Debt agreements are administered under Part IX of the Bankruptcy Act 1966 (Cth) (“the Act”). These agreements form a type of personal insolvency, separate to the usual “formal” course of action taken by appointing a trustee.
Why Elect For a Debt Agreement?
Debt agreements are often pursued and initiated by smaller debtors, who may have low income or little to no real property. The benefit of a debt agreement is that the process follows a less rigid and intensive regime than formal bankruptcy. It is commonly utilized for dealing with smaller consumer debts.
Am I Eligible?
Eligibility for a debt agreement is relatively simple in the context of the Act and regular bankruptcy proceedings. The three key requirements for a debt agreement are that the debtor:
i. must be insolvent (per section 185C(1) of the Act);
ii. must not have been subject to any other administration under the Act in the previous 10 years (per section 185C(4)(a) of the Act); and
iii. has unsecured debts, property, and income below the statutory thresholds, which at the time of writing are:
a. $121,030.00 for debts (per section 185(4)(b) of the Act);
b. $242,060.00 for property (per section 185(4)(c) of the Act); and
c. $90,772.50 of after tax income (per section 185(4)(d) of the Act).
These eligibility guidelines provide credibility to the mechanism, such that individuals do not abuse the system to avoid bankruptcy where such an administration is properly justified. The aim of the debt agreement regime is to provide debtors who are in vulnerable positions an opportunity to properly address their debts without excessive detriment to their current and future financial circumstances.
Administration of a Debt Agreement
A debt agreement is entered by proposing to creditors a repayment plan for provable debts, in other words, those for which the creditor has sufficient documentation to prove their entitlement. The debt agreement will propose to creditors a rate of recovery (i.e. a cents in the dollar approach) with creditors entitled to a vote on the proposal.
A debt agreement is administered by a registered debt agreement administrator, who is approved by the Australian Financial Security Authority (“AFSA”). As at the time of writing, there are 34 debt agreement administrators registered with AFSA; comprised of 27 corporate and 7 individual administrators.
Why Would Creditors Vote for a Debt Agreement?
Ultimately, the body of creditors has the discretion to approve or reject a debt agreement proposal. For this reason, it is incumbent upon the debtor to ensure that they prepare a detailed, reasonable, and realistic debt agreement proposal in order to demonstrate to the creditors that the debt agreement is not just in the best interest of the debtor but also for the creditors as a whole. One key advantage of debt agreements is the reduced cost, and therefore likely higher recovery rate by creditors, compared to that of bankruptcy.
Within the period 1 July 2018 to 30 June 2019, 7,868 debt agreements entered recovering $150,740,307, being around $19,158.66 paid in distributions per debt agreement.
By comparison, in that same period, there were 6,030 bankruptcies in which contributions were paid and administrated by trustees (Official and registered), returning only $85,899,315, being around $14,245.33 paid in dividends per administration.
For those concerned about their debt, and meet those threshold requirements detailed above, a debt agreement is favourable for both creditors and debtors.
What Are My Options?
If you require debt management assistance and want to assess your options, Rostron Carlyle Rojas lawyers offer consultation on a variety of debt options, including representation and advice on preparing, entering, and approaching administrations of debt agreements. To discuss the possibility of arranging a debt agreement, or other debt alleviation options, contact our Brisbane Lawyers at (07) 3009 8444 or by email at [email protected] or our Sydney Lawyers at (02) 9307 8900 at [email protected].
The blog published by Rostron Carlyle Rojas Lawyers is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the author. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.
