Personal insolvency agreement (PIA): how it works and who it binds

A personal insolvency agreement (PIA) is a formal, legally binding agreement between a person and their creditors, made under Part X of the Bankruptcy Act 1966. It is an alternative to bankruptcy. A trustee takes control of the person’s property and puts a proposal to creditors. If creditors accept it by special resolution, it binds all creditors with provable debts, and the unsecured debts covered are released once the agreement’s terms are met.

What is a personal insolvency agreement?

A personal insolvency agreement lets a person who can’t pay their debts offer creditors a deal instead of going bankrupt. The offer might be a lump sum, payments over time, the sale of particular assets, or a combination. Unlike a debt agreement, a PIA has no limits on the amount of debt, assets or income. That can make it the more practical formal option for business owners and directors with larger debts.

How a personal insolvency agreement works

1. Appoint a controlling trustee. You sign an authority appointing a registered trustee as controlling trustee. The controlling trustee takes control of your property while the proposal is considered.
2. Prepare the proposal. The trustee helps you put together an offer to creditors, investigates your affairs, and reports to creditors with a recommendation.
3. Creditors’ meeting. The trustee arranges a meeting of creditors, generally within 25 to 30 days, to vote on the proposal.
4. The vote. The proposal is accepted by a special resolution: a majority in number of the creditors voting, who together hold at least 75% of the dollar value.
5. The agreement runs. The trustee administers the agreement and pays creditors as it provides. Once you have met its terms, the unsecured debts it covers are released.

Who is bound by a PIA?

If creditors accept the proposal, all creditors with provable debts are bound, including those who voted against it. However, secured creditors keep their security. For example, a lender can still repossess and sell a secured car if the repayments aren’t kept up.

What if creditors reject the proposal?

• The result is recorded permanently on the National Personal Insolvency Index.
• Creditors can resume recovery action.
• You can’t appoint another controlling trustee for six months without the court’s permission.
• Creditors can also resolve, by special resolution, to require you to present a bankruptcy application within 7 days.

PIAs and company directors

Entering a PIA disqualifies you from managing a corporation until you have fully complied with its terms, just as bankruptcy does, unless the court grants leave. Directors should notify ASIC using Form 296. If you are a director, plan with this in mind. The company may need another director while the agreement runs.

PIA vs bankruptcy vs debt agreement

• Bankruptcy: usually 3 years and 1 day. The trustee may sell assets that aren’t protected, and income contributions can apply.
• Debt agreement: only available if your debts, assets and after-tax income are below thresholds set by AFSA. You also can’t have been bankrupt, or proposed a debt agreement, in the previous 10 years.
• Personal insolvency agreement: no debt, asset or income limits. The terms are negotiated with creditors and must be accepted by special resolution.

See our bankruptcy guide and liquidation vs bankruptcy.

How Greengate helps

A personal insolvency agreement must be administered by a registered trustee. We can help you work out whether an offer to creditors is realistic before you proceed. If your debts come from a company, for example through guarantees or director penalty notices, our registered liquidators can look at the company’s options at the same time. The first consultation is free and confidential, and we can explain the options in English, Mandarin or Korean.

If you own property with someone else

If you own your home or another property with someone else, how it is held affects your options. See joint tenants vs tenants in common and bankruptcy and jointly owned property.

Common questions

What is a personal insolvency agreement?

A formal agreement between a person and their creditors under Part X of the Bankruptcy Act, as an alternative to bankruptcy. A trustee administers it.

How do creditors accept a PIA?

By special resolution: a majority in number of creditors voting, who hold at least 75% of the dollar value of the debts voted.

Is a PIA better than bankruptcy?

It depends on your situation. A PIA can let you offer creditors a better return than they would get in bankruptcy and keep more control over the outcome, but creditors must accept it.

Can I be a company director during a PIA?

Not until you have complied with its terms, unless the court grants leave. Entering a PIA disqualifies you from managing a corporation.

Is there a debt limit for a PIA?

No. Unlike a debt agreement, a personal insolvency agreement has no debt, asset or income thresholds.

Is a PIA recorded publicly?

Yes. PIAs are recorded on the National Personal Insolvency Index.

This page is general information, not advice about your situation. Sources: AFSA Lodge a PIA proposal, Your rights as a creditor in a personal insolvency agreement and Compare your insolvency options; ASIC Bankruptcy and personal insolvency agreements.