Personal Insolvency Agreements

Registered Bankruptcy Trustee deals with Personal Insolvency Agreements (“PIA”) this is an alternative to bankruptcy and commonly known as a Part X.

In order to avoid bankruptcy, a Part X is put forward to creditors by a person suffering financial hardship.

Appointment of Registered Bankruptcy Trustee is where you start, so that a meeting of creditors will be called to hear what you’re proposing to offer in settlement of the debts you owe. The advantage of a Part X is that should your proposal fail, you are not automatically bankrupted, several resolutions must be passed before that happens, it is generally accepted that once a proposal  fails the party owing the money has 4 months to deal with creditors and to again propose an offer to the Bankruptcy trustee.

Once a registered Bankruptcy Trustee is appointed, they will review the person’s circumstances and provide a report to creditors, which includes the following:

  • Complete details of the person’s financial
  • Full disclosure of the person’s assets (if any).
  • Details of the person’s creditors.
  • A summary of the estimated return to creditors if bankruptcy occurs and what returns creditors can expect from a Part X proposal if accepted.
  • And an opinion from the Bankruptcy Trustee to creditors as why they should or should not accept the proposal for a PIA

At the meeting of creditors to vote on the PIA proposal, the registered trustee, informs the creditors who he has accepted as creditors and the value he has accepted from the proof of debt provided by creditors. The registered trustee also requires all in attendance to register as being in attendance, the reason for this is because for a proposed PIA to be accepted, and approved by a special resolution by a majority in number and more than 75% of the value of creditors voting at the meeting. If the proposal is accepted, then it is binding on all creditors and the person making the proposal will avoid bankruptcy. If the proposal for a PIA is not accepted then the person making the proposal does not automatically  become bankrupt, unless a resolution is passed by the majority of creditors voting that the party owing the money must however within 7 days put forward to the trustee a petition declaring they are filing for bankruptcy.

A proposal for a PIA commonly involves.

  • The proposer nominating an amount they can make available and if they need terms
  • The possibility of selling certain assets and upon realisation of funds pay the creditors; and/or
  • Payment of a lump sum amount by a relative or associate of the debtor; and/or
  • Payment of amounts over time by instalments by the debtor; and/or
  • Certain creditors associated with the debtor agreeing not to claim for a dividend if the proposal is accepted.

The Benefits of a Part X proposal and PIA may include:

  • Avoiding bankruptcy and have your credit reports show that your debts have been addressed and satisfied;
  • Problem creditors no longer being able to harass you;
  • Certain assets not being sold, which would otherwise be sold in bankruptcy;
  • The main benefit is that you’re not subject to restrictions, such as would be placed on you in bankruptcy, no restrictions relating to travel, being allowed to continue trading businesses and incurring

If Bankruptcy occurs then you may be required to make income contributions, however under a PIA, your income is not assessed by the registered trustee.