Key takeaways

Two recent Federal Court decisions serve as a strong warning to debtors seeking to use Part X of the Bankruptcy Act 1966 (Cth) (the Act)¹ as a mechanism to defeat a creditor’s petition. The Court has demonstrated a willingness to intervene where Part X of the Act is invoked in circumstances that undermine the transparency and integrity required by the regime.

Part X of the Act allows a debtor to propose a Personal Insolvency Agreements (PIA) as an alternative to bankruptcy.

These cases confirm the Court will scrutinise misuse of the Part X regime where it is not used for its intended purpose. The decisions highlight the interaction between s208, which allows the Court to release control of property from the controlling trustee in ’special circumstances’², and s188(4), which prevents a debtor from signing successive Part X authorities within six months without Court approval.³

The 2025 decision
Kambouris v Paule, in the matter of Paule [2025] FCA 1590 (Burley J)

Mr Terry Paule faced bankruptcy notices and creditor’s petitions issued by creditors Ambrosios Kambouris and DJD Trading Pty Ltd.⁴

Shortly before the petitions were to be heard, Mr Paule invoked Part X by signing an authority under s188, appointing a controlling trustee, Mr Giasoumi. This automatically stayed the creditor’s petitions under s189AAA.

The petitioning creditors then applied under s208 for the court to release Mr Paule’s property from the controlling trustee on the basis of ‘special circumstances’. In considering this, Burley J noted:

• Mr Paule’s circumstances were too complex and ill-suited for the processes in Part X which are intended to provide a simple and flexible process for debtors and creditors to come to an agreement without sequestration.⁵ 
• There were major inconsistencies between Mr Paule’s evidence and his statement of affairs in which disclosures made by Mr Paule could not be regarded as reliable.⁶
• There was inadequate explanation for the influx of creditors closely connected to Mr Paule.⁷

Burley J held that these matters amounted to ‘special circumstances’ and ordered that Mr Paule’s property be released from the controlling trustee.

The 2026 decision
Paule v Kambouris [2026] FCA 133 (Bromwich J)

Not to be defeated, Mr Paule sought leave under s188(4) to sign a second authority under Part X within six months of the earlier authority appointing a controlling trustee.⁸

Section 188(4) of the Act prevents a debtor from signing another authority within six months without leave of Court.⁹ If the s188(4) application had succeeded, pending creditor petition proceedings would have been stayed by the operation of s189AAA(1).¹⁰

Judgment

The application was dismissed with costs. In refusing leave Bromwich J found:

• The debtor provided no explanation or justification for the inconsistencies in his statement of affairs and prior evidence.¹¹ 
• Part X’s integrity remained ’in serious doubt’ if the debtor were permitted to re-enter the regime due to the questions of legitimacy of the asserted creditors beyond Mr Kambouris and DJD Trading.¹² 
• The application was ’substantially unmeritorious’ and appeared aimed at further delaying creditor’s petitions.¹³

Implications for creditors

• If a debtor initiates Part X in suspicious circumstances, consider promptly applying for a s208 order.

Implications for debtors

• Courts expect full, consistent and accurate disclosure of assets and liabilities.
• Part X requires good faith and using the regime to obstruct or delay creditor’s petitions risks adverse findings.
• Seeking leave under s188(4) will be assessed by reference to what has changed since the Court previously released the debtor’s property from control under a Part X arrangement.

¹ Bankruptcy Act 1966 (Cth).
² Ibid s 208
³ Ibid 188(4)
⁴ Kambouris v Paule, in the matter of Paule [2025] FCA 1590
⁵ [96]
⁶ [97]
⁷ [98]
⁸ Paule v Kambouris [2026] FCA 133
⁹ Bankruptcy Act 1966 (Cth) s 188(40
¹⁰ Ibid s 188AAA
¹¹ [15]
¹² [17]
¹³ [28]