Registered Trustee in Bankruptcy · Sunshine Coast, Bundaberg and Queensland

Part X Personal Insolvency Agreements

A Part X personal insolvency agreement allows an insolvent individual to put a formal proposal to creditors as an alternative to bankruptcy.

I am a registered trustee in bankruptcy and Principal at Worrells with more than 27 years’ insolvency experience. I assist individuals, creditors and professional advisers with the assessment, investigation and administration of Part X proposals and personal insolvency agreements.

Contact Paul Read the detailed guide
Registered Trustee in BankruptcyFormal personal insolvency appointments
27+ years’ experiencePersonal and corporate insolvency
Part X appointmentsInvestigation, reporting and agreement administration
Local and Queensland-wideSunshine Coast, Bundaberg and broader regions
The process

What is a Part X personal insolvency agreement?

The Part X process allows an insolvent individual to put a formal proposal to creditors as an alternative to bankruptcy. If creditors accept the proposal, it is documented in a legally binding personal insolvency agreement under the Bankruptcy Act.

The proposal can be structured in different ways. It may involve a lump-sum payment, instalments, the sale or refinancing of property, contributions from future income, money from a spouse or another third party, the transfer of particular assets or a combination of arrangements.

Part X can provide more flexibility than bankruptcy, but it is not a private or informal settlement. A controlling trustee takes control of the debtor’s property, investigates the debtor’s financial affairs, reports independently to creditors and compares the proposal with the likely outcome in bankruptcy. Creditors then decide whether the proposal should be accepted.

When it may be relevant

When a Part X proposal may need to be considered

Part X may be relevant where an insolvent individual can put forward a realistic proposal that offers creditors a fair and commercially better outcome than bankruptcy.

  • There are substantial taxation or business debts that cannot be repaid in full.
  • Personal guarantees or claims arising from a failed business have created significant personal exposure.
  • The person has interests in companies, trusts, real property or investments that would be affected by bankruptcy.
  • There are complicated related-party dealings or potential bankruptcy recovery claims that need to be assessed.
  • A spouse, family member, business associate or other third party is prepared to contribute funds to a proposal.
  • Refinancing, asset sales or future income can provide a realistic and properly supported source of funding.
  • The proposal may allow particular assets or business interests to be retained while still producing a better outcome for creditors than bankruptcy.
How it works

The Part X process

Assess the proposal and appoint a controlling trustee

The debtor’s financial position, likely bankruptcy outcome, available funding and proposed terms are reviewed. The debtor then gives a controlling trustee authority and provides a statement of affairs, draft personal insolvency agreement and proposal for creditors.

The controlling trustee investigates

The trustee verifies assets and liabilities, reviews companies, trusts, property values, related-party dealings and potential bankruptcy recoveries, assesses creditor claims and tests whether the proposed funding is realistic.

The trustee reports to creditors

The controlling trustee compares the proposal with the likely bankruptcy outcome and issues an independent report. A creditors’ meeting is called within 30 business days after the controlling trustee consents to act.

Creditors decide

Creditors consider the proposal and vote at the meeting. Acceptance generally requires both a majority in number of creditors voting and at least 75% of the dollar value of debts voted. If accepted, the personal insolvency agreement must generally be executed as a deed within 21 days.

What happens during the process

What does a Part X agreement mean in practice?

The consequences depend on the debtor’s property, income, business interests, creditor claims and the terms ultimately accepted. My detailed guide explains the major issues that commonly arise, including:

  • who may use Part X and the eligibility requirements;
  • the controlling trustee authority, control over property and limits on creditor action;
  • the debtor’s statement of affairs and disclosure obligations;
  • the controlling trustee’s investigation and independent comparison with bankruptcy;
  • how a proposal may be structured and funded;
  • the creditors’ meeting, voting threshold and treatment of related-party claims;
  • what happens if creditors accept the proposal;
  • property, secured debts and jointly owed liabilities;
  • which debts may be covered and which liabilities may remain;
  • taxation debts, ATO voting and possible refund or offset issues;
  • the NPII, credit reporting and restrictions on managing corporations;
  • what happens if the proposal is rejected, the agreement defaults or a variation is required; and
  • regulatory oversight, Court review and the comparison with bankruptcy.
Read the detailed Part X guide
Before an authority is signed

A Part X proposal should not be used simply to test creditors

The proposal should be prepared only after the likely bankruptcy outcome has been properly assessed. Creditors will expect reliable asset values, full disclosure, realistic funding and a clear explanation of why the proposal provides a better commercial result.

The proposal needs to be achievable An uncertain refinance, undocumented third-party contribution or unsupported financial projection can undermine the proposal. Trustee fees and administration costs also need to be allowed for when comparing the expected creditor return.
Before a final decision

Other options that may be available

Part X is not appropriate in every personal insolvency matter. The alternatives depend on the person’s debts, income, assets, creditor position and capacity to fund a proposal.

Bankruptcy

Where there is no realistic or properly funded proposal available, bankruptcy may provide the formal process for dealing with the person’s debts, assets, income and creditor claims.

Bankruptcy →

Other alternatives

An informal settlement or Part IX debt agreement may also be relevant in some circumstances, particularly where the person’s debts and income fall within the applicable Part IX thresholds.

Common questions

Part X personal insolvency agreement FAQs

Who can use a Part X personal insolvency agreement?

Part X does not have prescribed debt, asset or income limits, but other eligibility requirements apply. The debtor must be insolvent, have the required connection with Australia and not be an undischarged bankrupt.

Generally, the debtor must also not have given another effective controlling trustee authority during the previous six months without the Court’s permission. The proposal must include a draft personal insolvency agreement.

What does the controlling trustee do?

The controlling trustee is independent and is not the debtor’s advocate. The trustee investigates the debtor’s financial position, verifies assets and liabilities, reviews relevant transactions and related-party claims, considers potential bankruptcy recoveries and tests whether the proposal funding is realistic.

The trustee then reports to creditors and compares the likely outcome under the proposal with the likely outcome in bankruptcy, including timing, costs, litigation risks and funding certainty.

How do creditors vote on a Part X proposal?

The controlling trustee calls a meeting of creditors within 30 business days after consenting to act. Before the meeting, creditors receive the debtor’s proposal, statement of affairs and the controlling trustee’s report. The debtor must attend and answer creditors’ questions.

Acceptance requires a special resolution. This generally means both a majority in number of creditors voting and at least 75% of the dollar value of debts voted.

Can a Part X proposal allow me to keep my home or other assets?

Potentially. A proposal may allow the debtor to retain particular assets, including a home or business interest, if creditors agree to those terms and the proposal produces an acceptable outcome.

For example, a third-party contribution may be offered instead of the value that creditors might otherwise receive from the sale of the debtor’s interest in bankruptcy. Secured creditors generally retain their rights against the secured property, so secured debt still needs to be dealt with.

What debts are covered, and can ATO debt be included?

A Part X agreement generally deals with provable debts arising from obligations incurred before the agreement is executed, but not every liability is treated in the same way. The agreement should expressly state the extent to which the debtor is released from those debts.

Taxation debts can generally be included and the ATO may vote as a creditor. Court-imposed fines and specified student loan debts fall outside the provable-debt regime. Debts incurred by fraud or fraudulent breach of trust may be provable but are not released, and maintenance liabilities may also be provable but generally remain enforceable. Secured creditors, guarantors and co-debtors retain separate rights.

What happens if creditors reject the proposal or the agreement later fails?

If creditors reject the proposal, the controlling trustee’s control does not necessarily end immediately. Creditors may resolve that control should end or may require the debtor to present a debtor’s petition within seven days. If no relevant resolution is passed, control continues until another statutory terminating event occurs, including the expiration of four months after the authority became effective.

If an accepted agreement later cannot be performed, a variation may be proposed, but creditors do not have to accept it. If the agreement is terminated, creditors may regain their recovery rights and may seek to make the debtor bankrupt.

Contact

Need to discuss a matter with me?

If you would like to discuss a Part X proposal, personal insolvency agreement or bankruptcy alternative, use the Contact page to provide a short summary.

If there is a bankruptcy notice, creditor petition, court date or other urgent enforcement deadline, include that information when you contact me.

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