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What is a Formal Creditors Proposal

The Short Answer


is a proposal under Part 5 of the insolvency act 2006.

And this means?

New Zealand legislation allows for a respite for debtors.
Where a Debtor (the person who owes money) has a number of creditors, and one creditor refuses to accept any form of payment plan, which would be in the general benefit for all creditors, there is a remidy available to that person, to avoid bankruptcy and allow the other creditrs to be repaid either in part or in full.

The Formal Creditors Proposal is a formalised process where a proposal is drawn up for the Debtor, who accepts the ability to pay surplus funds (after living costs), to creditors either in full or as a percentage of outstanding debt.

The Process is as follows:

  1. The client engages an insolvency company or a solicitor to draw up a proposal.
  2. The Proposal is submitted to the NZ High Court.
  3. The creditors are advised of a Meeting date when they can attend and vote upon acceptance of the Formal Proposal
  4. The proposal is accepted by a majority of creditors
  5. the proposal is filed in the high court
  6. creditors are repaid as per the terms of the proposal

Advantages

One Advantage of a Formal Creditors Proposal as opposed to a Debt Management Plan, is that one creditor who disagrees with the proposal cannot (without legal intervention), force the proposal to fail, (without grounds).
This also helps the debtor repay the debt without being bankrupted due to the actions of a 'disgruntled' or 'hostile' creditors actions.

Another Advantage of a Formal Creditors Proposal as opposed to a Debt Management Plan, is that an insolvent under a formal creditors proposal can be a company director where a bankrupt cannot.

Disdvantages

One Disadvantage of a Formal Creditors Proposal as opposed to a Debt Management Plan, is that the costs of creating the proposal, will usually have the costs related to legal expenses, as these proposals are registered at the high court, documents need to be served to the creditors, and a solicitor is usually required
These costs Make up the proposal, and are usually deducted prior to disbursements to creditors.

A personal FCP can be done by Personal Insolvency New Zealand who can be located here:Personal Insolvency New Zealand

The Formal Creditors Proposal is a recent offering by KiwiDebt Limited and The Debt Doctor who will usually attempt to negotiate with creditors, and create a Debt Management Plan for the Debtor, in order to save costs, and return more funds to the creditors.