Section 73 Compositions

A bankrupt may put a proposal to his or her creditors pursuant to Section 73 of the Bankruptcy Act 1966 {Cth) (“Section 73 Proposal”) and have the bankruptcy

annulled. The proposal will generally result in creditors receiving a greater return on their debts by accepting the section 73 as opposed to receiving very little if the bankrupt’s bankruptcy continued.

A Section 73 Proposal is a complex proposal and involves the following:

  • A proposed lump sum amount by a relative or associate of the bankrupt; and/or
  • Payment of amounts over time by instalments by the proposer; and supported by; .
  • Certain creditors associated with the bankrupt agreeing not to claim for a dividend if the proposal is

The registered Bankruptcy Trustee’s remuneration and expenses associated with reporting on the bankrupt’s Section 73 Proposal and for convening and holding a meeting of the bankrupt’s creditors to consider the proposal, must either be addressed by the bankrupt or included in the proposal. It is generally accepted that the registered trustee is remunerated prior to the proposal being put to creditors

At the meeting of creditors, for the Section 73 Proposal to be accepted, it must be approved by a special resolution of creditors. It must be approved 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.