Part X (Personal Insolvency Agreement)

A Personal Insolvency Agreement (PIA) is a procedure whereby a debtor may propose an arrangement with his or her creditors in a situation in which the debtor cannot meet the debts due to the creditors when they fall due for payment.  A PIA would usually be considered when a debt agreement was not able to be used, and that may be because the debtor did not meet the qualifying criteria for a debt agreement.

The form of the PIA proposal that the debtor may put forward for consideration by creditors will generally involve either, a sale of all of the debtor's property for the benefit of creditors (i.e. the same as if made bankrupt), or an offer to contribute money from income or other sources in installments over time, or some combination of both.  To be binding on all creditors, the proposal must be approved and accepted by 75% of creditors in value of existing debts, and 50% in number of debts, of those attending the proposal meeting (referred to as a special resolution).

The proposal may seek to compromise the amount owed to creditors and therefore will not necessarily represent payment of 100% of the debts due to creditors, but the debts are only released to the extent agreed in that PIA.

A PIA is initiated by the debtor appointing a controlling trustee (usually a registered trustee or a solicitor) who will control the debtor's property in the intervening period whilst a meeting of creditors is convened to consider the debtor's proposal.

The creditors will appoint a trustee (to replace the controlling trustee) to administer the agreement if it is approved; this is to realise assets, collect monies payable and pay dividends.   

The involvement of a controlling trustee and then a subsequent trustee can result in increased costs being incurred compared to some other alternatives.  Therefore the value of the proposal needs to be at a level that it justifies such costs being incurred.

The agreement may also require certain investigation of the debtor's prior financial affairs, to determine whether there is any cause to take recovery action (that would otherwise be available in bankruptcy).  These powers are held by the appointed trustee.

The PIA is commonly referred to as a Part X agreement as it finds its authority in the Bankruptcy Act.

 

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