Composition agreements for the relief of insolvent debtors have been superseded, to a great extent, by proceedings under the Federal Bankruptcy Act and various state insolvency laws. They are, however, still of considerable importance in some jurisdictions.
A Composition Agreement with Creditors -- Debtor to Carry on Business under Inspection by Creditors' Committee is an agreement between a debtor and a creditors' committee in which the debtor agrees to continue operating their business under the supervision of the creditors' committee. This agreement is used when the debtor is unable to pay their debts in full and is looking to negotiate a settlement with their creditors. The agreement is structured so that the debtor continues to operate their business, while the creditors' committee oversees the business's operations and ensures that the debtor is compliant with the terms of the agreement. This type of agreement is also known as a debtor-in-possession plan or a DIP plan. There are two main types of Composition Agreement with Creditors -- Debtor to Carry on Business under Inspection by Creditors' Committee: an out-of-court agreement and a court-approved reorganization plan. An out-of-court agreement is negotiated between the debtor and the creditors' committee without the involvement of a court. A court-approved reorganization plan is a more formal arrangement that is ratified by a court.
