Part X Personal Insolvency Agreements

Part X of the Bankruptcy Act

Part X is part of the Bankruptcy Act that provides a framework for a debtor to formally deal with their creditors by making a proposal in satisfaction of their debts.

Part X is often considered by debtors who do not meet the eligibility requirements of a Part IX (because their assets and liabilities are considered too great).

Benefits to Debtors of using Part X of the Act
Benefits to debtors of creditors accepting the proposal commonly include:
  • A debtor can avoid going into bankruptcy
  • Debts owed to creditors can be dealt with in an orderly manner
  • Creditors are prevented from taking further steps to recover debts owed whilst the proposal is being considered
  • Restrictions brought about by bankruptcy (for example, in relation to certain professions and income) can be avoided
  • The impact on a debtor’s credit rating is less severe than if the debtor was to be made bankrupt
Benefits to Creditors of Accepting a Debtor’s Proposal
Benefits to creditors of accepting the proposal commonly include:
  • Creditors may receive a greater return compared to the return expected were the debtor to be made bankrupt
  • Creditors may receive a dividend sooner than if the debtor were to be made bankrupt
  • The costs of administering the controlling Trustee period and Personal Insolvency Agreement may be lower than the costs of administering a bankruptcy

If agreed upon with creditors, the debtor will execute a Personal Insolvency Agreement.

What can be offered in a Personal Insolvency Agreement?
Almost anything can be offered, it just needs to make sense and be believable. Things that are commonly proposed include:
  • A lump sum of money
  • Funds over time
  • Proceeds from the sale of certain assets
  • Any combination of the above
The Controlling Trustee Period
In order to formally propose a Personal Insolvency Agreement, a debtor must enter a controlling Trustee period. The effect of this is that a controlling Trustee (often a registered Trustee) will take control over their property and conduct investigations with a view on reporting to creditors on the debtor’s asset and liability position and commenting on the debtor’s proposal.

To commence the process, a debtor must source the consent of a registered Trustee (who will act as the controlling Trustee) and provide the following:

  • A Section 188 authority providing the controlling Trustee control over the debtor’s property
  • A completed Statement of Affairs setting out the debtor’s asset and liability position, together with some personal details
  • A draft Personal Insolvency Agreement, setting out, amongst other things, what is to be offered to creditors and how the funds / property are to be distributed amongst creditors

Once appointed, the controlling Trustee will conduct investigations, report to creditors and recommend that creditors either accept or reject the proposal.

Accepting the Proposal & the Meeting of Creditors
The controlling Trustee will call and hold a meeting of creditors within 25 business days after the execution of the Section 188 Authority (or 30 days if the Authority is executed in the month of December) to advise creditors of the results of investigations and recommend whether creditors accept the proposal or not.

The debtor must, unless prevented by illness or other sufficient cause, attend the meeting. For the debtor’s proposal to be accepted, a motion must be supported by:

  • Creditors who hold 75% of the dollar value of participating debts
  • A majority of creditors

If either requirement is not satisfied, the motion will be defeated and the proposal will not be accepted.

The Personal Insolvency Agreement can be varied by any party, provided that the debtor and creditors agree.

Other possible outcomes include:

  • Creditors resolving that the controlling Trustee period come to an end and the debtor’s property be returned to them – allowing creditors to pursue the debtor
  • Creditors resolving that the debtor file for their own bankruptcy – although the debtor is not required to do so
  • The meeting of creditors be adjourned to allow the controlling Trustee further time to conduct investigations
Effect on Creditors
Once accepted, unsecured creditors are bound by the agreement, regardless of whether they are in favour of the proposal. Unsecured creditors exchange their right to pursue the debtor for payment for an entitlement to receive a dividend from the funds or property made available under the proposal.

Secured creditors are not bound by a Personal Insolvency Agreement and maintain their rights to recover and sell property that is subject to their security.

The Personal Insolvency Agreement
If the proposal is accepted by creditors, the debtor and the controlling Trustee will execute a Personal Insolvency Agreement. This is a deed to formalise the arrangements agreed upon and set out what funds or property will be available to creditors.

Any assets that are not included in the Personal Insolvency Agreement will revert to the debtor’s control and not be available to creditors.

Ending a Personal Insolvency Agreement
Usually, the Personal Insolvency Agreement will come to an end once the debtor’s obligations have been satisfied.

If the debtor does not comply with the terms of the agreement, the Trustee will usually issue a default notice requiring that the non-compliance be rectified.

If the debtor still does not comply, the Trustee and/or creditors may terminate the agreement. This can happen in the following ways:

  • Automatic termination under the terms of the agreement
  • Creditors resolving that the agreement be terminated by way of a special resolution at a meeting of creditors
  • The Trustee terminating the agreement with the agreement of creditors

The agreement may also be terminated by order of the Court under a number of circumstances, but generally where the terms of the agreement are unreasonable or are not calculated to benefit creditors generally.


Whilst executing a Personal Insolvency Agreement may bring significant benefit to a debtor in allowing them to deal with their creditors in an orderly manner, there are a number of pitfalls that you should be aware of:

  • Executing a Section 188 Authority is an ‘act of bankruptcy’. If a proposal for a Personal Insolvency Agreement is not accepted by creditors, a creditor may rely on this act to bankrupt the debtor.
  • Whilst the controlling Trustee period is in place, a debtor cannot act as a director of a corporation, or until the terms of the Personal Insolvency Agreement have been fulfilled (at which time the Trustee will issue a certificate of completion).
  • Executing a Section 188 Authority affects a debtor’s credit rating – although the effect of this is much less detrimental than if bankruptcy were to occur.
  • If a debtor’s proposal for a Personal Insolvency Agreement is not accepted by creditors, a debtor cannot present another proposal under Part X of the Act for a further 6 months, without leave of the Court.

If you would like more information on how we can assist you with Personal Insolvency agreements, please contact one of our expert advisors.

For more information on Personal Insolvency Agreements, visit the AFSA website,

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SV Partners can assist you with any questions or advice relating to personal insolvency. Please contact one of our expert advisors if you would like more information.


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