An agreement in which creditors voluntarily reduce their claims on the firm, receiving only a partial payment for their claims, by reducing the principal amount or the interest rate on the debt or by taking equity in exchange for debt is a ________.
A) Extension
B) Composition
C) Workout
D) none of the above

Question

Quizplus · Accepted Answer

A composition is an agreement in which creditors voluntarily reduce their claims on the firm, receiving only a partial payment for their claims, by reducing the principal amount or the interest rate on the debt or by taking equity in exchange for debt.

An Agreement in Which Creditors Voluntarily Reduce Their Claims on the Firm