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Composition with Creditors


A composition with creditors is not the same as an accord or an ASSIGNMENT FOR THE BENEFIT OF CREDITORS. Unlike an accord, which is an arrangement between a debtor and a single creditor for a discharge of an obligation by partial payment, a composition is an arrangement between a debtor and a number of creditors acting collectively for the liquidation of their claims.

A composition with creditors differs from an assignment for the benefit of creditors in a number of ways. It is created by contract, as opposed to COMMON LAW or statute. Only creditors who agree to it are bound, while an assignment discharges debts voluntarily released by creditors. The terms of the composition determine whether the debtor retains property. However, in most jurisdictions, the property of a debtor who has assigned it for his or her creditors' benefit is given to a third person with orders to sell it and distribute the proceeds to the creditors. Unlike an assignment, a composition is not a basis for an involuntary bankruptcy proceeding.

A sample form for composition with creditors can be found above.

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Law Library - American Law and Legal InformationFree Legal Encyclopedia: Companies House to ConstituencyComposition with Creditors - Void Agreements, Distinctions - Advantages