Part X – Personal Insolvency Agreement
For those who have large debts and wish to avoid bankruptcy, a Personal Insolvency Agreement under Part 10 (Part X) of the Bankruptcy Act will allow you to repay your creditors a higher return than they would normally receive if you were to declare bankruptcy. Personal Insolvency Agreements, like Debt Agreements, can benefit your financial future; however, it is important that you seek expert advice in order to manage your debt according to your circumstances.
At Insolvency Guardian we understand how stressful and daunting it can be to confront personal insolvency. We make it our goal to work you to identify issues, risks and decisions to manage the financial impacts for your stakeholders, future business and individual financial standing.
Part X – The Three Type’s
There are three types of arrangements which a debtor can propose under Part X as alternatives to bankruptcy:
• Deed of arrangement
• Deed of assignment
• Composition
A deed of arrangement provides for the arrangement of the debtor’s affairs with a view to the payment, in whole or in part, of his or her debts. In some cases, it may simply be a formal arrangement with creditors to pay debts over time. It can involve the transfer of some property to the trustee to be realised and distributed among creditors.
A debtor who executes a deed of arrangement is not released from his or her debts unless the deed specifically provides for such release.
A deed of assignment provides for the transfer of all of the debtor’s divisible property for the benefit of his or her creditors. It effectively produces the same result as bankruptcy, but the debtor avoids bankruptcy and its consequences.
A composition provides for the creditors to accept payment of their debts in installments or to accept, in full satisfaction of their debts, a lesser amount than is actually owed to them. In general terms, the process involves the debtor appointing a person to take control of his or her affairs (the ‘controlling trustee’) with a view to putting a proposal to creditors. The controlling trustee then convenes a meeting of creditors who vote on the debtor’s proposal. The creditors can either accept or reject the proposal. If they reject the proposal, they can also require the debtor to petition for his or her own bankruptcy.
Under Part X, the decision on the debtor’s future is given over to the creditors who will make a judgement about the merits of the proposal based on their own knowledge of the debtor, a report given by the controlling trustee and information obtained at the creditors’ meeting. In essence, the creditors make a decision on commercial grounds.
If the creditors resolve to accept the debtor’s proposal, they will also appoint a trustee who is responsible for realising and distributing property under the deed or composition. The trustee can be, but is not necessarily, the same person as the controlling trustee.
Part X contains a number of features to assist the creditors in making a decision in relation to the debtor’s proposal and should be used correctly to determine the proposals viability before deciding on how to vote.