There can be no doubt that the new Insolvency Act, as soon as it takes effect, should be well received particularly by those who have fallen on hard times. The Act may be to the broke business person what Santa Claus is to a forsaken child at Christmas, the bearer of a long awaited gift. It is a significant milestone that the opportunity to more easily rehabilitate one’s self financially is about to play a larger part in our legal framework.
Whilst the new Act provides an avenue of possible relief for debtors in distress, there are a few elements, also to be introduced, with which those who sit in the shoes of creditors may wish to acquaint themselves.
The Proposal A proposal is an arrangement for a composition, an extension of time or a scheme or arrangement. A composition is a mutual agreement between the parties under which obligations of a debt are settled.
Those who are entitled to make a proposal include persons facing imminent insolvency, insolvent persons, the liquidator of an insolvent person, a bankrupt, and a trustee of an estate in bankruptcy. The inclusion of a person facing imminent insolvency on the Christmas list of persons who may make a proposal is a ‘first’, certainly for the region and one which should no doubt propel this Act into a benchmark position.
The proposal process may be commenced by lodging with one of Santa’s helpers, a trustee, a copy of the proposal in writing setting out the terms. The proposal must be signed by the person making it. It may be made with creditors as a group or separated into classes, or with secured creditors. The trustee has a duty to examine the proposal and consider the financial situation of the debtor, the cause of his financial difficulties or insolvency, and report that to the creditors. The proposal once accepted by the required majority of creditors, may be deemed approved by the Court without the need for an actual Court proceeding, unless notice of objection is given by the Supervisor of Insolvency (Supervisor) or any creditor. Where a proposal is approved it is binding on the creditors in respect of all unsecured claims and secured claims in respect of which the proposal was made, and accepted by the required majority of secured creditors. Where a proposal is rejected by the creditors the debtor is deemed to have made an application for an assignment, and if he was not already a bankrupt, he becomes bankrupt.
It is possible to file a notice of intention to make a proposal before the actual proposal is made. An insolvent person who files a notice signalling an intention to make a proposal has thirty days thereafter to file the actual proposal. Before the period expires, that person may also apply for an extension. It is important to note that whilst an individual extension cannot exceed a period of forty-five days, the overall period allowed is up to five months. The Supervisor may grant any extension where satisfied that any creditor would not be materially prejudiced by the granting of that extension.
