What is a Part X Personal Insolvency Agreement?

A Part X Personal Insolvency Agreement (PIA) is an agreement whereby a debtor who is experiencing financial difficulty agrees to repay part of what they owe to creditors. This may involve making a reduced lump sum repayment or it may involve repaying the debt at a reduced rate of say, 50 cents in the dollar. A Part X Personal Insolvency Agreement offers an alternative option to bankruptcy.

Introduced in December 2004, the Part X Personal Insolvency Agreement replaced the previous insolvency agreements which included a:

• Deed of assignment
• Deed of arrangement, and
• Composition.

Unlike a debt agreement, a Part X Personal Insolvency Agreement can be used by anyone who is insolvent. There are no income, asset or debt limits.

Why use a Part X Personal Insolvency Agreement?

If you are experiencing financial difficulty and you are unable to repay your debts, you may be able to come to an agreement with your creditors to pay back part of what you owe through a Part X Personal Insolvency Agreement. By coming to an agreement with your creditors to repay part of your debts, you can avoid bankruptcy and the stigma that is attached to it. But while entering into a Part X Personal Insolvency Agreement will be a much more satisfactory option for all parties, there are still consequences that you need to be aware of before deciding whether you will attempt to enter into such an agreement.

The consequences of entering into a Part X Personal Insolvency Agreement
If you enter into a Part X Personal Insolvency Agreement with your creditors then under the Corporations Act 2001, you will automatically be disqualified from managing any corporation and you must cease to be a director, alternate director or secretary of any company unless you are given permission by the Courts.

If you continue in one of these capacities without the permission of the Courts, you could face a fine of up to $5,500 or one year imprisonment, or both.

There may also be consequences down the track if you apply for any loans or credit as the Part X Personal Insolvency Agreement will affect your future credit rating.

How do I organise a Part X Personal Insolvency Agreement?
So, you are unable to repay your debts and you are aware of the consequences and you wish to enter into an agreement in order to avoid bankruptcy. Here are the steps you’ll need to take:

1. Appoint a controlling trustee to take control of your property, undertake investigations and report their findings to the creditors.

2. Call a meeting of creditors. This meeting will include providing the findings of the controlling trustee’s report and their recommendations.

3. The controlling trustee will issue a report which will include details of the debtor’s property ownership and income.

4. The final step will include a meeting with the creditors in order to accept the agreement or to make changes to the agreement. For the agreement to be implemented, 75 percent of creditors must agree to the terms of the Part X Personal Insolvency Agreement.

Find out more
Before deciding that a Part X Personal Insolvency Agreement will help your financial situation, then you need to fully understand the process and the consequences of entering into such an agreement. You should contact the Insolvency and Trustee Service Australia (ITSA) for more detailed information. You may also find it worthwhile seeking the services of a professional financial councillor before making any decisions regarding your personal financial situation.

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