As a result of the Federal Government’s stimulus measures for businesses and individuals that have been affected by the COVID-19 pandemic, the decline in the number of personal insolvency appointments has been noticeable.
There were 4,239 new personal insolvencies in the June quarter 2020, representing a 35.1% drop from the same period last year.
It has not only been the stimulus support from the Government impacting the personal insolvency appointments, but also the legislative changes to insolvency law, being:
- an increase in the bankruptcy notice minimum debt threshold amount – now $20,000 (previously $5,000)
- an increase in the time period a debtor has to comply with a bankruptcy notice – now six months (up from 21 days)
- an increase in the stay period afforded by a declaration of intention to present a debtor’s petition (temporary debt protection) – now six months (up from 21 days).
These personal insolvency moratoriums will remain in place until 31 December 2020 (unless extended, which we think is unlikely) and will coincide with the expiry of the corporate insolvency equivalents. Accordingly, we expect to see a gradual increase in personal insolvency appointments in the new year.
To help with the expected influx of small business corporate insolvencies, the Federal Government intends to roll out a new small business restructuring option which you can read about more here. This “mini Deed of Company Arrangement” may help corporate insolvencies; however, in the personal insolvency space, no such change has been mooted for personal insolvency agreements (PIA).
Historically, PIA administrations are low because they are costly to administer and the individual needs to be able to offer something to their creditors that enhances the likely outcome of a bankruptcy scenario. Having said that, after the year we have had, next year might be as good a time as any for creditors to accept a PIA proposal.
This begs the question: will PIAs become more appealing to creditors in 2021?
Personal Insolvency Agreements (PIAs) unpacked
A PIA can be a flexible way to come to an arrangement to settle debts without becoming bankrupt.
In a PIA, an individual is required to appoint a Controlling Trustee to take control of their property and make an offer to your creditors. The offer may be to pay part or all of your debts by instalments or a lump sum (typically funded by family/friends).
Individuals should also be aware that:
- There are no debt, asset or income limits to be eligible for a PIA.
- The length of your PIA will depend on what you negotiate with your Trustee and creditors.
- You may retain your assets (such as house or car) if the terms of the agreement allow.
Fees apply to process, propose and manage the agreement. You must speak to a Trustee about the fees they may charge.
You may not be released from all debts, such as government imposed fines and HECS/HELP debts.
In recent years, we have conducted several successful PIAs that have eased the financial burden and stress on an individual and avoided bankruptcy.
Considering the uncertain time that we are in, we suggest in the coming months when meeting with your personal clients in financial distress, the option of a PIA should be considered, before opting for bankruptcy.
If you have any enquires please do not hesitate to contact our office – we are here to answer any questions and genuinely want to help and get the best outcome for all parties involved.
Seeking early advice is better than leaving a problem to be magnified in the future.
About the author
Samantha Morgan is a Insolvency File Support Officer at HLB Mann Judd Insolvency WA. Samantha assists the Principal and Director with the many Corporate and Personal insolvency appointments managed by the HLB Insolvency team.
If you have any queries about insolvency matters, please feel free to contact the team on 08 9215 7900.