Deed of arrangement

By:

James Knight

James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the… read more.

Updated: Aug 20, 2021

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An alternative to bankruptcy. This is a composition or arrangement with creditors made by the debtor in an attempt to avoid bankruptcy. It may be made before a bankruptcy petition is presented, or after the petition where the court does not object. There are certain differences: if the arrangement is made before the receiving order it only binds assenting creditors; if it is made after the receiving order and the court approves. all creditors are bound. There are various forms of arrangement: (1) a letter of licence; (2) a deed of inspectorship; (3) assignment of property (the debtor assigns property to trustee on trust for his creditors, the creditors agreeing to accept this as a discharge from liability); (4) deed of composition (where the debtor agrees to pay so much in the pound to each creditor). This may be accompanied by a deed of assignment to a trustee.There may also be need to provide for guranatees, bills of exchange,etc.

When the arrangement is made before the bankruptcy petition, it is a contract between the debtor, the assenting creditors and the trustee. Where a contract under any of the previous four headings is made for the benefit of creditors generally, or where the debtor was insolvent and it was made for the benefit of three or more creditors, it is governed by the Deed of Arrangement Act 1914. These sorts of agreement must be registered with the Department of Trade and Industry and/or the county court within seven days, and the agreement must be in writing, otherwise it is not a deed of arrangement. It must mention the residence and occupation of the debtor and his place of business, the total estimated assets and liabilities included in the deed, the amount of the composition, and the names and addresses of creditors. Where a trustee has been appointed the deed must also be signed by the trustee, stamp duty is payable on registration on an ad valorem basis. A register of deeds of arrangement is kept on file and is open for inspection by any person at any time, usually at the county court.

The deed will be void where: (1) it is not registered within seven days; (2) it is for benefit of creditors generally, but has not received the assent of a majority in number and value of creditors within twenty-one days. There are various provisions in the Act regarding the duties of the trustee as to accounts and audit. Assenting creditors are bound by the deed. Dissenting creditors are free to bring a petition for the debtor to be made bankrupt. When a bankruptcy happens within three months the trustee must hand over all property to the trustee in bankruptcy by the doctrine of relation back – this is only if the trustee in bankruptcy insists, for he may ratify actions made in compliance with the deed. If the deed is void, the trustee is protected where he acted innocently.

Reference: The Penguin Business Dictionary, 3rd edt.