Nature of a deeds of arrangement-bankruptcy and liquidation, Financial Accounting

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Nature of a Deeds of Arrangement

To avoid the expense and delay involved in a bankruptcy, a debtor in trouble may make a private arrangement with the creditors to accept payment of a smaller sum of money in full discharge of their debts before a bankruptcy petition has been presented. In contrast to compositions and schemes of arrangement and the arrangement will be outside the bankruptcy law. Such arrangements will bind only those creditors who assent to the arrangement and the debtor will not be released from the claims of the others,

Whereas under a composition or scheme or arrangement the debtor is released from all claims except those from which he would not be released by his discharge from bankruptcy.

These arrangements will usually come within the ambit of the Deeds of Arrangement Act. The D.A.A. defines a D of A as any instrument, whether under seal or not, made for the benefit of creditors generally, or made by an insolvent debtor for the benefit of three or more creditors. It may be:—

  1. An assignment of property
  2. A deed of composition
  3. A deed of inspectorship for carrying on or winding up a business
  4. A letter of license authorising a debtor or any other person to carry on or dispose of a business with a view to the payment of debts
  5. Any agreement for the carrying on or winding up a debtor's business with a view to the payment of his debt (DAA s.3).

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