COMPOSITION - Insolvency Law

Category: Obligations and Contracts

COMPOSITION - Insolvency Law

What is Composition?

> Agreement made upon a sufficient consideration, between an  insolvent  or  embarrassed  debtor  and  his  creditors, whereby  the  latter,  for  the  sake  of  immediate  or  sooner payment,  agree  to  accept  a  dividend  less  than  the  whole amount  of  their  claims,  to  be  distributed  pro  rata,  in
discharge and satisfaction of the whole debt

WHY WOULD A CREDITOR OPT FOR COMPOSITION?

1.   To get the present value of money
2.   To reduce costs—costs of assignee and receiver

REQUIREMENTS FOR A VALID OFFER OF COMPOSITION

1.   The offer of the terms of composition must be made after the  filing  in  court  of  the  schedule  of  property  and submission of the list of creditors;  

2.   The  offer  must  be  accepted  in  writing  by  a  DOUBLE MAJORITY OF THE CREDITORS—majority of the number of creditors representing a majority of the claims;

3.   It  must  be  made  after  depositing  the  consideration  to  be paid and the cost of the proceedings;

4.   The  court  must  approve  or  confirm  the  terms  of  the composition.
a.    It is for the best interest of the creditors
b.   The debtor hasn’t been guilty of any of the acts, or of  a  failure  to  perform  any  of  the  duties  which would create a bar to his discharge
c.    The offer and its acceptance are in good faith and have  not  been  made  or  procured  in  a  manner
forbidden by the Act

EFFECTS OF THE CONFIRMATION OF COMPOSITION

1.   The  consideration  shall  be  distributed  as  the  judge  shall direct
2.   The insolvency proceeding shall be dismissed
3.   The title to the insolvent’s property shall revest in him
4.   The insolvent shall be released from his debts

WHEN CONFIRMATION MAY BE SET ASIDE

1.   That   fraud   was   practiced   in   the   procuring   of   such composition
2.   That  the  knowledge  thereof  has  come  to  the  petitioner since the confirmation of such composition

COMPOSITIONS

SECTION 63.    When confirmation filed. — An insolvent may offer  terms  of  composition  to  his  creditors  after,  but  not before, he has filed in court a schedule of his property and list  of  his  creditors  as  provided  in  this  Act.  An  application for  the  confirmation  of  a  composition  may  be  filed  in  the insolvency court after, but not before, it has been accepted in  writing  by  a  majority  in  number  of  all  creditors  whose claims have been allowed, which number must represent a majority   in   amount    of   such   claims   and   after   the consideration  to  be  paid  by  the  insolvent  to  his  creditors and  the  money  necessary  to  pay  all  debts  which  have priority  and  the  costs  of  proceedings  have  been  deposited in such place as shall be  designated by and  subject to the order of the court. A time shall be fixed by the court for the hearing  upon  an  application  for  the  confirmation  of  a composition, and for the hearing of such objections as may be  made  to  its  confirmation.  The  court  shall  confirm  a composition if satisfied that (1) it is for the best interest of the creditors; (2) that the insolvent  has  not been guilty  of any of the acts, or of a failure to perform any of the duties, which would create a bar to his discharge; and (3) that the offer  and  its  acceptance  are  in  good  faith,  and  have  not been made or procured except as herein provided, or by any means,   promises,   or   acts   herein   forbidden.   Upon   the confirmation  of  a  composition  the  consideration  shall  be distributed   as   the   judge   shall   direct,   and   the   case dismissed,  and  the  title  to  the  insolvent's  property  shall revest in him. Whenever a composition is not confirmed, the estate   in   insolvency   shall   be   administered   as   herein provided.  The  court  may,  upon  application  of  a  party  in interest,  filed  at  any  time  within  six  months  after  the composition  has  been  confirmed,  set  the  same  aside,  and reinstate the case if it shall be made to appear upon a trial that   fraud   was   practiced   in   the   procuring   of   such composition,  and  that  the  knowledge  thereof  has  come  to the petitioner since the confirmation of such composition.