The Section 73 Proposal is a formal agreement between the Bankrupt, Creditors and Trustee.
Likewise, Section 73 proposal is an option available to individuals who are already declared bankrupt. It is a mechanism that enables an individual to be “annulled” from bankruptcy. If accepted by creditors, the individual is released from the bankruptcy and unless the Section 73 proposal provides otherwise, the assets re-vest with the individual.
A bankrupt can give consideration to submitting a proposal under Section 73 during the term of the bankruptcy.
In order to have your bankruptcy annulled, the creditors have to accept the Section 73 Proposal, and it will be as though the bankruptcy never occurred.
The Section 73 Proposal has two different Categories:
Composition – It is more common that a bankrupt proposes Composition. A Composition is an agreement to pay funds into the administration, which will then be available to pay creditors.
Scheme of Arrangement – involves consideration, which includes payment of funds from the bankrupt and the sale/transfer of the property
For the Section 73 proposal to be accepted, a special resolution must be passed, being greater than 75% in value and greater than 50% in number of the creditors voting on the resolution. If accepted by creditors, the individual will be annulled from bankruptcy.
The Section 73 Proposal can be terminated in the following ways:
If the terms are not fulfilled with, the creditors and/or trustee can terminate it
Usually under composition by order of the Court. This is due to the fact that the composition cannot proceed without injustice or undue delay to creditors. By non-compliance or misinterpretation by the former bankrupt.
Please note that the Section 73 Proposal has terms and guidelines that the trustee can enforce compliance in the event of default.
When Does the Section 73 Proposal End?
Lastly, the person can be bankrupt again if the person does not perform in their role of the agreement. This will result in termination of the agreement. Once all parties have completed their roles and responsibilities, the Section 73 Proposal will come to an end.
Benefits to an individual and the creditors with a Section 73 proposal include:
The provisions provide flexibility in the terms of any offer by an individual to creditors
The process provides for the receipt of funds and distribution to creditors in an orderly manner
Creditors generally receive a greater return and in a more timely manner compared to the bankruptcy continuing
The fees and outlays may be lower than the bankruptcy continuing