A Section 73 composition is a mechanism for a bankrupt to make a proposal to creditors in which they are able to satisfy their debts and annul their bankruptcy. The Bankruptcy Act 1966 (Cth) Section 73, provides the bankrupt with an option out of bankruptcy but also generally results in creditors receiving a larger sum than a continued bankruptcy.
To make a Section 73 proposal, the bankrupt sends a written proposal to their trustee, requesting a meeting of creditors to be called and outlining the draft proposal. On top of this, the bankrupt will generally also provide arrangements to cover the trustee’s costs and remuneration associated with the process.
The trustee will then compile a report containing a comprehensive investigation of the bankrupt’s financial affairs and a comparison of the likely returns from the proposal Vs the continuation of bankruptcy. A recommendation to creditors on whether to accept the terms of the proposal will also be made. With numerous years of experience in the field, registered trustee Bill Karageozis provides trusted and thorough analysis of all issues at play.
The terms of the proposal can vary but generally comprise of:
- Payments of instalments over time;
- Sale of certain assets;
- Payments from third parties;
- A combination of the above.
In order for the proposal to be accepted, a meeting of creditors must be held by the trustee, whereby at least 75% of the value of creditors’ debts present and voting at the meeting must pass the special resolution with those creditors representing 50% in number of creditors represented. If the proposal is accepted then the bankruptcy is formally ended, otherwise it will continue as normal.
If the proposal is accepted, a composition or scheme of arrangement will be administered by the Trustee. He/she will collect the monies payable and distribute the funds, including paying dividends to the creditors, and will ensure the debtor complies with the terms of the agreement.
The agreement attracts a government ‘Realisation Charge’ which is paid in priority of dividends to creditors. It comprises of 7% currently of gross monies received into the estate, minus various trade on costs and payments to secured creditors.
Bankruptcy can be a stressful and difficult time trying to navigate restrictions and red tape. For more information on any of the issues raised above, please contact us at McLeod and Partners today.