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Composition with Creditors

arrangement, debtor and bankruptcy

COMPOSITION WITH CREDITORS. Where a debtor is unable to pay his creditors, he may, legally, call his creditors together and make an arrangement with them, by which he may obtain relief from his debts, and one of the usual methods by which this is done is to offer to pay a composition; that is, to pay so much in the pound in full discharge of the debts due to the creditors. The com position is usually payable in a number of instalments, upon specified dates, and is guaranteed by sureties. In some cases promissory notes are given for the various instalments, and are made payable at the various dates on which the instalments are due.

If the arrangement is agreed to by the creditors in a deed or instrument, called a deed of arrangement, it must be registered within seven days, otherwise it is void. (See DEED OF ARRANGEMENT.) All arrangement of this kind between a debtor and his creditors is quite independent of proceedings under the Bankruptcy Acts, but, if he fails to pay the agreed instalments, the arrangement does not prevent proceed ings in bankruptcy being subsequently taken.

In " The Laws of England," edited by the Right Hon. the Earl of Halsburv, the fol lowing is given as the effect of a debtor failing to pay an instalment : " If the effect of the arrangement is that the creditors accept the payment of the composition in discharge of their debts, then usually a failure by the debtor to comply with his obligation will entitle the creditors to sue him for the whole of the balance of their debts. But if the effect of the arrangement is that the creditors accept the promise of the debtor with or without a surety in satisfaction of their debts, on default by the debtor the creditors can only sue for the balance of the amount of the composition." Where a customer makes an arrangement with his creditors, a banker should, if neces sary, seek legal advice as to whether or not in act of bankruptcy has been committed (see Acrs OF BANKRUPTCY), because if it has, the account must be stopped at once. (See ASSIGNMENT FOR BENEFIT OF CREDITORS, BANKRUPTCY.)