Peterboro recently defaulted on a bank loan.To avoid a bankruptcy proceeding,the bank agreed to a composition.This composition would do which one of the following?
A)Forgive the loan payment in its entirety
B)Extend the due date on the missed loan payment
C)Reduce the amount of the loan payments so Peterboro can pay on time
D)Transfer some of Peterboro's assets to the bank in lieu of the loan payment
E)Transfer all the equity shares in Peterboro to the lending bank

Question

Quizplus · Accepted Answer

A composition is an agreement between a borrower and lender to settle loan obligations for less than the full amount owed. In this case, the bank has agreed to reduce the amount of loan payments so that Peterboro can pay on time and avoid bankruptcy. Option A, forgiving the loan payment in its entirety, is unlikely as it would mean the bank would be absorbing the entire loan loss. Option B, extending the due date on the missed loan payment, does not address the underlying issue of Peterboro's inability to pay. Option D, transferring some of Peterboro's assets to the bank in lieu of the loan payment, may not be feasible if Peterboro's assets do not have sufficient value to cover the loan amount. Option E, transferring all equity shares in Peterboro to the lending bank, is also unlikely as it would make the bank the owner of Peterboro, which is not the purpose of a loan composition.

Peterboro Recently Defaulted on a Bank Loan