Personal Insolvency Agreements

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Why enter into personal insolvency agreement?

When a person is insolvent (meaning they cannot pay their debts as and when they fall due) they may consider declaring themselves bankrupt by way of a debtor’s petition.

As an alternative to going bankrupt, an individual may seek to enter into an agreement which is binding on their creditors pursuant to the provisions of the Bankruptcy Act.

If an agreement can be reached, it is called a Personal Insolvency Agreement. This agreement may also be referred to as a PIA.

How does the personal insolvency agreement regime come into effect?

The whole manner in which the PIA may come into effect is dealt with in Part X (part 10) of the Bankruptcy Act.

The process is commenced by the individual (referred to as the debtor) appointing a controlling trustee to administer their estate under Part X of the Bankruptcy Act.

The role of the controlling trustee is a caretaker role to preserve the assets of the debtor, and to investigate their financial affairs.

The debtor is required to provide a number of documents to the controlling trustee, inclusive of their proposal of how the claims of the creditors are to be resolved.

The proposal can incorporate any number of strategies, however, at its core, the proposal needs to deal with what assets and funds are to be made available under the PIA in order to meet (in part) the claims of the creditors.

The controlling trustee is required to issue a Report to Creditors to consider (amongst other things) the merits of the proposal, inclusive of the controlling trustee’s opinion in relation to the creditors’ interests being better served by:

  • accepting the debtor’s proposal; or
  • the bankruptcy of the debtor.

The report to creditors will also notify creditors of a meeting to consider the proposal.

The proposal will be accepted if 50% in number, and 75% in value of those present and entitled to vote at the meeting vote in favour of the resolution.

After the passing of the resolution, a deed is prepared incorporating the terms of the proposal which must be executed by the controlling trustee and the debtor within 21 days of the resolution being passed.

Once executed, the PIA will become binding on the unsecured creditors and they will be required to accept the funds received from the PIA in satisfaction of their claims.

If you are considering entering into a Personal Insolvency Agreement, please contact our office on (02) 4708 0343 for an obligation free consultation.

Having Insolvency Concerns?

Please contact KHR Insolvency for an obligation free consultation to discuss your circumstances.