A Personal Insolvency Agreement (PIA) is a procedure whereby a debtor may propose an arrangement with creditors when the debtor cannot meet the debts due. A PIA would usually be considered when a debt agreement was not able to be used.
The form of the Personal Insolvency Agreement proposal that the debtor may put forward to creditors will usually involve either, a sale of all of the debtor's property (i.e. the same as if made bankrupt), or an offer to contribute money in instalments over time, or a combination of both. To be binding on all creditors, the proposal must be approved and accepted by 75% of creditors in value, and 50% in number of debts. The proposal may seek to negotiate the amount owed to creditors and therefore will not necessarily represent payment of 100% of the debts. The debts are only released to the extent agreed in the Personal Insolvency Agreement.
A Personal Insolvency Agreement is initiated by you appointing a controlling trustee (usually a registered trustee or a solicitor) who will control the debtor's property in the period whilst a meeting of creditors is convened to consider the debtor's proposal.
The creditors will appoint a trustee (to replace the controlling trustee) to administer the agreement if it is approved; this is to sell off assets, collect monies payable and pay dividends.
The involvement of a controlling trustee and trustee can result in increased costs being incurred compared to some other alternatives. Therefore the value of the proposal needs to be at a level that it justifies such costs being incurred.
The Personal Insolvency Agreement is commonly referred to as a Part X agreement as it finds its authority in the Bankruptcy Act.
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