What is a Composition Order?
A Composition Order is linked to an Administration Order. An Administration Order is a debt solution for people who have a court ruling that they are struggling to pay and who have multiple debts that total under £5,000. All your debts are consolidated into one affordable payment that you pay to the Court, who distribute it among your creditors. When you apply for an Administration Order, it may be possible to ask for a Composition Order instead.
If your affordable payment is particularly low, an Administration Order may mean that it takes a very long time to fully pay back your debts. For example, if you have a debt of £4000 and you pay back £20 a month, it will take 17 years to pay back your entire debt. Under these circumstances, you may be granted a Composition Order. A Composition Order puts a time limit on your repayments, generally a limit of three years, in order to make sure that this doesn’t happen. Your remaining debt would then be written off.
The court usually considers your case for a Composition Order automatically. However, if you want to ask for a Composition Order, you can write about it in the ‘Anything else you would like the court to take into account’ box that is in PART C of the Administration Order application form. Other than formally asking that they consider a Composition Order, you should include a proposal of how much of your debt you plan to pay back with a Composition Order.
You can calculate this by:
- Working out how much you can pay each month, and multiplying this by a reasonable repayment period.
For example, if you can afford to pay back £20. Over 3 years, or 36 months, you will be paying £720 of your debt.
- Working out how much of that amount would be paid to the court (a 10% handling fee), and taking that away as it would not go to your creditors
So, £720 – £72 (10% of £720) = £648
- Work out what your offer is in ‘pence to the pound’, which is essentially the same as calculating what percentage your offer is of the original debt. You do this by dividing your offer by your total debt and multiplying that by 100.
So, (£648 /£4000)x100 = 16.2, which, rounded up, is ‘17p in the £’
In this example, you might write on your application:
‘I would like for the Court to consider a Composition Order in which I would pay 17p in the £’
It is possible to apply for a Composition Order if you already have an Administration Order using form N244.