Bankruptcy is a legal process by which a debtor who cannot repay the debts may seek as a last resort. The main objective of bankruptcy is to make sure the assets of a debtor are shared out fairly and orderly amongst creditors by trustee in bankruptcy.
Depending on the extent of a debtor’s insolvency, sometimes it may be advantageous to choose either entering into (1) an informal arrangement, or (2) a formal individual voluntary arrangement (“IVA”) with his creditors.
In informal arrangement, debtor or his representative can contact individual creditors to see if some compromise can be reached, including terms and schedule of repayment. However, an informal arrangement may not be legally binding and as such, creditors could ignore it later on and demand debtor to pay in full. It is therefore advisable for debtor to seek advice from professional in advance.
On the other side, IVA is a formal procedure under the Bankruptcy Ordinance (Cap.6) to provide an alternative to bankruptcy. Under this formal arrangement, debtor have to make a repayment proposal to the court and the creditors, and once accepted, debtor can avoid bankruptcy and will be free from the legal restrictions provided for under the Bankruptcy and other Ordinances and may be able to retain his job and profession. For the creditors, as compared with bankruptcy, they are more likely to get a better return as well.