|
|
FAQ
|
|
Frequently Asked Questions:
These FAQs are designed to assist debtors who may be contemplating entering into personal insolvency arrangements to determine if a personal insolvency agreement (PIA) as provided for in Part X of the Bankruptcy Act 1966 is suitable for them. The answers to the FAQs contain a summary of the relevant legislation and do not constitute legal advice. It is strongly recommended that debtors seek their own professional (including legal) advice before taking any steps to enter a PIA.
.
If you need further information, an ITSA employee will be happy to assist you.
Please call us on 1300 364 785 or email us at info@itsa.gov.au.
Residents of some overseas countries may call us on our Toll Free Number or alternatively email us at info@itsa.gov.au.
. |
| 1 What are the advantages of a Personal Insolvency Agreement (PIA) over bankruptcy? |
The individual circumstances of a debtor will indicate which type of administration under the Bankruptcy Act might be most suitable. A debtor who has a profitable business, and is able to make regular payments from the profits of that business in repayment of his debts, may find a PIA appropriate. If such a debtor was to become bankrupt, it is likely that the business would be sold or closed by the trustee.
Under bankruptcy, the debtor’s property vests in (belongs to) the trustee and the trustee is obliged to realize (sell) those assets for the benefit of the creditors. But a PIA allows a debtor to make an offer to his creditors that is tailored to the debtor’s individual circumstances and potentially will result in a better outcome for both the debtor and the creditors.
| 2 I have read about PIAs as an alternative to bankruptcy - can you broadly explain the process to me? |
The steps are listed below.
- Contact a Registered Trustee (“RT”) who will be able to assist you to decide on the offer you want to make to creditors
- Sign a ‘controlling trustee authority’ (which gives control of your property to the RT and authorizes the RT to call a meeting of your creditors) and complete a Statement of Affairs
- Once the RT has signed the form consenting to exercise the powers granted by the controlling trustee authority, the RT becomes known as the ‘controlling trustee’
- After investigating your affairs, the controlling trustee will issue a report to creditors and call a meeting of your creditors to vote on your offer
- If your offer is accepted, you and the controlling trustee will complete the formal documentation which records the terms of the agreement
- After the documentation is signed, the PIA is in place. Generally, (but not always) the RT who was the controlling trustee will become trustee of the PIA
- The trustee of the PIA will then carry out the terms of the PIA. This may involve selling your assets or collecting payments from you or others, and making payments to the creditors.
| 3 Am I eligible to propose a PIA? |
To be eligible you must have a residential or business connection to Australia, and you must not have proposed another PIA in the previous 6 months (unless permission is obtained from the Court). To propose a PIA you must also be insolvent, that is, unable to pay your debts as and when they fall due.
| 4 If I want to propose an offer to my creditors, why do I need to contact an RT, can’t ITSA do it for me? |
RTs are private sector professionals (generally accountants) who specialize in insolvency. Most of the time RTs will be used as controlling trustees because of the commercial nature of PIAs. ITSA will only become the controlling trustee in exceptional circumstances e.g. a matter of public interest. A list of RTs is available here.
| 5 How much will it cost for me to propose an offer to creditors? |
There is no fixed price. The price will depend on the nature and complexity of your affairs. RTs will generally ask for an upfront payment before becoming controlling trustee. It is a competitive market, so it may be beneficial to compare prices before making your selection. But you should be aware that entering into a PIA is a very rigorous process requiring the controlling trustee to conduct significant investigations; provide comprehensive reports to creditors; and hold a meeting. These are time consuming and expensive undertakings and so the fees associated with a PIA may be quite high. They are, generally speaking, more appropriate where the level of debt owed, and funds offered, by the debtor are significant.
| 6 What if I don’t pay the controlling trustee? |
The controlling trustee is entitled to be paid his/her fees and expenses out of your property, however, this does not generally occur because:
- If your offer is accepted, the controlling trustee will be paid from money that comprises the offer; or
- If the offer is not accepted and you become bankrupt, then the controlling trustee will be paid from funds realized in your bankrupt estate.
If your offer is not accepted and you do not become bankrupt, a lien is created over your property for the controlling trustee’s fees and expenses.
| 7 What needs to be in my offer? |
The Bankruptcy Act provides for a lot of flexibility in the drafting of PIAs, so offers will vary greatly as they are customized for a debtor’s specific circumstances. The RT you approach will be able to assist you in preparing your offer. The main issues you will need to consider include:
- Specify your property and income that is to be available to creditors;
- Specify how your property and income is to be dealt with;
- Specify if a third party is to make payments towards the agreement;
- Specify whether certain creditors will agree not to participate in payments from the agreement (therefore increasing the payment to other creditors);
- Specify whether the “claw-back” provisions will apply (these are provisions of the Bankruptcy Act that allow the trustee to recover property or the value of roperty that was sold or transferred by a debtor prior to entering a PIA in certain circumstances);
- Specify to what extent you will be released from your debts.
| 8 What if there is a creditors petition pending against me when I execute a controlling trustee authority? |
Proceedings in relation to the creditors petition will be stayed until the earlier of the conclusion or adjournment of the creditors meeting referred to in question 2.
| 9 Can my creditors still pursue me after I have executed a controlling trustee authority? |
Yes. Unlike bankruptcy, creditors are entitled to commence legal actions (or take a fresh step in an existing legal action) against you for the recovery of their debts during the controlling trustee period. However, your creditors cannot take any action, such as the bailiff seizing your property or your wages being garnisheed, during the controlling trustee period.
| 10 What are the main consequences of executing a controlling trustee authority? |
Executing a controlling trustee authority is a significant legal event. Once it is executed you cannot change your mind and all the steps listed in question 2 up to and including the meeting of creditors must be carried out. So it is important that you carefully read the prescribed information and consider the consequences before executing the controlling trustee authority. The main consequences are as follows:
Your credit record will be affected. The fact that you have signed a controlling trustee authority is recorded on the National Personal Insolvency Index, and may appear on credit reference agency records for seven years;
- Your controlling trustee will have duties to investigate your affairs;
- Your controlling trustee will take control of your property and you are prohibited from dealing with your property without the consent of the controlling trustee;
- You will have duties to assist your controlling trustee (i.e. answering questions and providing books and records);
- Your controlling trustee will call and hold a meeting of your creditors.
| 11 Do I need to attend the meeting of creditors? |
Yes. It is a requirement for the debtor to attend the creditors meeting unless prevented by illness or other sufficient cause. At the meeting you can expect to be asked questions about your affairs and your offer.
| 12 How do I know if creditors will accept my offer? |
You will not know if creditors will accept your offer until it has been voted on at the creditors meeting. Prior to signing a controlling trustee authority, you may be able to get an indication from your major creditors as to whether they would consider an offer. If your major creditors are unwilling to even consider your proposal, there is not much point in commencing the process.
| 13 Will I be able to manage a company if my offer is accepted? |
No. You cannot mange a company until all the obligations that the PIA has created have been discharged. Depending on the terms of the agreement, this may include the trustee’s obligations such as distributing the available funds to creditors. However, a Court may grant you permission to manage a company.
| 14 How many creditors need to vote in favour of the offer for it to be accepted? |
A proposal will be accepted if a majority in number and at least three-fourths in value of the creditors voting at the meeting vote in favour of the proposal.
| 15 How long does the controlling trustee period last? |
The period of control will end if:
- Creditors resolve that your estate no longer be subject to control
- Your offer is accepted by creditors and you execute a PIA
- Four months elapse since executing the authority
- The Court makes an order releasing control
- You become a bankrupt
| 16 What if a creditor doesn’t vote at the meeting? |
If your proposal is accepted, all creditors are bound by the agreement. This means that if a creditor does not vote at the meeting, or even if the creditor votes against your proposal, they are still bound by the agreement.
| 17 Am I released from all my debts if I complete the obligations under the PIA? |
No. You are only released from debts that you would have been released from if you were discharged from bankruptcy. You will not be released from debts incurred through fraud, debts under a maintenance agreement or order, fines imposed by a Court for breach of a law and HELP debts. Your PIA must provide for you to be released from all provable debts for any release to take place. You should speak to your controlling trustee about incorporating a release clause in your PIA.
| 18 Once the PIA is in place can creditors who have a provable debt still take recovery action while the terms of this PIA are being carried out? |
No. Creditors who have a provable debt are unable to take recovery action while the terms of the PIA are being carried out.
| 19 I What if I have a secured creditor? |
Secured creditors can vote at the meeting of creditors, but only for their anticipated or actual shortfall amount (the difference between the value of the secured asset, and the amount outstanding to the creditor). If the security has not been sold then the secured creditor must estimate the value of their security. The controlling trustee will be the person who ultimately decides the value of a secured creditor’s voting rights. The rights of a secured creditor to receive payment of a secured debt, or to sell their security are not affected by a PIA. If a PIA provides that a debtor will be released from all provable debts, then any shortfall resulting from a sale will be discharged. This is the case even if the secured creditor did not vote at the meeting or receive payment from the PIA.
| 20 What will be involved in the administration of the PIA? |
This will depend on the terms of the PIA. For example it may simply be the trustee receiving a one-off payment and distributing it to your creditors. A more complex PIA may involve the trustee selling assets, and taking action to claw-back assets that have been transferred or sold by the debtor.
| 21 Can my offer be varied if my circumstances change? |
Yes. It is possible for you to propose a variation to your PIA once your offer has been accepted by creditors. A proposed variation must be agreed to by creditors by the same majority as is necessary for them to accept your offer initially.
| 22 How does my PIA come to an end? |
Ordinarily a PIA will end when all the obligations that the PIA has created have been discharged. Generally this will be when the trustee has paid the final dividend to creditors. You may request a certificate stating that all the obligations under the PIA have been discharged from your trustee.
| 23 Can the PIA be cancelled once it has been accepted? |
Yes. A Court may set aside a PIA on the application of the Inspector-General, the trustee, or a creditor for various reasons, e.g. the terms of the agreement are unreasonable or there were deficiencies in the process of setting up the agreement. A PIA may also be terminated if you are in default, that is, you have not complied with a term of the PIA. The law about setting aside and terminating a PIA is complicated, and this answer is not a complete summary of the provisions.
| 24 I want to keep my house – can I do this through a PIA? |
Potentially, yes. You must include details of your house in your Statement of Affairs, but exclude it from the list of your assets that will be available to your creditors under the PIA. Your controlling trustee will almost certainly bring this to the attention of creditors in his report, and it is something that the creditors will take into account in their decision to accept or reject your proposal.
| 25 I want to continue with my business – is this possible under a PIA? |
Potentially, yes. As with a house property discussed in the preceding question, the business details must be disclosed in your Statement of Affairs, but excluded from the list of property available to your creditors under the PIA. It will then be up to creditors to decide whether to accept or reject your offer.
| 26 Can I propose to make different rates of payments to different creditors? |
Yes, however it is up to creditors to determine whether the proposed terms are acceptable. Creditors who are being offered a lower rate of return compared to the other creditors may be less likely to support the proposal.
| 27 Will my name be published in a newspaper? |
ITSA maintains a website for advertising meetings of creditors, and your name will be published on this website. It is also possible for your name to be published in a newspaper if your controlling trustee chooses to advertise the meeting of creditors in a newspaper.
| 28 Can the controlling trustee and PIA trustee be the same person? |
Yes. This happens in most cases, but they can be different people.
| 29 Can I change my trustee? |
No. Debtors are unable to change their controlling trustee or PIA trustee.
| 30 Can creditors change my trustee? |
Yes. Creditors can pass an ordinary resolution (that is, a resolution supported by a majority in value of the creditors voting) nominating a new trustee and, provided the proposed new trustee consents to act, the new trustee will assume the role of controlling trustee or trustee of the PIA.
| 31 Do I have to disclose all my creditors in my Statement of Affairs? |
Yes. You must disclose all your creditors when completing your statement of affairs. It is an offence to knowingly provide false or misleading information, and the deliberate omission of a creditor could be grounds to have the PIA set aside or terminated.
|
About Us | 