A bankrupt may after the proceedings are begun offer to make a composition with his creditors. This is permitted in order to facilitate the administration of the estate and to prevent the accrual of full costs of administration. A composition with creditors is a familiar arrangement where there are no bankrupt proceedings. But such a composition differs very much from the one we are now considering because it is not in any sense compulsory on any of the creditors. A composition in bankruptcy may be put through against a dissenting minority of creditors.
no The Law of Bankruptcy.
167. Id. Secs. 12, 13.
Composition may be offered either before or after adjudication, after the bankrupt has been examined, has scheduled his debts and a list of his creditors; and will be confirmed when so offered after it has been accepted in writing by a majority of the claimants representing a majority in amount of allowed claims, and the bankrupt has deposited the amount to be paid to the creditors and to cover in full claims having priority and the cost of the proceeding, and the judge is satisfied such composition is to the best interest of creditors, and the bankrupt is not guilty of any act which would prevent his discharge in bankruptcy and the composition appears to be good faith.
The composition must originate in the offer of the bankrupt; it must be accepted by the majority of the creditors;168 and it must be confirmed by the judge.169
(1) Conditions of the offer, (a) The offer may be either before or after the Court has entered a formal order of adjudication; (b) the bankrupt must have filed a schedule of his debt and a list of his creditors; (c) must also have been examined in open Court concerning his assets; and (d) must have deposited the consideration to carry out the composition and enough besides to pay all the prior claims and costs of the administration.
(2) Conditions of the Acceptance. The acceptance must be (a) by a majority of the creditors both in amount and number whose claims are allowed, and (b) must be accepted by them in writing.
(3) Conditions of the Confirmation. (a) Confirmation must be by the judge (or referee), (b) when he finds all the conditions complied with; (c) if the judge is satisfied that the composition offered is to the best interests of the creditors; (d) if the bankrupt has not been guilty of anything that would prevent his discharge in bankruptcy, and (e) if the offer and acceptance of the composition appears to be regular and in good faith.170
168. An assignee of several claims is one creditor, In re Mes-sengil, 113 Fed. 366.
169. An acceptance cannot be withdrawn, In re Levy, 110 Fed. 744.
A composition may be set aside any time within six months after being confirmed upon the application of any one in interest where it appears that fraud was practiced in securing the composition and the applicant did not then know of the fraud.
Compositions may be offered to secure a secret advantage to the bankrupt; or they may be the result of fraud between the bankrupt and certain of the creditors. This might appear upon the proceedings for a confirmation. In that case of course a confirmation would be refused. If, however, the confirmation goes through it may still be set aside as stated above.