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Personal insolvency agreements

Individuals with high debts can see bankruptcy as a solution to their problems. However, being declared bankrupt has some serious long-term consequences and should be seen as a last resort.

A personal insolvency agreement (PIA) is a formal way to deal with unmanageable debt without having to declare bankruptcy. It provides a flexible way for individuals to come to an agreement with their creditors to settle debts.

A PIA is a legally binding agreement in which an individual agrees to pay creditors in full or in part by installments or a lump sum. For an individual to propose a PIA certain conditions must be met, they:

  • must be insolvent
  • must be present in Australia or otherwise have an Australian connection
  • must not have proposed another PIA in the previous six months.

For a PIA to work, the insolvent individual must first appoint a controlling trustee to take control of their property. The controlling trustee examines the proposal, makes inquiries into the individual’s financial affairs and reports to creditors.

A creditors’ meeting is then held within 25 working days of the trustee’s appointment, at which the creditors consider the proposal. If the proposal is accepted the creditors are then bound by the terms of the agreement if it is rejected the creditors will either vote in favor of bankruptcy or leave the decision to the individual.

The appointment of a controlling trustee automatically disqualifies the individual from managing a business until the terms of the PIA have been complied with and prohibits the individual from dealing with their property without the consent of the controlling trustee.

Also, when an individual appoints a controlling trustee they are committing an ‘act of bankruptcy.’ A creditor is able to use this to apply to the courts in forcing the individual into bankruptcy if the attempt to set up a PIA fails.


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