INS1803 - Deeds of Arrangement

Deed executed

A deed of arrangement is a legally binding agreement between a debtor and those creditors who choose to participate which provides for satisfaction of the debts.

Creditors who do not choose to participate are free to pursue their debts in the normal way and the deed does not provide any protection against bankruptcy action.

A debtor who

• wishes to avoid the publicity and social stigma of bankruptcy, or
• is in financial difficulties but whose position is not so hopeless as to justify presenting a bankruptcy petition personally

may propose a deed of arrangement under the Deeds of Arrangement Act 1914.

Generally the deed of arrangement provisions are seldom used. The debtor who does wish to pursue this course will normally

• execute a deed which assigns virtually all the debtor’s property to a trustee for the benefit of creditors, or
• provide for a composition offer (an offer of settlement of less than the full legal liability).

If the debtor is a trader there may be a possibility that the business can be continued in both the debtor’s and creditors` interests. The debtor may therefore

• call a meeting of creditors to explain the financial difficulties
• assign the business to a trustee.

However if the debtor’s business is viable a voluntary arrangement is more likely.