09 Aug 2013

Change in trend suggests insolvent debtors prefer paying their way


4 min

Last month the Insolvency and Trustee Service Australia released the provisional personal insolvency activity statistics for 2012–13.

Worrells Solvency & Forensic Accountants found the Personal Insolvency Agreement (PIA) and Debt Agreement numbers to be of great interest.

Chris Cook, partner at Worrells said “Personal Insolvency Agreements allow debtors and creditors to come to a formal agreement, thereby avoiding bankruptcy. Each PIA proposal is carefully considered and prepared to suit both the debtor and the creditors, so that a “win, win” result emerges.”

New South Wales had the highest percentage of people entering Part X agreements, with 30% in the last financial year, followed by Victoria and Queensland with 25% and 21% respectively.

Ms Veronique Ingram, Chief Executive of Insolvency and Trustee Service Australia, said that debt agreements reached the highest annual number on record in 2012–13. “During the last decade, debt agreements increased from 16% of total personal insolvency activity to 31% of total personal insolvency activity while Australia’s level of personal insolvency activity remains relatively stable,” she said. [1]

Worrells observe that in the annual statistics the numbers of bankruptcies are currently on the decline at 5% nationally. Bankruptcy numbers are down in all states with the exception of Australian Capital Territory and the Northern Territory.

“It is pleasing to see that there appears to be a shift from bankruptcy to debt agreements and personal insolvency agreements which demonstrates that more people are taking matters into their own hands by approaching their creditors with a proposal. All too often we see the position whereby debtors simply take the easy option by throwing their hands in the air and declaring themselves bankrupt without making any effort to pay creditors. The current change in trend shows that people want to take responsibility for their debt and are not simply burying their head in the sand”.

Despite this shift in the trend Worrells still see the biggest hurdle for Australians struggling financially is finding out what solutions are available to them and ‘finally taking the plunge’. Worrells continually hear from debtors how surprised they are as to how easy the process is. They are happy when they discover that they can have control over what they pay, control over the assets that are available to creditors – meaning they can often keep their family home and finally be free of taking phone calls from creditors chasing payment.

But it is not only the debtors that benefit from such agreements.

In almost all Personal Insolvency Agreements administered at Worrells, the return to creditors under the proposals put forward is between 40 cents and 60 cents in the dollar. This is often substantially higher than what creditors would receive had the debtor been made bankrupt. Typically most returns in a bankruptcy scenario would be between nil and 10 cents in the dollar.

A Personal Insolvency Agreement is clearly a big win for creditors and debtors alike as a non bankruptcy solution.

– ENDS –

[1] Extracted from ITSA Media release: Record number of insolvent debtors enter debt agreements in 2012-13: https://www.itsa.gov.au/resources/media-kit/media-archive/media-release-record-number-of-insolvent-debtors-enter-debt-agreements-in-2012201313

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