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Part X (10) of the Bankruptcy Act 1966 provides for arrangements with creditors as an alternative to a debtor becoming bankrupt. In most cases, a PIA proposal will provide for a greater return to creditors than what would be expected if a debtor were to become bankrupt.
PIA’s are very flexible and may involve a lump sum payment provided by a third party to creditors, transfer of assets to creditors or the proceeds from asset sales to creditors or a repayment arrangement.
A debtor appoints one of the Kazar Slaven partners to act as Controlling Trustee (being a registered trustee, the official trustee, Insolvency and Trustee Service Australia or a solicitor) to take control of their property and convene a meeting of their creditors to consider a PIA proposal.
The controlling trustee is required to undertake an examination of the PIA proposal and investigate the debtor’s affairs. On completion of these enquiries, the controlling trustee is required to provide a report to creditors incorporating an opinion as to whether the proposal is in creditors’ interests. A meeting of creditors is convened by the controlling trustee and held within 25 business days of the initial appointment at which the proposal is considered and voted upon.
In order for a proposal to be accepted, the majority of creditors and 75% in value of the debts due represented at the meeting, are required to vote in favour of the proposal. If accepted, a PIA is required to be executed within 21 days. If the proposal is not accepted or is rejected by creditors, the period of controlling trusteeship usually ends at that meeting.
The act of a debtor appointing a controlling trustee constitutes an ‘act of bankruptcy’ which is a basis upon which a creditor can apply to the court for the issue of a creditor’s petition. A permanent record on the National Personal Insolvency Index (NPII) is also maintained.
A person the subject of a PIA is disqualified from managing corporations for the duration of the PIA.