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Personal Insolvency Agreement: A Flexible Alternative To Bankruptcy

(Information sourced from Worrells Guide to Personal Insolvency. Used with permission.


Part X of the Bankruptcy Act allows a debtor to enter into an arrangement with their creditors to satisfy their debts without being made bankrupt. This arrangement is called a “Personal Insolvency Agreement.”

A debtor will usually use a Personal Insolvency Agreement to:

  • Get relief from their debts.
  • Ensure a fair distribution of their assets to creditors,
  • Provide a higher dividend than would be payable in bankruptcy,
  • Maintain their sources of income, and
  • Avoid the restrictions of bankruptcy.

A Personal Insolvency Agreement is a formal agreement between the debtor and their creditors that records how the debtor will satisfy their debts.

The proposal will usually provide for the payment of money over time and the sale of some assets.It will also usually contain a suspension of creditors’ claims throughout the term of the agreement and payment of less than the full amount in full satisfaction of claims.

What Is The Process?

An individual can propose a Personal Insolvency Agreement when certain conditions are met:

  • The debtor must be insolvent,
  • The debtor must be present in Australia or otherwise have an Australian connection,
  • Unless the debtor has permission from the court, they cannot propose a Personal Insolvency Agreement if they have proposed another Personal Insolvency Agreement in the previous six months, and
  • A debtor must choose a Controlling Trustee – either a solicitor or a registered trustee in bankruptcy – and must provide them with these documents:
    • An authority under section 188 of the Bankruptcy Act 1966 (“the Act“) giving the Controlling Trustee control over their assets and requiring them to call a meeting of creditors to consider the proposal,
    • A statement of affairs detailing the debtor’s assets, liabilities and other personal information, and
    • A draft Personal Insolvency Agreement detailing the terms of the proposal to be made to creditors.

The Controlling Trustee will sign a Consent to Act and will send the material to the Australian Financial Security Authority (“AFSA“) for registration on the official record.

Accepting The Proposal

For the debtor’s proposal to be accepted, the majority of creditors and more than 75% in value of the creditors attending and voting at the meeting must be in favour of the proposal. If the proposal is not accepted by the required majority, the creditors may resolve that the debtor be placed into bankruptcy.

Debtor’s Property & Income

There are no income, asset or debt limits involved in a Personal Insolvency Agreement.

Only property that is included in the Personal Insolvency Agreement is affected. Property that is not included in the agreement is not available to creditors. The debtor is only required to contribute some of their income if the agreement includes terms requiring them to do so. For example, the agreement may specify that the debtor will make the same type of contribution out of income that they would make if they were bankrupt.

End Date

The agreement ends when the debtor fully satisfies the requirements set out in the Personal Insolvency Agreement, and the available funds are distributed by the trustee as a dividend.

Who Administers A Personal Insolvency Agreement?

The proposal for an agreement must include the appointment of a registered trustee or the Official Receiver to administer the agreement. The Official Receiver will be the trustee if a registered trustee is not nominated. The powers and obligations of the trustee will be set out in the agreement and the Act. Those powers and obligations will essentially be to enforce the terms of the agreement, sell any assets, collect any monies and make a distribution to creditors.

Will It Affect The Debtor’s Credit Rating?

The fact that the debtor has signed a section 188 authority will be noted by credit agencies. This may be more favourable than outstanding writs, defaults and a bankruptcy on the debtor’s file.


A debtor cannot act as a director of a company while subject to the terms of a Personal Insolvency Agreement. This restriction is lifted when the agreement has been fulfilled.

How We Can Help

If you are experiencing financial difficulty, Ryan Murdoch O’Regan’s Commercial Litigation Team can assist in negotiating with your creditors, including, if appropriate to your circumstances, taking steps to assist with a Personal Insolvency Agreement.

Contact Us

Get the best representation. Contact Ryan Murdoch O’Regan Lawyers’ experienced insolvency lawyers on 1800 999 529, email or submit an enquiry below.

We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.

This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

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