Personal Insolvency Agreements
Similar to the Debt Agreement, a Personal Insolvency Agreement (PIA or Part X, Part 10) is a legally binding agreement between you and your creditors however, you must first appoint a controlling trustee (like Aravanis) to take control of your property and put forward the proposal to your creditors.
The PIA proposal outlines your offer for paying back the debt, whether that be via instalments over time, a lump sum payment, proceeds from the sale of certain assets, or a combination of approaches. It’s then up to your creditors to decide if they agree with or refuse the terms you have put forward.
For your proposal to be accepted, there must be a ‘yes’ vote from a majority of creditors who represent at least 75% of the dollar value of your debts (this is referred to as a ‘special resolution’).
Should your proposal be accepted, all of your creditors are bound by the agreement. This even includes creditors who didn’t vote at the meeting, as well as those who voted against the proposal.
Who will manage my Personal Insolvency Agreement?
The trustee is responsible for the management of your assets and the communication with creditors during a PIA.
In Australia, there are two types of trustees. The Official Trustee in Bankruptcy, and Registered Trustees. While either of these trustees can be appointed as a controlling trustee for a Personal Insolvency Agreement, the Official Trustee only becomes the controlling trustee in exceptional circumstances (for example, where the issue is a matter of public interest).
A Registered Trustee is a qualified personal insolvency practitioner who is registered with AFSA and permitted to administer bankrupt estates and Personal Insolvency Agreements. They are paid for their role and are responsible for ensuring that the Personal Insolvency Agreement is fair for you and your creditors.
The Official Trustee in Bankruptcy is one of the roles administered by ASFA. They have officers who administer bankruptcies and other personal insolvency arrangements when a Registered (or private) Trustee is not allocated.
A suitably qualified solicitor can also act as a controlling trustee.
What does a Personal Insolvency Agreement cost?
There is no fixed cost for a Personal Insolvency Agreement. Generally speaking, the more complex your financial affairs, the more expensive the fees are.
This is because the controlling trustee is obligated by law to undertake a number of time-consuming tasks, including:
- Making extensive investigations into your financial position
- Providing a comprehensive report to your creditors, and
- Organising a meeting of your creditors.
It’s important that you understand the costs associated with Personal Insolvency Agreements before deciding to proceed.
Personal Insolvency Agreements typically account for only 1% of all personal insolvency administrations per year. It may be that voluntary bankruptcy offers a better long-term solution, which is why it’s so important to understand these options and how they might affect you.
What are the consequences of a Personal Insolvency Agreement?
A Personal Insolvency Agreement (PIA) is an act of bankruptcy. Just like debt agreements and bankruptcy there will be a listing on your credit report for 5 years in total. The government will also keep a record of your debt agreement on the National Personal Insolvency Index (NPII).
By committing an act of bankruptcy, a creditor can apply to court to make you bankrupt if your PIA fails.
You’ll be unable to deal with your property without the consent of your controlling trustee and you’re not allowed to manage a corporation until the terms of the agreement have been finalised and you are discharged.
You’re unable to apply for goods or services on credit, cheque or hire purchase above a set amount without disclosing your status as an undischarged debtor.
Am I eligible for a Personal Insolvency Agreement?
You’re eligible to propose a Personal Insolvency Agreement if;
- You are insolvent, that is; you’re unable to pay your debts as and when they fall due
- You are personally present in Australia or have a residential or business connection to Australia
- You have not proposed a PIA in the last 6 months.