After a receiving order has been made the debtor may submit a proposal for the payment of a composition, or for the liquidation of his affairs, by a trustee or otherwise, without adjudication. The proposal must be lodged with the official receiver in sufficient time to allow notice, together with a report by that officer, to be sent to the creditors before the meeting is held at which it is to be considered. If the proposal is entertained at the meeting by a majority in number and three-fourths in value of all the creditors who have proved their debts, and if it is thereafter approved by the court, it becomes binding upon all creditors who would be bound by an order of discharge had the debtor been adjudicated bankrupt. A similar proposal may be made after adjudication, and if entertained by the creditors and approved by the court, the adjudication may be annulled. The debtor's release will be subject to the terms of the scheme, but his future acquired property will not pass to the creditors unless there is an express stipulation to that effect.
If default is made in carrying out the scheme, or if it is found that it cannot proceed without injustice or undue delay, the court may at any time adjudicate the debtor bankrupt, in which case the scheme will fall to the ground, except in respect of past transactions under it. The approval of a composition or scheme does not release the debtor from his liabilities under the criminal law, nor from the necessity of undergoing a public examination which must, in fact, be held and concluded before the approval of the court is applied for. Also before such approval is given a report must be filed by the official receiver upon its terms and on the conduct of the debtor, and the court must be satisfied after hearing that officer and any creditor, that the proposal is reasonable and calculated to benefit the creditors, and that no criminal offences connected with the bankruptcy have been committed by the debtor. Further, if any fact is proved which would have prevented the debtor from obtaining an absolute or unconditional order of discharge had he been adjudged bankrupt, the composition or scheme cannot be approved unless it provides reasonable security for the payment of not less than seven shillings and sixpence in the pound on all the unsecured debts.
Where a trustee is appointed to carry out the composition or scheme, all the provisions of the act with reference to the remuneration of the trustee, the custody of funds, the audit of his accounts and the control exercised by the Board of Trade apply in the same manner as they would under an adjudication. Further, the provisions relating to the administration of property, proof of debts, dividends, etc., will also apply, so far as the nature of the case and the terms of the arrangement admit.