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reason or justice, be permitted to escape by any such arrangement (1).
Two methods of proceeding by arrangement, or (as the phrase is) by composition or scheme of arrangement, have accordingly been authorised by the legislature ; and these are either before adjudication or after adjudication, the former being under sect. 18 of the Bankruptcy Act, 1883, as amended by sect. 3 of the Bankruptcy Act, 1890, and the latter being under sect. 23 of the Bankruptcy Act, 1883.
First, before the debtor has been adjudged a bankrupt, the Acts provide, that when a debtor intends this sort of arrangement, he shall, within five days of submitting his statement of affairs, lodge with the official receiver his proposal to that effect. Thereupon the official receiver is to hold a meeting of the creditors before the public examination is concluded (first sending to each creditor a copy of the debtor's proposal) ; and the creditors may, at the first meeting or any adjournment thereof, resolve to entertain the proposal, or any amended proposal or scheme of arrangement of the debtor's affairs. But the scheme is not to be binding on the creditors, unless it is carried by a resolution passed by a majority in number representing three-fourths in value of all the creditors who have proved; nor unless it is approved by the court, the application for that purpose being made either by the official receiver or by the debtor. Such application is not to be heard until after the public examination is concluded ; but no subsequent meeting for the purpose of confirming the resolution appears now to be necessary.
The court is required, before approving a composition or scheme, to hear a report of the official receiver as to its terms, and as to the conduct of the debtor, and any objections which may be made by or on behalf of any
() Ex parte Aaronson (1878), 7 Ch. D. 713; Ex parte Ball, In re Parnell (1882), 20 Ch. D. 670; Ex parte Campbell (1885), 15 Q. B. D. 213.
creditor; and no composition or scheme is to be approved which does not provide for the payment, in priority to other debts, of all debts directed to be so paid in the distribution of the property of a bankrupt. If the court is of opinion that the terms of the composition or scheme are not reasonable, or are not calculated to benefit the general body of creditors, or in any case in which the court is required under the Act, when the debtor is adjudged bankrupt, to refuse his dicharge, the court must refuse to approve the composition or scheme. Also, if any such facts are proved as would under the Act justify the court in refusing, qualifying, or suspending the debtor's discharge, the court must (unless reasonable security is given for the payment of 7s. 6d, in the pound on the unsecured debts) refuse to approve the composition or scheme. And in all other cases, the court may, in its discretion, refuse to approve the composition or scheme (g).
If the court approves the composition or scheme, the approval may be signified by the order of the court, or by the seal of the court being attached to the proposal ; and the composition or scheme so approved is binding on all the creditors so far as relates to any debts due to them from the debtor and proveable in bankruptcy. It operates to release the debtor to the same extent as (but not further or otherwise than) the like order of discharge would release him ; and the provisions of the composition or scheme may thereafter be enforced by the court, on application by any person interested, and any disobedience to an order of the court made on the application is deemed a contempt of court. But if default is made in payment of any instalment due in pursuance of the composition or scheme, or if it appears to the court, on satisfactory evidence, that the composition or scheme cannot, in consequence of legal difficulties or for any sufficient cause,
(y) Ex parte Campbell (1885), 15 Q. B. D. 213; Ex parte Milner, In re Milner, ib. 605; In re E, A, B., [1902) 1 K. B. 457.
proceed without injustice, or undue delay, to the creditors or to the debtor, or that the approval of the court was obtained by fraud, the court may, if it thinks fit, on application by any creditor, adjudge the debtor bankrupt, and annul the composition or scheme, without prejudice to anything that may in the meantime have been done under the composition or scheme (h).
Secondly, after the debtor has been adjudged a bankrupt, the Act provides, that the creditors may, if they think fit, at any time after the adjudication, by special resolution, resolve to entertain a proposal for a composition in satisfaction of the debts due to them under the bankruptcy, or for a scheme of arrangement of the bankrupt's affairs; and thereupon the same proceedings shall be taken, and the same consequences shall ensue, as in the case of a composition or scheme accepted before a ljudication. If the court approves the composition or scheme, it may make an order annulling the bankruptcy, and vesting the property of the bankrupt in him or in such other person as the court may appoint, on such terms, and subject to such conditions, if any, as the court may declare. But if default is made in payment of any instalment due in pursuance of the composition or scheme, or if it appears to the court that the composition or scheme cannot proceed without injustice or undue delay, or that the approval of the court was obtained by fraud, the court may, if it thinks fit, on the application of any person interested, re-adjudge the debtor bankrupt, and annul the composition or scheme, without prejudice to anything that may in the meantime have been done under it (i).
Under the former bankruptcy law, as established by the Bankruptcy Act, 1869, the special resolution of the creditors, for liquidating the affairs of the debtor other
(h) Act of 1883, S. 18 (11); Bramble v. Moss (1868), L. R. 3 C. P. 458 ; Ex parte Chesney,
In re Dempster (1878), 9 Ch. D. 701.
(i) Act of 1883, s. 23.
wise than in bankruptcy, was required to be presented to the registrar, who registered it, on being satisfied that it was bonâ fide and had been passed as directed by the Act (k). Until such registration, the resolution was of no validity ; but when registered, it was binding on all the creditors whose names and addresses and the amount of the debts due to them were set down in the statement of the debtor produced at the meeting at which the resolution was passed, and, being registered, it was summarily enforceable by the Court of Bankruptcy (1). But under the present bankruptcy law, where a composition or scheme has been approved by the court, the approval being (as we have seen) testified either by the seal of the court being attached to the proposal, containing its terms, or by these terms being embodied in the order of the court, the provisions of the scheme become thereby summarily enforceable ; and no registration of the resolution itself seems now to be required, or necessary for any purpose.
The statutory arrangement arrived at, or composition accepted, under the provisions of the Bankruptcy Acts, 1883–1890, is to be distinguished from a debtor's deed of arrangement or composition at the common law, in respect that the latter arrangement or composition is not binding on the minority, even although accepted by a majority of the creditors (m); and in respect that, not being sealed with the seal of the court, or embodied in an order of the court, it is not summarily enforceable. Every such deed of arrangement or composition at the common law is, however, now described as a “ Deed of Arrangement,” and as such is required to be registered (n). Still, no provision appears to have been made for summarily enforcing it, although the registration thereof may be
(k) Act of 1869, s. 126 ; In re Page (1876), 2 Ch. D. 323.
() Breslauer v. Broun (1878), L. R. 3 App. Ca. 672.
(m) Sibree v. Tripp (1846), 15 M. & W. 23.
(n) 50 & 51 Vict. c. 57 (Deeds of Arrangement Act, 1887), s. 5.
rectified on summary application ; but, as we have already mentioned above (0), the fact of such a deed of arrangement having been entered into by the debtor, is (equally with a statutory composition or scheme of arrangement) an element for the consideration of the court, on the debtor's application for his discharge in any subsequent bankruptcy (p).
(0) Supra, p. 218.
(p) 50 & 51 Vict. (1887) c. 57, s. 16.