debtor include:
  • Avoiding costly court proceedings;
  • Avoiding publicity and stigma of being a bankrupt;
  • Selection of controlling trustee;
  • Minimising debtor’s exposure to criminal prosecution;
  • Avoiding limitations placed on undischarged bankrupts.
Some advantages for the creditor include:
  • Debtor’s assets are under the control of the trustee;
  • Avoiding costs of court proceedings meaning there will be more money for distribution;
  • Possibly higher return than if debtor were declared bankrupt;
  • If creditors rely on the debtor for the supply of goods or services, then both parties can continue to trade.
How can we help?
 
LAC’s insolvency lawyers can assist you by taking the headache out of the process and let you get on with your life. We can assist in arranging the meetings of creditors and prepare the insolvency agreement. Just remember, the section 188 authority is the first step that needs to be taken in order for the Part X process to take place. Please call LAC Lawyers on (02) 9904 6800 for professional advice and representation in any insolvency matter.
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