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An Alternative to Bankruptcy

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.


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