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  1. What is a Personal Insolvency Agreement?
    1. A personal insolvency agreement (PIA), or Part X agreement, is an alternative to bankruptcy. It provides a formal but more expensive mechanism for reaching binding arrangement with creditors. A PIA is a more flexible approach than bankruptcy because it creates a pathway for the repayment of the debt.
    2. Entering into a PIA is an act of bankruptcy so if it is terminated or set aside by the Court, a creditor can apply to the Court to begin bankruptcy proceedings.
    3. Unlike a Debt Agreement, there are no eligibility restrictions relating to debtor’s income, assets or amount of debt,[1] however the insolvent party must not have proposed another personal insolvency agreement in the last 6 months.[2]
    4. The provisions for obtaining and abiding by a PIA are contained in Part 10 of the Bankruptcy Act 1966 (Cth).
  2. Process for obtaining PIA.
    1. A PIA can be sought by an insolvent party as an alternative to bankruptcy proceedings.
    2. The first step in pursuing a PIA is the debtor signing a s188 Authority which authorises a Registered Trustee, Solicitor, or Official Trustee (who becomes the Controlling Trustee) to call a meeting of the creditors and take control of property.[3]
    3. The debtor must also provide a proposal, including a draft Personal Insolvency Agreement, Statement of Affairs (outling all assets and liabilities).[4] The final PIA will take the form of a deed.
    4. A proposal for a PIA will be considered at the creditors meeting. For the creditors to accept the proposal a special resolution must be met. For this to be satisfied, the majority in number of creditors, as well as 75% of the dollar value of debt, must agree to the proposal.[5]
    5. Where the PIA is rejected at the creditors meeting, the result will appear on the National Personal Insolvency Index permanently, the debtor will not be able to appoint another controlling trustee for 6 months without courts permission, and the creditors can continue with recovery action[6]
    6. If the creditors do not accept the PIA, they can, by special resolution, either hand back control from the trustee to the debtor; or, require the debtor to present a bankruptcy application within 7 days of the special resolution – they may also choose not to make a special resolution.[7]
  3. Effect of PIA.
    1. Creditors, whether they voted in favour of the PIA or not, are bound by the terms of the PIA and cannot take any action to recover their debts outside the PIA.
    2. Once all the terms of the PIA are fulfilled, the PIA is terminated. If the debtor defaults on the terms of the PIA, the Trustee may terminate the PIA or creditors may at a meeting of creditors resolve to terminate the PIA
    3. A PIA will not affect the rights of secured creditors to deal with the secured assets. These assets are still able to be repossessed and sold should the debtor default.[8]
    4. Once a PIA is executed, the debtor is automatically disqualified from managing a corporation until the terms of the PIA have been complied with[9], may continue to operate business should the terms of the agreement allow this[10]
  4. Stay of proceedings relating to a creditor’s petition.
    1. All proceedings in respect of the creditor’s petition for bankruptcy are stayed until meeting of creditors called under the authority is concluded or adjourned, whichever occurs first.[11]
    2. The 12-month lifespan of a creditor’s petition is not affected by s189AAA – if the 12-month period expires while the stay under s189AAA is in operation, the creditor’s petition still lapses

[1] AFSA, “Indexed Amounts”, https://www.afsa.gov.au/insolvency/how-we-can-help/indexed-amounts-0.
[2] AFSA, “Personal Insolvency Information for Debtors”, https://www.afsa.gov.au/sites/default/files/forms/personal_insolvency_information_booklet_for_debtors.pdf, 21.
[3] Bankruptcy Act 1966 (Cth), s 188.
[4] Requirements set out in Bankruptcy Act 1966 (Cth), s 188A(2).
[5] AFSA, “Lodge a PIA proposal”, https://www.afsa.gov.au/insolvency/cant-pay-my-debts/lodge-pia-proposal#:~:text=Back%20to%20top-,Voting%20on%20your%20proposal,75%25%20of%20the%20dollar%20value.
[6] Ibid.
[7] AFSA, “Your rights as a creditor in a personal insolvency agreement”, https://www.afsa.gov.au/insolvency/owed-money/your-rights-creditor-personal-insolvency-agreement.
[8] AFSA, “Your rights as a creditor in a personal insolvency agreement”, https://www.afsa.gov.au/insolvency/owed-money/your-rights-creditor-personal-insolvency-agreement.
[9] AFSA, “Personal Insolvency Information for Debtors”, https://www.afsa.gov.au/sites/default/files/forms/personal_insolvency_information_booklet_for_debtors.pdf, 6.
[10] Ibid, 21.
[11] Bankruptcy Act 1966 (Cth), s 189AAA.