Arrangements without sequestration (Part X of the Bankruptcy Act)

Home > Arrangements without sequestration (Part X of the Bankruptcy Act)

Who needs to avail themselves of Part X?

You must be an individual who is in debt personally be it via personal guarantees or otherwise.

The problem Part X is designed to resolve is where the individual will not have enough money or the wherewithal to raise enough money to pay creditors in full by the time the debts are due and that the individual is starting to be put under pressure from his or her creditors and that individual wants to do the right thing but also get the creditors off his or her back.

The individual to which Part X would apply is in a position to be able to offer creditors something towards his or her debts but generally not sufficient to pay all the debts in full. This means that there is something the individual can make available for creditors be it from the sale of his or her assets or money out of income over time or money from a third party.

This procedure is for people who wish to tidy up their problematic financial affairs in an orderly and fair way.

How will Part X of the Act help?

Part X immediately takes away the pressure being brought to bear by unsecured creditors, as they are forced to deal with an independent third party referred to as the Controlling Trustee.

As the creditors are now dealing with the controlling Trustee this will improve communication where credibility has slipped or emotions, which are normally very strained in these circumstances, are getting in the road of sensible discussions and thought.

A Part X is generally over much faster than a Bankruptcy, which lasts 3 years.

Under a Part X agreement you are not stuck trying to pay off all your debts which can take a lifetime for some when interest on the debts continues to accrue, as under a Part X generally a compromise has been reached.

As the deal put to creditors is decided on a vote, subject to the rules on voting, if the deal is approved dissident unsecured creditors are bound by the majority and cannot take any action against you.

To improve your understanding as to how Part X can help you it is instructive to understand the processes involved.

How does a Part X work?

1. You sign a document call a Section 188 Authority under the Bankruptcy Act, which must be consented to by a Registered Trustee. At that time the appointment of a Controlling Trustee has been effected. At the time of signing the Section 188 authority you are under an obligation to provide the Controlling Trustee a Statement of your affairs including details of all assets and liabilities as well as details of businesses you are involved in. You need to put a proposal together to go to creditors as to how to resolve your affairs. This often needs preliminary discussions with the Controlling Trustee.
2. The Controlling Trustee then takes over your financial affairs and you are in a position to refer all inquiries and requests for payment to the Controlling Trustee as creditors are prevented from taking any action or continuing on with any action during the course of the appointment of the controlling Trustee.
3. The Controlling Trustee must investigate your affairs and the disclosures in the Statement of Affairs with a view to ascertaining what the outcome would likely be for creditors if you were to become a Bankrupt. This is with a view to providing creditors with a comparison to any proposal put up by you.
4. The Controlling Trustee must then compile a comprehensive report to creditors on the disclosures in the Statement of Affairs, the results of his or her investigations as well as your proposal and their opinion as to what would be in the best interests of creditors.
5. The report of the Controlling Trustee along with a notice of meeting and other documentation must be sent out to convene a meeting of creditors, which must be held within 25 working days of the signing of the Section 188 Authority. This time frame is longer if Christmas intervenes in the 42 days OR during this period.
6. At the meeting of creditors a vote is taken on the debtors proposal, which is a special resolution under the Bankruptcy Act. This means that for a resolution approving a proposal to be passed it must be voted on by a majority in number of creditors representing 75% in value of creditors present at the meeting and voting. At this meeting if the vote is accepted the creditors also appoint a Trustee of the Arrangement, which is normally the Controlling Trustee but not necessarily.
7. The Trustee of the Arrangement then administers the deal and ensures it occurs as proposed.
8. Generally on finalising the payment to creditors the arrangement is over and the debtor is free of all obligations.

What sort of Deals can be put to Creditors?

All Part X arrangements are referred to as personal insolvency agreements. The deals can involve just a straight offering all the assets of the debtor, which would be available under a Bankruptcy to be sold for the benefit of creditors. The advantage this would have for a debtor over Bankruptcy is they are out from under control of a third party about 2 and ½ years faster. The advantage for the creditors is that it would be over faster and so they would receive their money faster as well as there being more money. The reason why there would be more available to go to creditors is the faster something can be finished the less the Trustee’s costs will be.

A deal can be comprised of a straight offering of money, which is less than 100 cents in the dollar to creditors either in one lump or over time even out of trading.  The advantages to both creditors and the debtor under this type of proposal would depend on the particular commercial circumstances. Where it may work in both groups favour is if there is a business which if closed or sold would provide very little in terms of funds for creditors but if allowed to trade but compromise the debt the creditors would receive more than they would have on Bankruptcy and the debtor has not had to pay the creditors in full nor immediately thereby freeing up the business to focus on its operations first not just survival. Funds under these schemes can also come from third parties.

A proposal could offer a combination of putting assets up for sale and cash contributions, be it from trading or a third party.

What you should do if you find yourself in Difficulties?

Collect what information you can about your financial position. Organise to meet with a specialist in the field to discuss your options.

Do not delay taking such action as the longer you wait the less positive options you will have and the less likely it will be you can avail yourself of the benefit of Part X.

The longer you delay the more pressure you will be put under from creditors and the more your health suffers.

Why Clout & Associates?

We are business recovery and insolvency specialists we are all trained and vastly experienced in dealing with financial difficulties so one meeting will provide you with your choices, as this is all we do.

With our Coffs Harbour and Kingscliff office locations we operate in your region and can be there for you when problems arise. Go to the city firms and the personal nature of business in the regions is forgotten let alone your own logistical problems in getting there… not to mention the cost!

Our record in saving companies and businesses is second to none.

Our fees have been adjusted to cater for the size of businesses in the regions.

We work alongside your usual professional advisors to ensure you are comfortable with the processes and to keep the costs down.

View, print or download forms via the link below

Forms for Personal Insolvency Agreement

Forms for Debt Agreements

To discuss your options click here for our contact details.