A personal insolvency agreement (PIA) is a legally binding arrangement between a debtor and his or her creditors whereby the debtor offers to pay creditors in full or part by instalments or a lump sum. Unlike a debt agreement, there are no debt, asset or income limits to be eligible to propose a PIA. There are two steps necessary for the creation and putting into effect of a PIA:
1. Appointment of a controlling trustee
PIA debtors must appoint a controlling trustee. Only a registered trustee, the Official Trustee or a suitably qualified solicitor can act as a controlling trustee.
The appointment of a controlling trustee has a number of significant adverse consequences:
- it is an ‘act of bankruptcy’ and so a creditor can use this to apply to court to make the debtor bankrupt if the attempt to set up a personal insolvency agreement fails
- the appointment (and, if it eventuates, the setting up of a personal insolvency agreement) will be recorded on the National Personal Insolvency Index forever
- details may also appear on a record held by a credit reporting agency for up to seven years
2. Acceptance of the proposal by creditors
A meeting of creditors is held to consider the debtor’s proposal. The debtor’s offer must be accepted by a special resolution (which is a majority in number and at least three-fourths in value of the creditors personally present, by telephone, by attorney or by proxy at the meeting) of the debtor’s creditors. Should their creditors accept the proposal, a trustee must administer the agreement.
The Bankruptcy Act provides that PIAs may be set aside by a Court on a number of grounds such as unreasonableness or non-compliance with the requirements of the Bankruptcy Act 1966 (Cth).
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