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
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.