Part 4 of the Bankruptcy Act

What is a Part 4 Scheme?

What is a Part 4 Scheme?

If a bankrupt person wishes to finalise their situation early, they can propose an offer to their creditors under Part 4 of the Bankruptcy Act. If the offer is accepted at a meeting of creditors the bankruptcy is annulled and replaced by the alternative arrangement creditors have agreed to, this is called a Part 4 Scheme.

The main attributes of a Part 4 Scheme are:

  • Gives flexibility for persons who are bankrupt, should their circumstances change during their bankruptcy.
  • The protection from creditors that the agreement provides can continue.
  • Provides the opportunity for the involved person to finish their bankruptcy early.
  • Removes the restrictions of not being able to be a trustee of a self-managed super fund or director of a company.
  • Provides a better outcome for creditors than would be expected from bankruptcy.

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Further Reading: To find out more about a Part 4 Scheme, we recommend our article ‘Bankruptcy and Part 4 Composition’ or ‘Scheme of Arrangement

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