Composition with Creditors -- Formation of Corporation Controlled by Creditors' Committee

• Category: Contracts - Composition with Creditors
• State: Multi-State
• Control #: US-0936BG
• Format: Word; Rich Text

Description

A composition agreement is an agreement made between an embarrassed or insolvent debtor and two or more of his creditors that each of the creditors entering into the agreement will be paid a specified amount, less than the whole of their claims, and the creditors agree to accept such payment in full satisfaction of their claims. The agreement works substantially an accord for which the consideration is the satisfaction to be made by the debtor, and such an accord is no bar to suit on the original debt, unless the satisfaction is performed. Composition with Creditors -- Formation of Corporation Controlled by Creditors' Committee is a process whereby a corporation is formed by creditors to provide a fresh start for a company in financial distress. This type of arrangement allows a company to reorganize its debts and obligations under the control of a creditors' committee, composed of the company’s creditors, who will agree to accept a portion of their claims in exchange for equity in the reorganized company. The creditors’ committee will negotiate the terms of the composition with the company’s management and will approve the composition when a majority of creditors consent to the arrangement. This type of arrangement is often used to provide a company with much-needed capital to restructure its debt and operations in exchange for a percentage of the company’s equity. There are two main types of Composition with Creditors -- Formation of Corporation Controlled by Creditors' Committee: voluntary and involuntary. A voluntary composition is one that is created with the consent of both the creditors and the company and is often seen as a more beneficial and cost-effective option for a company in financial distress. An involuntary composition, on the other hand, is created when a majority of the creditors vote to form a creditors’ committee to take control of the company and its assets. This type of arrangement is often seen as more drastic, as it can lead to the company’s assets being liquidated and creditors receiving a smaller percentage of their claims than in a voluntary composition.

Composition with Creditors -- Formation of Corporation Controlled by Creditors' Committee is a process whereby a corporation is formed by creditors to provide a fresh start for a company in financial distress. This type of arrangement allows a company to reorganize its debts and obligations under the control of a creditors' committee, composed of the company’s creditors, who will agree to accept a portion of their claims in exchange for equity in the reorganized company. The creditors’ committee will negotiate the terms of the composition with the company’s management and will approve the composition when a majority of creditors consent to the arrangement. This type of arrangement is often used to provide a company with much-needed capital to restructure its debt and operations in exchange for a percentage of the company’s equity. There are two main types of Composition with Creditors -- Formation of Corporation Controlled by Creditors' Committee: voluntary and involuntary. A voluntary composition is one that is created with the consent of both the creditors and the company and is often seen as a more beneficial and cost-effective option for a company in financial distress. An involuntary composition, on the other hand, is created when a majority of the creditors vote to form a creditors’ committee to take control of the company and its assets. This type of arrangement is often seen as more drastic, as it can lead to the company’s assets being liquidated and creditors receiving a smaller percentage of their claims than in a voluntary composition.