Companies with total debt under $1M put a proposal to pay a certain amount of debt back to creditors who can vote to accept or reject the proposal. For the proposal to be accepted a majority in value of creditors must vote to accept the proposal. Note the plan can also not go for more then 3 years.
What does a proposal look like?
The proposal generally contains the following:-
The assets sold or source of funds to pay for the proposal The amount the creditors will be repaid i.e. 70 cents in the dollar.
What amount does a proposal generally need?
Each proposal is different, however, the reforms are modeled on Part 9 Debt Agreements in the Bankruptcy Act which generally aim for a 50-70c in the dollar return to creditors. If you are looking for a more cost effective option consider a Liquidation or Voluntary Administration.
Advantages of this format?
The company and its director stay in control of company operations unlike a Voluntary Administration or Liquidator where the insolvency practitioner takes over.
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