Inner Banner New
3rd April, 2024

What is a Section 73 Composition?

Elly Pantazopoulos, Intern

People commonly misconceive that once filing for Bankruptcy, there is nothing more they can do about improving their financial position until they have been discharged from bankruptcy. However, Bankrupt’s can consider annulling their bankruptcy by putting forward a Section 73 proposal to their creditors.

A typical Bankruptcy period lasts for three (3) years and one (1) day, from the date of when a Debtor Lodges their Bankrupty Form. However, there are options available to annul a Bankruptcy earlier than this period such as submitting a Section 73 Composition.

A Section 73 Composition is a proposal put forward by a Debtor to their creditors to repay a percentage of the debts owed to their creditors, which if accepted, results in an annulment from Bankruptcy.

A Section 73 Proposal typically involves funds put forward by a third party (in a lump sum or by way of payments over a period of time) which is distributed to pay the costs of the bankruptcy, the AFSA realisation charge, and a portion of creditors’ provable debts. The Composition Proposal may include assets or funds that would ordinarily be recoverable by a Bankruptcy Trustee, such as the proceeds from the sale of a real property.

A Debtor would usually liaise with their Trustee to formulate and execute a Section 73 Proposal to their creditors. The Trustee then has a duty to prepare a report to creditors providing an overview of the comparison of the likely return in a Bankruptcy scenario verses the composition scenario. The Trustee would also provide their recommendation on whether they believe creditors should accept or reject the proposal. Ultimately, creditors decide whether to accept the proposal or not. Acceptance must be made by special resolution with over 75% of the creditors voting in dollar value and 50% of the creditors in number in favour of the proposal. 

If a Section 73 Composition is accepted, the Bankruptcy is immediately annulled, and the terms of the Composition will become legally binding for both the creditors and the debtor.

When the terms of the Section 73 Composition have been fulfilled and funds have been received in full the Trustee will declare a dividend to creditors and distribute the funds.

To learn more about how we can assist, read more about our personal insolvency services or reach out to our team.     


Melbourne, Perth, Brisbane, Sydney


A wealth of experience


We are now one of Australia's leading insolvency firms