An agreement between a debtor and two or more creditors who agree to accept a stated percentage of their liquidated claims against the debtor at or after the due date, in full satisfaction of their claims is Composition Agreement.
An out-of-court arrangement known as a "composition agreement" allows a debtor and a number of creditors to reduce or postpone payment of the debtor's obligations to those creditors.
For debtors with a small number of creditors and good connections with them, a composition agreement may be a smart choice. Additionally, when a debtor's creditors have a stake in the debtor's continuous survival, it is far more probable that a composition agreement would be successfully negotiated.
A debtor with a sizable number of dispersed creditors who don't care about the business's continuing existence would probably have trouble negotiating a composition agreement.
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