The Law Handbook 2024

Chapter 5.3: Understanding bankruptcy 385 proposal is deemed to be the amount by which the debt exceeds the value of the secured goods. Content of a debt agreement proposal Section 185C(3) of the Bankruptcy Act provides that a debt agreement proposal can provide for any matter relating to the debtor’s financial affairs. Examples of what can be included in a proposal are: • payment of less than the full amount of all or any of the debts; • instalment payments; and • a moratorium on payment of debts. The formal requirements of the debt agreement proposal are specified in s 185C of the Bankruptcy Act and include, among other things, that the proposal must: 1 identify the property that is being dealt with under the agreement (e.g. motor vehicle, future income, money in bank); 2 specify how the property is to be dealt with; 3 authorise the Official Trustee (AFSA) or another specified person to deal with the property; 4 provide that all provable debts in relation to the agreement rank equally and if the total amount paid by the debtor under the agreement is insufficient to meet those provable debts in full, those provable debts are to be paid proportionately; 5 provide that a creditor is not entitled to receive, in respect of a provable debt, more than the amount of the debt; 6 must not provide for the transfer of property (other than money) to a creditor; and 7 if the agreement provides for the remuneration of the administrator of the agreement, the remuneration must be specified and expressed as a fixed percentage of the total amounts payable by the debtor under the agreement in respect of the provable debts. The administrator is entitled to take as remuneration the specified percentage of each payment made by the debt. Varying a debt agreement A debtor or creditor can put a written proposal in an approved form to the Official Receiver (AFSA) to vary a debt agreement (s 185M Bankruptcy Act). The agreement will be varied if the majority in value of the creditors accept the variation proposal. The procedure for varying the proposal is the same as the procedure for accepting the original debt agreement proposal. Ending a debt agreement A debt agreement will generally end when all obligations under the agreement have been satisfied. A debt agreement can also be terminated if: • a debtor puts a proposal to terminate the agree- ment to the Official Receiver (AFSA) and this is passed by the creditors in the same way as a debt agreement (s 185P Bankruptcy Act); • a court order is made after an application by a debtor, creditor or the Official Receiver (AFSA) (s 185Q); • the debtor fails to make a payment under the agreement for a continuous period of six months (s 185QA); • the debtor fails to complete the agreement within six months of the time specified in the agreement for its completion (s 185QA); or • the debtor becomes a bankrupt. As mentioned above ( see ‘Disadvantages’), term­ ination of a debt agreement constitutes an act of bankruptcy by the debtor and may be used by creditors to bankrupt the debtor (s 40(hd)). Personal insolvency agreements under Part X Personal insolvency agreements (PIAs) are legally binding agreements between a debtor and their creditors and can offer a flexible arrangement to settle debts without becoming bankrupt. They provide a way for debtors to put a proposal to creditors to settle outstanding debts and to avoid bankruptcy. Personal insolvency agreements must be accepted by a special resolution of creditors before they are binding. A debtor can make arrangements with their creditors under a personal insolvency agreement in return for a release from all debts. These arrangements include: • assigning all property to a trustee to be sold for the benefit of the creditors; • arranging to pay some or all debts by money or by property and maybe by instalments; and/or • arranging for someone else to carry on the debtor’s business or for the debtor to carry on the business under supervision.