By Tony Johnson - 11 Apr 2019
When a debtor has multiple creditors, often it seems as if there
is no alternative but to throw in the towel and file for
bankruptcy. Bankruptcy does have some advantages in that an
individual is released from all his or her existing debts and that
in three years (as long as no objection is filed in the Court) is
discharged from bankruptcy. There are however downsides to
bankruptcy.
They include that all assets an individual owns at the date of
bankruptcy (and acquires up until the date of discharge) belong to
the Official Assignee. Those assets never come back. There are
restrictions that are imposed including not being able to operate a
business and not being able to leave the country without the
permission of the Official Assignee. There is also the ongoing
problem in relation to the individual's bad credit rating. This can
make it difficult to start out again in business at a later
date.
An alternative that is not considered often enough is a proposal
to an individual's creditors whereby the creditors are paid a sum
(generally less than the actual debt) over a period of time.
The incentive for a creditor in accepting the proposal is often
that the amount to be received will be more than it would get if
the individual went into bankruptcy. The creditor's decision is
therefore a pragmatic one and is not normally based on emotion or
individual spite.
For a proposal to be accepted requires that a majority in number
and three quarter in value (of each class of creditors) agree to
the proposal. If those numbers are reached, even creditors who
voted against the proposal, are bound by the proposal.
After the creditors' vote, the Court must still approve the
proposal. If however the Court considers that the proposal is in
the best interests of the creditors, it is likely approval will be
readily obtainable.
The proposal provisions procedure under the Insolvency Act are
straightforward and reasonably economic. If you find yourself in a
position where this procedure may be of benefit to you, you should
contact Tony
Johnson or Pierce Bedogni to discuss the matter
further.