How does a section 73 proposal work?
A section 73 proposal is a formal proposal presented to a creditor under section 73 of the Bankruptcy Act 1966. This mechanism provides bankrupt individuals with an opportunity to end their bankruptcy early. If the section 73 proposal is accepted by the creditor, the bankruptcy is annulled and it is as if it never happened.
Section 73 proposals can be in the form of either:
- a composition; or
- a scheme of arrangement.
A composition is an agreement to pay money into the administration to be available to pay creditors and the costs of the administration. The composition may be for any amount and can be paid over any period of time. However, trustees will recommend that payment be made upon acceptance to provide greater certainty for creditors.
A scheme of arrangement can contain almost any other type of consideration, such as the payment of monies from the bankrupt or third parties and the sale or transfer of property.
How would a bankrupt make a proposal?
The bankrupt is first required to send a written proposal to their trustee and request that a meeting of creditors be called to consider the proposal. The trustee will consider the merits of the proposal and issue a report. The trustee will also call a meeting where the creditors will be able to vote for or against the proposal.
The proposal must be accepted by special resolution. This requires both a majority in number of creditors and at least 75% of the dollar value of the creditor’s debts. It is important that all creditors attend such meetings as attendance is required to cast a vote.
Who will administer the agreement?
Typically, the bankruptcy trustee will administer the agreement. However, a different trustee can be appointed under the agreement. The trustee’s role would require them to:
- enforce the provisions of the agreement
- ensure the ex-bankrupt complies with the terms of the agreement
- pay dividends (only if the agreement requires this)
When does a section 73 agreement end?
The agreement will end when the ex-bankrupt satisfies the agreement.
Is a section 73 agreement subject to any charges?
Yes, the administration of a section 73 proposal is subject to a realisation charge (government charge). From 1 July 2015, the rate is 7% of gross monies received into the estate, less payments to secured creditors and trade-on costs. The realisation charge has priority over any payments of dividends to creditors.
If you require any further information or assistance in regards to a section 73 proposal, contact our team of lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry.