A bankrupt may put a proposal to his or her creditors pursuant to Section 73 of the Bankruptcy Act 1966 (Cth) (“Section 73 Proposal”) to satisfy creditors’ debts and ultimately have the bankruptcy annulled. The proposal will generally result in creditors receiving a greater return on their debts which would be received if the bankrupt’s bankruptcy continued.
A Section 73 Proposal may take many forms, however, it may commonly involve:
- Payment of a lump sum amount by a relative or associate of the bankrupt; and/or
- Payment of amounts over time by instalments by the bankrupt; and/or
- Certain creditors associated with the bankrupt agreeing not to claim for a dividend if the proposal is accepted.
A bankrupt will generally also have to make arrangements with their trustee to pay their trustee’s remuneration and expenses associated with reporting on the bankrupt’s Section 73 Proposal and convening and holding a meeting of the bankrupt’s creditors to consider the proposal.
Once a Section 73 Proposal has been made, a trustee will convene a meeting of the bankrupt’s creditors to consider the proposal. The trustee must also recommend to creditors whether or not the trustee considers that the proposal should be accepted, however, creditors are under no obligation to follow the trustee’s advice.
At the meeting of creditors for the Section 73 Proposal to be accepted it must be approved by a special resolution of creditors, being approval by a majority in number and more than 75% of the value of creditors voting at the meeting. If the proposal is accepted the bankruptcy is immediately annulled, however, if the proposal is not accepted by special resolution then the bankruptcy will continue.
If the Section 73 Proposal is accepted a trustee will administer the composition or scheme of arrangement under the proposal, collect any funds payable as a result of the proposal and distribute funds received in accordance with the provisions of the Bankruptcy Act 1966 (Cth) including paying a dividend to the bankrupt’s creditors.
Once the terms of the Section 73 Proposal have been fully complied with and all funds disbursed the trustee will finalise the administration of the composition or scheme of arrangement under the proposal and will notify the Australian Financial Security Authority that matter has been finalised.
Advice Regarding Section 73 Compositions and Schemes of Arrangement
If you are seeking advice regarding the possibility of putting forward a Section 73 Proposal either in a bankrupt estate which Pearce & Heers are administering or a bankrupt estate administered by another trustee, please contact our Brisbane or Gold Coast office and our experienced staff will be able to assist you.