Over the past year, Australia has seen a sharp rise in personal insolvencies – with many driven by directors facing personal exposure through tax debts, guarantees, and mounting pressure from the Australian Taxation Office (ATO).
But there’s a lesser-known alternative to bankruptcy that’s quietly regaining traction: the Personal Insolvency Agreement (PIA).
In this week’s conversation, Liam Bailey, Managing Partner at O’Brien Palmer, explains what PIAs are, how they work, and why they’re becoming a viable solution again for individuals looking to protect their financial futures while still delivering value to creditors.
What Is a Personal Insolvency Agreement?
A Personal Insolvency Agreement is a formal arrangement between a debtor and their creditors, allowing the debtor to avoid bankruptcy by offering a structured repayment proposal that’s in the creditors’ best financial interests.
A controlling trustee is appointed to assess the debtor’s situation, investigate their assets, and prepare a report comparing the expected outcome of the proposal against what creditors would receive in bankruptcy.
If creditors agree (requiring approval by 50% of creditors by number and 75% by value) the agreement goes ahead, the debtor avoids bankruptcy, and creditors receive a negotiated return, often faster than through a three-year bankruptcy process.
Why PIAs Fell Out of Favour
Despite their potential, very few PIAs have historically been approved in Australia.
Liam notes that this stems from a deep cultural and institutional distrust toward insolvency agreements, a belief that bankruptcy should act as a form of punishment or deterrent for financial failure.
Many large creditors, including the ATO and major lenders, have long maintained internal policies not to support PIAs, even when doing so could deliver better outcomes.
As Liam explains: “There’s an attitude that debtors need to be punished through bankruptcy — that it’s the natural consequence for financial mismanagement. But in many cases, it’s not only avoidable, it’s inefficient.”
The Shift in 2025
That attitude is starting to shift. Rising Director Penalty Notices, personal guarantees, and high-interest short-term loans have left many directors personally liable for company debts. For these individuals, bankruptcy would mean losing their ability to act as company directors, a devastating outcome for otherwise viable businesses.
“We’re seeing people with a lot to lose – business owners, professionals, and directors – turning to PIAs as a genuine alternative,” Liam says. “And creditors are beginning to see that a smaller return, paid quickly, can often be more valuable than a long, drawn-out bankruptcy.”
OBP’s Recent Results
In the last 12 months alone, O’Brien Palmer has successfully completed five Personal Insolvency Agreements, returning 10–15 cents in the dollar to creditors. Each case involved individuals facing director penalty notices but with assets such as home equity and future income that could form the basis of a realistic proposal.
By working with creditors in good faith and demonstrating the debtor’s commitment to meeting obligations, OBP helped those individuals avoid bankruptcy, preserve their careers, and deliver meaningful returns to creditors.
“Creditors are now approaching these proposals more rationally,” Liam says. “They’re recognising that early repayment – even if slightly lower – can be better than waiting three years for a bankruptcy to finalise.”
What to Know Before Starting
PIAs aren’t simple. They involve tight timeframes, substantial upfront costs (often upwards of $25,000), and require full disclosure to a controlling trustee. Once the trustee is appointed, a director must resign from any company directorships, just as they would in bankruptcy.
And regulators are watching closely. Recent court decisions have shown that PIAs structured in bad faith – for example, where related-party creditors dominate the vote or dividends are merely symbolic – can be overturned as an abuse of process.
Approach the process transparently and professionally, with the guidance of an experienced insolvency practitioner.
Is a PIA Right for You?
For those under personal financial stress, particularly directors with exposure to tax debts or personal guarantees, a Personal Insolvency Agreement can provide a second chance without the long-term restrictions of bankruptcy.
“If you’ve received a Director Penalty Notice or you’re worried about personal exposure, don’t wait,” Liam advises. “Talk to someone who understands the options before it’s too late.”
If you think you may be eligible to put forward a viable offer to your creditors, the OBP team can help assess your circumstances and give honest, practical advice on your prospects of success. Please get in touch for a confidential conversation that will put you on the right path for you.
📞 (61) 2 9232 3322
📧 obp1@obp.com.au
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