Composition with Creditors -- Debtor to Form Corporation with Pledge of Capital Stock for Creditors is a method of debt restructuring in which a debtor agrees to form a separate legal entity, commonly referred to as a “Composition Corporation”, and pledges a portion of the company’s future profits to its creditors in exchange for a reduction in the amount owed. The Composition Corporation is typically managed by a board of directors appointed by the creditors and is responsible for distributing the profits to the creditors. This method of debt restructuring can be used to help a debtor get out of a difficult financial situation and help creditors get some of their money back. There are two main types of Composition with Creditors -- Debtor to Form Corporation with Pledge of Capital Stock for Creditors: a Voluntary Composition and a Compulsory Composition. A Voluntary Composition is an agreement between a debtor and its creditors that is made without court involvement. A Compulsory Composition is a court-ordered arrangement that is made following a court hearing in which a judge approves the terms of the Composition Corporation.
Composition with Creditors -- Debtor to Form Corporation with Pledge of Capital Stock for Creditors
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