Personal Insolvency Agreement: Records and Process

Establish the Part X Route and Its Preconditions

An insolvent individual can propose a Part X agreement funded through property, income or third-party contributions. Insolvency means the person cannot pay their debts as they fall due. Record the unpaid obligations and available funds behind that assessment.

The Australian Financial Security Authority (AFSA) explains the eligibility differences between formal insolvency options. Part X has no income, asset or debt caps. The debtor needs the Australian connection required by section 188, such as presence, ordinary residence or a qualifying home or business connection. A further effective controlling-trustee authority within six months requires the Court’s leave.

Confirm that the proposed controlling trustee is a registered trustee or eligible solicitor. The legislation also permits the Official Trustee, subject to the required approval. An ordinary adviser’s engagement letter does not create the statutory appointment.

Keep the procedural stages distinct. A proposal is the offer creditors consider. The signed section 188 authority starts the controlling-trustee process when its legal prerequisites are met. A compliant agreement binds creditors when duly executed by the debtor and trustee following creditor approval.

A Part IX debt agreement has a separate eligibility and administration regime. A bankruptcy application begins a different route. Neither procedure supplies a shortcut around the Part X appointment or vote.

Prepare the Financial Position for the Controlling Trustee

Prepare the statement of affairs from a reconciled opening position, with the source behind every material balance. Use a common cut-off and explain movements between that cut-off and the proposed appointment.

1. List each asset with its legal owner, ownership share, valuation basis and available evidence. Separate an estimated sale value from the debtor’s equity after secured debt and sale expenses.
2. Build the creditor schedule from statements, contracts and claims. Record security, guarantees, disputed amounts and contingent liabilities separately.
3. Reconcile cash and income to bank statements, payslips, business records and tax material. Match transfers between accounts so the same funds are not counted twice.
4. Review recent transactions against the asset schedule. Keep unexplained withdrawals, related-party payments and possible recoveries in an investigation schedule, with source references and unresolved questions.

For example, a jointly owned property valued at $600,000 is not a $600,000 contribution. Identify the debtor’s interest, mortgage payout and selling costs before estimating the funds available. A valuation dispute belongs beside that estimate, not hidden inside a rounded total.

Give the controlling trustee the completed authority, statement of affairs and proposal containing a draft agreement. AFSA’s proposal forms identify Form 13 and Form 3. Before consent, the trustee must provide the prescribed information. The statutory appointment places the debtor’s property under control and restricts dealings without the controlling trustee’s consent.

Include Australian Taxation Office (ATO) claims in the liability schedule. Reconcile assessments and account statements with lodged returns, credits and payments. Identify outstanding lodgments and separate later liabilities from amounts relevant to the proposal. Record any objection or dispute without treating it as an extinguished debt.

FinTrace saves practitioners hours of statement conversion and review when preparing this financial evidence. You receive a searchable Excel ledger and a findings report that flags suspicious transactions, with each finding tied to its source PDF and page. Forensic accountants can use those outputs directly in their analysis of transfers and the debtor’s disclosed position.

Investigate the Estate and Model the Proposal

The controlling trustee investigates the debtor’s affairs and reports on the proposal against bankruptcy. Start with the disclosed position, then test ownership and transactions against the underlying records. An account statement can prove a payment occurred while leaving its legal purpose unresolved.

Follow material transfers through the supplied accounts. Ask for the loan agreement behind a claimed family debt or the settlement record behind a sale receipt. Mark a missing statement period as a records gap. Keep a potential recovery separate until its legal basis, likely proceeds and recovery costs support including it.

AFSA’s Part X practice guidance describes the investigation and comparative report. The report must give creditors a usable assessment of the alternatives. State what funds each route makes available, when those funds arrive and which assumptions could change the return.

Fictional Proposal Comparison

Assume admitted unsecured claims of $200,000, including a $60,000 ATO claim. For this illustration, all claims rank equally and both routes use the same claim total. Property figures are net of secured payouts but before the separately listed sale costs. The figures are fictional cash assumptions, not fee quotes.

The proposal calculation is $100,000 less $25,000 of expenses, leaving $75,000. Dividing $75,000 by $200,000 produces a 37.5% return. On the equal-ranking assumption, the ATO would receive $22,500. The bankruptcy model leaves $38,000 after $27,000 of expenses, producing a 19% return.

Evidence the third party’s funding commitment and availability. Test whether the debtor can fund contributions after living costs and continuing obligations. If the $30,000 contribution fails, the proposal’s assumed return falls to 22.5 cents per dollar before any further cost change. Present that dependency alongside the headline return.

Replace every assumption with the estate’s actual basis, including applicable charges and recovery powers under each route. Detailed remuneration and charge assessment belongs in personal insolvency agreement costs.

The ATO considers each proposal on its merits under PS LA 2011/16. Its considerations include the return and timing, achievable terms, adequate disclosure, compliance history and provision for future tax liabilities. A better numerical return alone does not establish its support.

Obtain the ATO’s claim particulars and proposed voting position through the matter’s authorised correspondence. Compare the claim submitted for voting with the schedule and explain differences. The fictional $22,500 distribution is a model output, not an ATO acceptance or a conclusion that all tax obligations are released.

Record the Creditor Decision and Establish the Agreement

Record creditor approval separately from the appointment and execution of the agreement. Each stage has its own authority and evidence.

1. Convene the meeting within 30 business days after the relevant consent or approval. Give at least 10 business days’ meeting notice and supply the required report and accompanying documents within their prescribed periods.
2. Establish creditors’ voting entitlements from claims and supporting records. Preserve proxies, admitted voting values and reasons for any disputed admission.
3. Record the vote on the proposed terms. Acceptance requires a majority in number and at least 75% in value of creditors voting in favour. Keep the minutes and the certified resolution with the voting calculation.
4. Record the nominated agreement trustee and their consent. Only a registered trustee or the Official Trustee can administer the agreement.
5. Execute the deed within 21 days of the resolution requiring execution, subject to any permitted extension. Lodge the executed deed and required notices with the Official Receiver.

AFSA’s creditor-meeting guidance sets out meeting and voting requirements. Compare the executed deed with the approved provisions, including funding conditions, property, income, distributions and release terms. Retain proof of lodgment alongside the signed document.

If creditors reject the proposal, read the actual resolutions before recording the next step. AFSA’s creditor guidance explains that creditors can resolve to return control or require a bankruptcy petition. Rejection alone does not make the debtor bankrupt. Document when control ends and any separate recovery or court process.

Administer the Terms and Respond to Failure

Administer the agreement against its executed terms, using an estate account that links receipts and payments to supporting records. Keep the legal authority for each distribution beside its calculation.

Track each contribution against its due date and payer. Reconcile property proceeds to settlement statements, secured payouts and expenses. Match distributions to admitted claims and the agreement’s payment order. Record retained reserves so an unpaid administration expense is not mistaken for money available to creditors.

If a contribution is late, identify the amount and the breached term before choosing a response. Obtain the updated financial position and supporting explanation. An agreed conversation about reduced payments does not itself amend the deed.

Section 221A provides variation routes with the debtor’s written consent, including a special resolution or the trustee’s statutory notice procedure. Default can lead to trustee, creditor or court termination. The deed can also specify a terminating event. Apply the route’s notice and objection requirements before treating the agreement as ended.

Under Part X of the Bankruptcy Act, termination and bankruptcy are separate legal events. A court termination application can include a request for a sequestration order. Preserve the deed, notices and resolutions with the reconciled account for any further proceedings. If bankruptcy follows, the trustee in bankruptcy works under that separate appointment.

Verify Completion and the Remaining Obligations

Verify completion by reconciling performance with every obligation in the agreement. A final contribution receipt alone does not prove that property transfers, distributions and other required acts are complete.

Prepare the final receipts-and-payments account and reconcile its balance to the estate bank account. Explain unpaid items and the treatment of any remaining property. Match each required contribution and distribution to its supporting record, then confirm the completion notice has been lodged.

When satisfied that all obligations are discharged, the trustee must provide a signed certificate on the debtor’s written request under section 232. AFSA also explains how to obtain confirmation that an agreement has ended. Retain that confirmation with the final account and executed terms.

Completion is distinct from bankruptcy discharge. Release depends on the agreement and statutory exceptions, while secured rights and unreleased obligations need separate treatment. Record the position for each outstanding tax obligation instead of marking the entire ATO account cleared.

The National Personal Insolvency Index keeps the Part X record permanently. Give the debtor a closing schedule identifying completed obligations, any continuing liability and the treatment of remaining assets. That schedule connects the completion evidence to what the debtor must still do.