Part X: The Most Misunderstood Tool in the Bankruptcy Act and What Accountants Should Know.

What is Part X?
Understanding the structured alternative to bankruptcy that can protect clients and preserve commercial outcomes.

Many individuals only seek insolvency advice once financial pressure has escalated to enforcement action. Often following a Director Penalty Notice or aggressive creditor recovery. At that stage, bankruptcy can appear inevitable. However, Part X of the Bankruptcy Act provides an alternative through a Personal Insolvency Agreement by focusing on two key objectives: 

• Financial rehabilitation of the individual 
• Orderly, fair treatment of creditors 

Part X was designed to bridge these objectives, allowing individuals to resolve debt through a structured agreement while still delivering a commercial return to creditors. 

The Challenge

The challenge for accountants is knowing when to seek Part X support from an insolvency expert. Accountants should consider Part X of the Bankruptcy Act when a client is experiencing serious financial pressure but still has the capacity to offer creditors a structured proposal that may produce a better outcome than bankruptcy. 

Common indicators include: 

1. Escalating ATO debt or tax enforcement 
Where a client is unable to meet tax liabilities and is receiving recovery notices, garnishee action, or Director Penalty Notices from the Australian Taxation Office. 

2. Personal guarantee risks 
When business failure or creditor enforcement activates personal guarantees over loans, leases, or supplier credit, exposing the individual to substantial personal liability. 

3. Insolvency is likely, but assets remain 
Where the client owns assets (property, investments, business interests) that could be used to fund a negotiated settlement rather than being lost through bankruptcy. 

4. Professional or licensing risks from bankruptcy 
When bankruptcy could impact professional registrations, licensing, employment eligibility, or the ability to act as a company director. Whereas Part X lessons the impact. 

5. Third-party funds are available 
If family members, business partners, or investors are willing to contribute funds to resolve the debt through a formal agreement. 

6. The client wants a structured resolution 
Where the client is cooperative, prepared to disclose their financial position, and willing to negotiate with creditors. 

The Process and Benefits of Part X and Personal Insolvency Agreements

The process to a Part X provides a formal framework allowing an individual to propose a Personal Insolvency Agreement (PIA) to their creditors. Working with a Registered Trustee, the debtor’s financial position is assessed, and a proposal is developed outlining how creditors will be repaid. If approved, the agreement becomes binding on all creditors, enabling a negotiated return while allowing the individual to avoid the broader restrictions of bankruptcy. 

For accountants advising clients under financial pressure, understanding Part X earlier can deliver meaningful advantages: 

• Flexibility – Contributions may come from assets, income, or third parties 

• Speed – No standard three-year bankruptcy administration period 

• Commerciality – Lower administration costs can improve creditor dividends 

• Control – Cooperative debtors often achieve stronger negotiated outcomes 

Part X is not for everyone – but when used appropriately, it can be transformative. For accountants, knowing when to raise it and who to call, it is the difference between a client spiraling into bankruptcy and a client finding a structured, dignified path forward. 

For confidential guidance on personal insolvency options, debt help or a business restructure, contact Jones Partners Insolvency & Restructuring or follow our LinkedIn updates for further restructuring insights. 

Want to know more about Personal Insolvency Agreements?
A Smarter Path Than Bankruptcy: Personal Insolvency Agreements Explained – Jones Partners