It is not always inevitable that a debtor will present a debtor’s petition or be served by a creditor’s petition. There are alternatives ways to try and find some relief including a Personal Insolvency Agreement under Part X of the Bankruptcy Act 1966 (Cth). A Personal Insolvency Agreement is a formal arrangement whereby the debtor can come to an agreement with creditors to discharge their debts. This can be more flexible and with fewer obligations than bankruptcy, especially since the courts are not involved in the process.

A Personal Insolvency Agreement can suit debtors with a high income but few, if any, assets, or a substantial asset but with only a limited income.

How is it Accepted?

An insolvent debtor will first need to put forward a formal proposal to creditors regarding their financial affairs. They will then need to authorise a registered trustee in bankruptcy, a solicitor or the Official Trustee to call a meeting of creditors. The creditors meet to determine whether to accept the debtor’s proposal. Creditors must accept personal Insolvency Agreements through a special resolution at a meeting of creditors. If the proposal is not accepted, any creditors may seek to present a creditor’s petition for a compulsory winding up.

The Terms of the Agreement

A Personal Insolvency Agreement must deal with certain issues to comply with the Act. Some of these include, but are not limited to:

  • The identification and specifications as to the debtor’s property;
  • How it is to be dealt with;
  • The debtor’s income available to pay creditor’s claims;
  • The extent to which the debtor will be released; and
  • How and when the agreement will terminate.

Management of the Personal Insolvency Agreement

An appointed trustee carries out the terms and objectives of the agreement. Once appointed, they take control of the debtor’s property and financial affairs.

  • Some of the duties of the trustee include, but are not limited to:
  • Giving information about the administration of a debtor’s business or personal affairs to a creditor who reasonably requires it;
  • Taking whatever action is practicable to ensure the debtor discharges their obligations;
  • Investigate the debtor’s affairs; and
  • Performs their functions in a commercially sound, impartial and independent manner.

Once the debtor’s assets are distributed to creditors, other terms completed and the debtor’s obligations fulfilled, the agreement ends after which the debtor can have a new start.

Advantages to the Parties

A Personal Insolvency Agreement can often be to the creditors’ advantage as they can potentially receive more from a debtor than if the debtor is bankrupted and avoid costs of obtaining a sequestration order. Investigation powers are also similar to bankruptcy so a trustee can potentially challenge certain transactions.

The debtor avoids the publicity and dent to their reputation that so often proceeds bankruptcy and can potentially have more flexible working arrangements (which bankruptcy can hamper).


If you are a debtor or a creditor and require advice in respect of bankruptcy or alternative debtor arrangements, get in touch with our insolvency lawyers on 1300 544 755.

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