Joint Committee on Legislation debate -
Friday, 29 Mar 1985

SECTION 40.

Question proposed: "That section 40 stand part of the Bill."

Deputy Noonan (Limerick East)

This section gives statutory effect to the existing practice regarding payment of a composition but subject to certain modifications. It sets out in subsection (1) the three possible modes of payment of a composition, one of which must be used by the bankrupt. They are payment in cash, by instalments, or partly in cash and partly by instalments.

Subsection (2) changes the present practice by providing that no instalment may be secured by the bankrupt alone. The committee found that the existing practice is that instalments other than the last one are secured by the bankrupt. The committee considered this practice to be unfair to creditors who should be in a position to sue a surety if an instalment is not paid.

Subsection (3) also changes the existing practice by giving the court a discretion to refuse to approve of an offer payable wholly or partly by instalments, if the final instalment is not payable within two years. According to the committee the present practice of the court is to limit as far as possible the time in which a composition may be paid to 18 months. Where, however, a bankrupt voluntarily agrees to the lodgment of part of his salary to the credit of his estate and for the benefit of his creditors, there is no such limitation. The committee considered that the court, which can best judge the circumstances of each case, should have a discretion to refuse to approve an offer where the final instalment is not payable within two years.

Senator O'Leary

On section 40 (1) (b): "by instalments, all of which shall be secured to the satisfaction of creditors." Surely there will be circumstances where offers of compositions will be made which will not be secured. That would appear to give creditors, in addition to the right of accepting or rejecting an offer of composition, an additional right to ensure that it would be secured. Is that a right which can be exercised only by all the creditors, by a majority as outlined by section 39, or can any one of the creditors insist on security in respect of the composition?

Deputy Noonan (Limerick East)

With regard to subsection (1), as already pointed out, there are three possible modes of payment — cash, instalments or a mixture of both. The present practice is that instalments other than the last one may be secured by the bankrupt. In order for such composition to be approved by the court, subsection (2) means that all the instalments must be secured by persons other than the bankrupt and to the satisfaction of the creditors in the bankruptcy. I would imagine that if some of them were not satisfied, the composition would not be agreed to. Basically the only change subsection (2) makes as regards the existing position is the extent to which the creditors would have a right against somebody if the instalments were not paid. Of course ultimately all these compositions require the approval of the court. I do not know if that answers your point or not.

Senator O'Leary

The point I am making is that a composition is put to the creditors and they accept it under the procedure laid down in section 39. Presumably that would include some proposal with regard to the actual payment; the composition would include that as part of the deal if you like. Let us assume a situation that one is not taking option (a) which deals with the question of cash, but is taking option (b) which is the question of by instalments. Does the satisfaction of the creditors relate to the majority of the creditors as outlined in section 39?

Deputy Noonan (Limerick East)

Yes, the composition would not be agreed to in the first place unless the creditors were satisfied that they were going to get something out of it. In the practical situation the creditors, before they will agree to the composition, would have to be satisfied they were going to get paid.

Senator O'Leary

I appreciate that it will go before the creditors. The creditors by three-fifths, or whatever the appropriate number in section 39 (3) is, would agree. Let us say that 61 per cent of them agree that it should be accepted and 39 per cent do not. Under the provision it is an acceptable composition. Under section 40 can the 39 per cent say that is all very well? They have been beaten in the vote but now they think the security which is offered is not to their satisfaction. As all these points have to be approved by the court, they are going to petition the court and say they are not satisfied with the security. Is section 40 going to give them additional grounds to say, "All right, we are only 39 per cent but we are not satisfied with the security"?

Deputy Noonan (Limerick East)

I see the point the Senator is making. I would read it that if the three-fifths are happy with the offer then that extends into section 40 — the method of payment — but I will have a look at it. Once the terms of the offer are accepted and approved by the court it binds all the creditors.

Senator O'Leary

I understand.

Deputy Shatter

In this context I wonder if a point could be explained to me. Going back to pages 207 and 208 of the report which preceded the Bill, paragraph 42.13.2 referring to composition and how one deals with it says:

These forms of proposals should not be mandatory on debtors. Any proposal acceptable to creditors and ensuring payment to them which is approved by the Court should in our view be capable of being used.

Could that be explained to me in the context of this, as to how this operates? What is actually meant by that?

Deputy Noonan (Limerick East)

In relation to the point raised by Deputy Shatter the committee were dealing with arrangements under the control of the court. We will be dealing with those when we come to Part IV of the Bill. This is a pre-adjudication procedure as the Deputy is aware. A debtor can petition the court for protection in order to avoid bankruptcy and to enter into an arrangement with his creditors. If he obtains protection and goes through the appropriate machinery and provided that the creditors are agreeable and the court approves of it, the arrangement will be carried. His proposal can take different forms. That is what the committee are talking about in pages 207 and 208 of their Report — the forms of proposals. But they make the point clear that they should not be mandatory. If one looks at the forms of proposals in the context, of compositions after bankruptcy it is very difficult to conceive of any other forms of payment. When we come to the arrangements we will see that you will either have a proposal which will involve the payment of cash, the payment over a period or, the vestinig of the debtor's property in the Official Assignee which makes the arrangement analogous to a bankruptcy. That is the point they are making.

Deputy Shatter

In effect what we are doing is providing mandatory forms?

Deputy Noonan (Limerick East)

In effect we are covering all the possible methods of payment in a composition.

Deputy Shatter

——all the combinations and permutations of it.

Deputy Noonan (Limerick East)

Yes.

Question put and agreed to.