Part 10 Personal Insolvency Agreements Explained

image wondering about part 10 insolvencyWhat is a Part 10 Personal Insolvency Agreement?

Part 10 personal insolvency arrangement is essentially an arrangement to pay creditors when you are unable to pay. As a result, your creditors could achieve a better return by a part x debt agreement than bankruptcy.

Part 10 is suitable for companies or individuals with substantial debts they cannot pay in the time. Also, they cannot find a lump sum payment and wish to avoid a full bankruptcy. However, a Personal Insolvency Agreement comes under Part 10 (Part X) of the Bankruptcy Act 1966.

A part x personal insolvency agreement can affect your future business dealings and ability to trade. As a result, you need to consider your insolvency options carefully. Nevertheless, a PIA may allow you to:

  1. Avoid the constraints of a full bankruptcy.
  2. Plus a PIA can allow you to negotiate with creditors and arrange your debts. Hence, debts including tax debt owed to the ATO.

Personal Insolvency Agreements are designed to assist:

  • Initially, gain relief from their debts.
  • Then ensure a fair distribution to your creditors from the sale of assets.
  • Also, provide a higher dividend to creditors than available under bankruptcy.
  • Plus maintain a source of income.
  • Finally, avoid the restrictions of bankruptcy.

See related pages for information on Part 9 Debt Agreements.

What arrangements can be offered with Part 10 Insolvency Agreements?

Part 10 insolvency can be an alternative to bankruptcy. In brief, a proposal could offer three types of arrangements:

  1. Deed of arrangement
  2. Deed of assignment
  3. Composition

What is a Deed of arrangement?

The arrangement of the debtor’s affairs with a view to part or full payment of the debts. As such, it may be a formalised arrangement with creditors to pay the debts over time. Also, a DOA can allow the transfer of property to the trustee to sell. Finally, distributing funds among the creditors.

Keep in mind; that a personal insolvency agreement does not automatically release you from your debts. Hence, the “deed of arrangement” must include the release of debts.

What is a Deed of assignment?

Deed of assignment allows for the transfer of the debtor’s divisible property. Then, allowing for the sale and distribution of the benefit to the creditors. It mostly produces the same result as bankruptcy, but the debtor avoids bankruptcy and other bankruptcy consequences.

What is a composition in relation to insolvency?

Provides avenues for the creditors to accept payment of the debts in instalments. Otherwise, the composition also allows acceptance of a lesser amount than owed to finalise their debts. As such, the composition process generally involves the debtor appointing a controlling trustee.

The controlling trustee will take control of the financial affairs and negotiate terms with the creditors. The controlling trustee gathers a meeting of creditors to vote on the proposal. Therefore the meeting could result in either acceptance, rejection of the proposal, or ask for a request for bankruptcy.

Under Part 10 Insolvency Agreement your financial future is given over to the creditors. Consequently, your creditors make a judgement about the proposal based on their knowledge of you (the debtor). Furthermore, the creditors will make a decision based on commercial grounds. The creditors’ decision process would be:

  1. Firstly, an assessment of the information given by the controlling trustee.
  2. Secondly, assess the information obtained at the creditors meeting.
  3. Finally, considering the creditors’ knowledge of the debtor.

Then a decision is made on commercial grounds. Hence, what will return the creditors the most significant financial reward.

What is the process of Personal Insolvency Agreement (PIA)?

  1. Firstly, you (the debtor) must be solvent.
  2. Secondly, you must be located in Australia, or have an Australian connection.
  3. Finally, you have not applied for part 10 in the previous six months. However, you can apply if you have obtained court orders to allow you.

If you meet the criteria for personal insolvency agreement (PIA), you then need to appoint a controlling trustee. As such, the process for establishing a Part 10 Insolvency will begin with:

  1. Firstly, the signing of documentation, including section 188 authority. As such, section 188 authority gives the trustee control of your assets. Plus, section 188 requires a meeting of the creditors to decide on the proposal.
  2. Secondly, you must provide a statement of affairs. Hence, SOA will include detail about your assets and liabilities. Plus include all company debts, unsecured debts, business and personal loans plus secured creditors.
  3. Also, if the Creditors accepts the proposal, then a registered trustee is appointed for the sale of assets. Plus the distribution of funds to the creditors.
  4. Keep in mind; the trustee is not necessarily the same party as the controlling trustee.
  5. Importantly, once you enter into a personal insolvency agreement, it will affect your credit rating. Hence, your insolvency information would be stored in the national personal insolvency index.
  6. The process of establishing a personal insolvency agreement is an act of bankruptcy. Therefore, if your PIA is rejected, any of the creditors can apply for a full bankruptcy.
  7. Finally, the term of the agreement is determined by negotiation between your trustee and the creditors. Therefore to obtain the term of your agreement you should speak to your trustee.

Other Insolvency Alternatives

You will need to fit into the government requirements for a PIA. Hence, the conditions are related to asset value, the debt amount, and income. As such, if you may not fit within the requirements, however, you may fit within the other insolvency thresholds. Consequently, the main three insolvencies that can be considered are:

  • Initially, a Part 9 debt agreements, then if you don’t fit these requirements;
  • Secondly, PIA (personal insolvency Agreement) would be the next consideration.
  • Finally, a full bankruptcy. However, full bankruptcy is similar to Part 10 although without some of the restrictions.

You could be seeking information on Part 10 Insolvency Agreements or trying to avoid a Part 10 Insolvency. As such, there may be finance options such as Debt Consolidation, or specialist business caveat loans. Contact Loan Saver Network on 1300 796 850 today for confidential finance advice to pay bad debts.