You would think it wouldn’t be difficult to determine when a Personal Insolvency Agreement (PIA) is at an end would you? Well we have been left scratching our heads when using the Insolvency Trustee Service Australia’s (ITSA) Form 19 which appears to be inconsistent with the provisions of the Bankruptcy Act.
Section 232 of the Bankruptcy Act outlines that a PIA is completed once the trustee is satisfied that all obligations under the PIA have been satisfied. However, quite conversely the ITSA Form 19 seems to indicate that the ‘Notice of Completion’ certificate could be issued once the debtor and the debtor alone had satisfied all of their obligations.
Our policy when facing conflicting scenarios is to rely on the provisions of the Bankruptcy Act. However, curiosity certainly got the better of us and so we sought guidance from the Regulation and Information Registry Department (IR) of ITSA.
It turns out that our enquiry was in fact very timely given that the Federal Full Court of Australia had only just clarified this issue in a decision on 23 March 2012 in the matter of Hingston v Westpac Banking Corporation  FCAFC 41 (23 March 2012). The Court determined that a Trustee should not issue a certificate under Section 232 until all of the obligations created under the PIA have been discharged. IR concurs with this approach.
You may be thinking to yourself, is this really important? Well actually, yes it can be. The following are examples whereby an incorrect date of completion could have a negative impact.
Example 1 – Timing to set aside a PIA
There is scope within Section 222 of Bankruptcy Act to allow the Court to set aside a PIA upon application of either; the Inspector General, the trustee or a creditor. One critical component of such an application is outlined in Section 222(4) which requires it to be made before all of the obligations under the PIA have been discharged. If a trustee issued a Form 19 prematurely (usually before the payment of a final dividend) this will shorten the time period in which an application to set aside a PIA can be made. This could have a significant impact on parties that may be genuinely aggrieved by the PIA process.
Example 2 – Ability to be a director of a company.
A debtor who is subject to a PIA is disqualified as acting as a director of a company pursuant to Section 206B(4) of the Corporations Act, whilst the terms of any PIA have not been fully complied with. Again, if a trustee were to issue a Form 19 prematurely this may allow a person to manage a corporation earlier than they would otherwise be entitled to do so.
As can be seen above, such decisions can have a material impact in certain situations. Particularly where the debtors obligations can potentially be over a very short period (months) but there are other obligations on other parties that may take much longer (years) to be completed then this would certainly have a material impact on the two examples outlined above.
We would like to say a big thank you to the Regulation and Information Registry Department at ITSA for providing us with a timely response and clarification of this issue. ITSA has also confirmed that they will be providing an update in respect of this position in the next edition of the Regulations newsletter, the ‘Personal Insolvency Regulator’.