Bankruptcy-Composition-Injustice or injury to objecting creditors

A composition approved by a requisite majority of the creditors and
providing for a cash settlement of 12% of claims of general creditors was
not approved by the judge in bankruptcy in view of the size of the divi-
dend and the reasonable possibility that a larger sum could be obtained for

the creditors by a liquidation of the assets .

Bankruptcy Ordinance 1928, s. 45 (2) .

. Bankruptcy

April 18, 1936. Judge in Bankruptcy: This is an application
for approval of a composition submitted under section 46 (1) Bank-
ruptcy Ordinance 1928 and agreed to by a requisite majority of credi-
tors. It provides for an immediate payment in full of the preferential
claims and of all costs and charges incidental to these proceedings and
for a cash payment of 12% in full settlement of the remaining proved
claims. The application is opposed by the Receiver (Official Receiver)
and on behalf of two creditors from outside the Sudan with claims of
over £E.300 in value.

The proposal appears to be in proper form, and the direction to
the court contained in section 45 (2)-the requisite majority of the
creditors having been obtained-is that the court "shall" give effect
to the composition, "Provided that no injustice or injury appears to
be inflicted by such composition or scheme on any of the parties con-
cerned. Provided also that there is no reasonable ground for suspecting
the composition or scheme to be fraudulent or collusive.';

No question of fraud or collusion is put forward in the objections
to the proposals, but it is submitted that its acceptance will result in
injustice and injury to parties concerned. I have to decide whether
this be the case or not. Injustice and injury are terms which permit
of a wide interpretation. Under English law it seems that the court

has a wider discretion, and the numerous decisions bearing upon the
question of the approval of compositions must be read with caution
before they are applied here.

What are the facts of the bankruptcy? The bankrupt offers to
compound with his creditors for a payment of 12%. Some £ E.2000 of
their money will be lost if the proposals be given effect. No bank-
ruptcy offence is alleged and it is only fair to the bankrupt to add that
his losses do not appear to have arisen from speculation or wild and
extravagant living. He has probably lost his creditors' money not
only through general depression, but through inefficient and ineffectual
trading. It is not his first unsuccessful venture. In 1923 (then with
a partner) he was forced to satisfy his creditors by a 70% payment
of their claims. It appears from his examination that he made no
attempt to make any further payment subsequently. He is now again
insolvent and this time proposes to settle his affairs by a payment of
twelve piastres in the pound.

I take the "parties concerned" to be the creditors and the debtor.

In my view I am not, where the approval or rejection of this com-.
position is concerned, entitled under the Ordinance to consider the
issues raised as to the e~ct of the scheme upon commercial morality
and the interests of the general public. If the composition is approved
and the question of annullment of the bankruptcy is before the court·
the discretion is wider and may embrace these issues.

Is it just that all this man's creditors should now be compulsorily
satisfied by the proposed payment of 12 % of their claims? Since the
adoption of the Bankruptcy Ordinance I know of no case of an ap-
proval of a composition after adjudication providing for a sum less
than 30%. I am urged to approve this composition mainly on the
grounds that the statutory majority of creditors have accepted it; but
the. court has a larger duty than merely to consider whether a majority
of the creditors have agreed. It must consider the justice of the pro-
posal. Creditors in bankruptcy are sometimes careless of their best
interests. Lord Esher M.R. once remarked "I have said before that
in bankruptcy cases the court has very often to protect creditors against
themselves."

In this instance there is a reasonable possibility that in a liquida-
tion the creditors will obtain a sum at least equal to, and probably in
excess of, the 12 % now offered. In fact the scheme may provide less
for the creditors than they would receive by a liquidation of the assets.