Personal Insolvency Agreements

It is often better for an insolvent person to consider proposing a Personal Insolvency Agreement, or PIA, to their creditors. This can be done under Part X of the Bankruptcy Act. It can be entered into by debtors in order to avoid bankruptcy, or as a means of being discharged from bankruptcy.

A PIA allows a debtor to come to an agreement with their creditors whereby they are released from their debts. The benefit to the creditors under a Personal Insolvency Agreement is that assets are normally made available to them which would not be the case if the person were declared bankrupt. Such agreements provide the potential for a greater return to creditors.

The commencement of a PIA is brought about by the debtor executing a Section 188 Authority, which has the effect of passing control of their assets to a Controlling Trustee. A Controlling Trustee can either be a Solicitor or a Registered Trustee in Bankruptcy.

In order to enter into a PIA, a special resolution is required to be passed by a majority in number, and at least three quarters in value of the creditors present, in person or by proxy, at a meeting of creditors.

The number of PIAs entered into in Australia is not large. This is because many creditors would rather a debtor become bankrupt than accept what is often a small payout. In recent years, the legislator has introduced a number of provisions to try and overcome some of the perceived deficiencies of the process. Despite the new requirements under Part X, personal insolvency agreements remain out of favour.