Meetings of Creditors
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Introduction
It is often necessary to call meetings of creditors when companies are under external administration. Depending on the type of external administration, meetings may be called at a variety of times and for a variety of reasons. Some will be called because the Act states that they must be called, others because the external administrator believes it will benefit the estate. Same are called simply for the external administrator to obtain fee approval.
The first meeting in a voluntary administration has a very short notice period, as the Act requires it to be held within eight business days of the appointment. The second meeting in a voluntary administration has to be held between 15 and 25 business days after the appointment. Meetings in liquidations require longer notice and there is no time period in which to hold them. The initial meeting in the Creditors' Voluntary Winding Up process also have a short notice and must be held within a statutory time period.
Notices of meetings issued to creditors will normally be accompanied by a report from the external administrator that will contain details of any resolutions to be proposed. The agenda for meetings under the Corporations Act is not generally prescribed by the statute, as is the case for meetings under the Bankruptcy Act, nevertheless an amount of formality attaches to these meetings - particularly concerning the required notice, the chairman, quorums, motions and rights to vote.
From time to time creditors will consider that it is impractical to hold regular meetings with all of the creditors of the company, even though there are matters that will need to be resolved. In such cases, a smaller group of creditors called a Committee of Creditors or a Committee of Inspection might be appointed to work with the liquidator or administrator.
By necessity, this paper is general in detail. The Act contains a number of Regulations that govern these provisions and these should be read to obtain more than a summary understanding of the provisions.
This paper contains links to legislation. These will open in a separate window. Most of the legislation shown in this paper is only a summary or extract of the entire section. The links go to the entire section.
Reasons for Calling Meetings
Each type of corporate insolvency appointment has its own requirements and timings for calling and holding meetings of creditors. But there is a significant amount of crossover, especially when dealing with admittance of proofs of debt and proxies etc. These are explained in greater detail later in this paper. Some meetings of creditors are required by statute, while some can be held at any time the external administrator wishes.
Controllerships and provisional liquidations do not require meetings of creditors. The types of external administrations detailed below do require meetings.
Voluntary Administrations
Administrators must hold a first meeting of the creditors within eight business days of their appointment. The only prescribed business for that meeting is to:
(a) determine if the creditors wish to replace the current administrator with a new administrator (they cannot end the administration at this meeting); and
(b) determine whether they wish a committee of creditors to be appointed.
Although the agenda is limited, administrators will usually provide all the information that they have to hand, an outline of the future of the administration, and the prospects for a proposal for a deed of company arrangement. As the administration will only be eight business days old, with effectively only six full days of examination, administrators will not be able to provide creditors will results of any detailed investigations.
CORPORATIONS ACT 2001 - SECT 436E
Purpose and timing of first meeting of creditors
(1) The administrator of a company under administration must convene a meeting of the company's creditors in order to determine
(a) whether to appoint a committee of creditors; and
(b) if so, who are to be the committee's members.
(2) The meeting must be held within 8 business days after the administration begins.
The second meeting of creditors is called to decide the future of the company. Usually one of three options is available;
(a) to approve a deed of company arrangement, if one has been proposed;
(b) to liquidate the company; or
(c) hand the company back to the directors and end the administration.
When calling the meeting, the administrator must issue a report to creditors detailing the options available, along with all relevant information so that creditors may make an informed decision on how to vote on the future of the company. That information will include the expected recoveries in a liquidation, a comparison of that return to any proposed deed, and the likelihood of creditors being paid if the administration ends. This meeting will also include consideration of the administrator's remuneration.
CORPORATIONS ACT 2001 - SECT 439A
Administrator to convene meeting and inform creditors
(1) The administrator of a company under administration must convene a meeting of the company's creditors within the convening period as fixed by subsection (5) or extended under subsection (6).
(2) The meeting must be held within 5 business days before, or within 5 business days after the end of the convening period.
(5) The convening period is:
(a) if the day after the administration begins is in December, or is less than 28 days before Good Friday—the period of 25 business days beginning on:
(i) that day; or
(ii) if that day is not a business day - the next business day; or
(b) otherwise—the period of 20 business days beginning on:
(i) the day when the administration begins; or
(ii) if that day is not a business day - the next business day.
(6) The Court may extend the convening period on an application made within the period referred to in paragraph (5)(a) or (b), as the case requires.
Deeds of Company Arrangement
An administrator of a deed of company arrangement has the power to call meetings of creditors to consider any variations to the deed or the termination of the deed as required. The deed administrator will also call meetings when necessary to obtain further fee approval.
CORPORATIONS ACT 2001 - SECT 445F
Meeting of creditors to consider proposed variation or termination of deed
(1) The administrator of a deed of company arrangement:
(a) may at any time convene a meeting of the company's creditors; and
(b) must convene such a meeting if so requested in writing by creditors the value of whose claims against the company is not less than 10% of the value of all the creditors' claims against the company.
The deed will usually contain provisions to allow the creditors to ask the deed administrator to call a meeting to consider various resolutions. In that case, the deed administrator may have to call the meeting, but the creditors requesting the meeting usually will usually have to pay the costs of calling the meeting. The deed should set out all such provisions.
Creditors Voluntary Liquidations
Apart from the initial creditor's meeting, the Act provides that two types of meetings must be called in a voluntary liquidation that are not required in a court liquidation. These are Annual Meetings (they are discretionary) and a Final Meeting (this is mandatory). Other meetings may also be held if the liquidator thinks them necessary - usually for fee approval - and will be called under the same general provisions as used in a court winding up.
When called annual Meetings must be held within 3 months after the anniversary of the commencement of the winding up. These are called to keep the creditors updated on the conduct of the liquidation, but these are not generally well attended. Generally the liquidator will keep creditors informed through written reports.
CORPORATIONS ACT 2001 - SECT 508
Annual meeting of creditors
(1) If the winding up continues for more than 1 year, the liquidator must:
(a) in the case of a members' voluntary winding up—convene a general meeting of the company; or
(b) in the case of a creditors' voluntary winding up:
(i) convene a meeting of the creditors; or
(ii) prepare a report that complies with subsection (3) and lodge a copy of the report with ASIC;
within 3 months after the end of the first year beginning on the day on which the company resolved that it be wound up voluntarily and the end of each succeeding year.
The liquidator may decide not to call an annual meeting of creditors. Liquidators of voluntary liquidations commenced after 1 January 2008 have the option of lodging a report on the conduct of the liquidation with ASIC. This report is then made available to creditors through ASIC.
Final Meetings are held to formally end a voluntary winding up. The company is automatically de-registered three months after notifying ASIC of the final meeting being held. Final meetings are never well attended as no resolutions are proposed. The purpose of the meeting is simply to detail what the liquidator has done through the process of liquidation, but full details have usually been provided to creditors throughout the liquidation. A final meeting is not required in a court appointed winding up.
CORPORATIONS ACT 2001 - SECT 509
Final meeting and deregistration
(1) As soon as the affairs of the company are fully wound up, the liquidator must make up an account showing how the winding up has been conducted and the property of the company has been disposed of and, when the account is so made up, he or she must convene a general meeting of the company, or, in the case of a creditors' voluntary winding up, a meeting of the creditors and members of the company, for the purpose of laying before it the account and giving any explanation of the account.
Court Liquidation
A liquidator may call a meeting of creditors to pass whatever resolutions may be necessary for the conduct of the liquidation. There are various reasons why a liquidator may call a meeting, but one of the most common is approval of their remuneration. Although this is usually the most common reason to call a meeting, the meeting will usually contain a full report of the liquidation and discussion of future investigations etc.
Procedures at Meetings of Creditors
The procedures for calling and holding meetings of creditors are set out in the Act and Regulations. The main ones are detailed below. A meeting will not necessarily be invalid if the procedures are not fully followed, but any variance should not be material.
Meetings must be called by the external administrator giving notice to all parties believed to be creditors at their last known address. Each type of meeting has a minimum notice period that varies depending on the type of administration and the type of meeting in that administration.
That document calling the meeting is in the form of a formal notice of meeting that sets out any resolutions that are to be considered at the meeting. The notice should be accompanied by a report from the external administrator that provides all of the necessary information for creditors to make informed decisions about any resolutions proposed. It will usually also contain an update of the administration.
The basic factors for any meeting are:
1. The agenda
2. A quorum
3. The chairperson
4. Lodgment of proofs of debt
5. Lodgment of proxies
6. Minutes of meetings
7. Voting at meetings
8. Adjournment of meetings
1. The agenda
The Act regulates the conduct of meetings in a number of ways, but one of the least regulated parts is setting an agenda. The agenda sets out the steps that should be taken throughout the meeting and the order in which they should be taken, and notice of any resolutions that are to be considered.
The agenda is formed by the external administrator and is sent to the creditors as part of the notice calling the meeting. In effect, the external administrator will draft a tailored agenda covering all of the statutory requirements and any resolutions that will or must be proposed. Sometimes different meetings will have greatly varied agenda items, but all still must comply with the Act.
A chairperson may allow the proceedings to depart slightly from the strict agenda if he or she thinks it is in the interests of creditors, and provided that the overall integrity of the meeting is not compromised. But strictly the chairperson may not listen to any business that is not listed in the agenda.
2. A Quorum
A meeting cannot be held without a quorum. That quorum must be obtained within 30 minutes after the time set for the meeting, or the meeting is automatically adjourned. If there is only one creditor in the estate, that creditor will constitute the quorum. If there is more than one creditor, a quorum is constituted by at least two creditors in person or represented by proxy.
Creditors can attend meetings in person or by proxy, and any person, including the chairman, holding two or more proxies constitutes a quorum. Quorums are important as resolutions cannot be passed at meetings that do not have proper quorums.
Quorum Regulation 5.6.16
(2) A quorum consists of:
(a) if the number of persons entitled to vote exceeds 2 - at least 2 of those persons; or
(b) if only one person is, or 2 persons are, entitled to vote - that person or those persons;
present in person or by proxy or attorney.
(3) A meeting is sufficiently constituted if only one person is present in person at the meeting if the person represents personally or by proxy or otherwise a number of persons sufficient to constitute a quorum.
If no quorum is present within 30 minutes after the time set for the meeting, the meeting will stand adjourned to be recalled within the next 7 to 21 days. If the adjourned meeting does not have a quorum within the allocated time, the meeting will lapse without any business being conducted.
Quorum Regulation 5.6.16
(4) If within 30 minutes after the time appointed for a meeting:
(a) a quorum is not present; or
(b) the meeting is not otherwise sufficiently constituted;
the meeting is adjourned:
(c) to the same day in the next week at the same time and place; or
(d) to the day (not being less than 7 or more than 21 days after the day on which the meeting is adjourned) and at the time and place that the chairperson appoints.
(8) If within 30 minutes after the time appointed for the adjourned meeting:
(a) a quorum is not present; or
(b) the meeting is not otherwise sufficiently constituted;
the adjourned meeting lapses.
3. The Chairperson
The chairperson is set by the regulations to be the liquidator or the administrator or their representatives in all but one case. Receivers do not generally call meetings of creditors and, if they do, the meeting is not called under the provisions of the Corporations Act. The only exception to the liquidator or representative rule is the initial creditors' meeting under the creditor's voluntary winding up provisions. In that case the creditors may choose the chairman from the creditors present, or may have the liquidator chair the meeting.
Section 497(8) The creditors may appoint one of their number or the liquidator to preside at the meeting.
This is different to meetings under the Bankruptcy Act, where a president of any meeting is decided by a vote of the creditors. In company matters, the creditors will generally be stuck with the liquidator or administrator, or his deputy.
Chairperson Regulation 5.6.17
(1) If a meeting is convened by:
(a) a liquidator; or
(b) a provisional liquidator; or
(c) an administrator of the company under administration or of a deed of company arrangement;
that person, or a person nominated by that person, must chair the meeting.
(2) In any other case, the persons present and entitled to vote at a meeting must elect one of their number to be chairperson of the meeting.
4. Lodgment of Proofs of Debt
A person must be a creditor of the company to vote on resolutions at a meeting of creditors. The liquidator or administrator will usually require that the creditor lodge a claim or a proof of debt with them before or at the meeting.
A proof of debt is a statutory document and the proper form to show the existence of a debt owed by the company. All supporting documentation should be attached to ensure that the proof of debt is admitted for voting purposes. If there is insufficient evidence of the debt, the chairperson will not be able to admit it. The onus is on the creditor to prove that the debt exists.
Proofs of debt can be lodged with the liquidator or administrator before the meeting or with the chairperson at the meeting. Once a proof of debt is lodged, the creditor does not need to lodge another one for further meetings or for dividends purposes. This is different to proxy forms (see below) that expire at the end of each meeting.
Creditors who may vote Regulation 5.6.23
(1) A person is not entitled to vote as a creditor at a meeting of creditors unless:
(a) his or her debt or claim has been admitted wholly or in part by the liquidator or administrator of a company under administration or of a deed of company arrangement; or
(b) he or she has lodged, with the chairperson of the meeting or with the person named in the notice convening the meeting as the person who may receive particulars of the debt or claim:
(i) those particulars; or
(ii) if required — a formal proof of the debt or claim.
Proofs of debt that are not admitted for voting at a meeting will not be formally rejected, as they may be for dividend purposes. The chairperson will declare that the proof is or is not admitted for voting for a certain amount. The liquidator may also object to a proof of debt, but must still allow the proof of debt for voting purposes. The liquidator or administrator is bound by certain rules on admitting proofs of debt. That proof of debt may be reexamined for dividend purposes.
CORPORATIONS REGULATIONS 2001 - REG 5.6.26
Admission and rejection of proofs for purposes of voting
(1) The chairperson of a meeting has power to admit or reject a proof of debt or claim for the purposes of voting.
(2) If the chairperson is in doubt whether a proof of debt or claim should be admitted or rejected, he or she must mark that proof as objected to and allow the creditor to vote, subject to the vote being declared invalid if the objection is sustained.
(3) A decision by the chairperson to admit or reject a proof of debt or claim for the purposes of voting may be appealed against to the Court within 10 business days after the decision.
If the liquidator or administrator cannot determine whether a proof of debt should be admitted for vote purposes or not based on the evidence attached, the regulations prescribe that they mark that proof of debt as 'objected to' and allow it to vote for its face value. At other times the liquidator or administrator will be able to admit or reject based on the evidence. The Regulations have provided this mechanism as a number of proofs of debt may be received at the start of the meeting and there is little time to adjudicate on them.
5. Lodgment of Proxies
Any creditor can appoint a proxy to represent them at any meeting. The liquidator, chairperson, another creditor or any other real person may act as a proxy. The form of the proxy is very specific but only has a life of one particular meeting, including any adjournments. A new proxy will have to be completed for each separate meeting of creditors.
Appointment of Proxies Regulation 5.6.28
(1) A person entitled to attend and vote at a meeting may appoint a natural person over the age of 18 years as his or her proxy to attend and vote at the meeting.
(2) Subject to subregulation (3) and to regulation 5.6.30, a proxy appointed under this regulation has the same right to speak and vote at the meeting as the person who appointed the proxy.
(3) If a person claims to be:
(a) the proxy of a person, appointed by an instrument of appointment mentioned in subregulation 5.6.29 (2); and
(b) entitled to attend and vote at a meeting;
the person is not entitled to speak or vote as proxy at the meeting (except in relation to the election of a chairperson) unless:
(i) the instrument; or
(ii) a facsimile copy of the instrument; or
(iii) a copy of the instrument sent by email or similar electronic means;
has been lodged with the person named in the notice convening the meeting as the person who is to receive the instrument, or with the chairperson.
The form of the proxy is set out in Regulation 5.6.29 to be a particular statutory form. The Act now allows for the lodgment of proxies that are not in hard copy written form. Proxies may be lodged online in an electronic format, subject to some requirements.
(a) an instrument in accordance with Form 532, completed in hard copy in compliance with subregulation (2); or
(b) if the person convening the meeting offers an electronic address under paragraph 5.6.31 (2) (a) for the purpose of the receipt of proxy appointments - a copy of the instrument mentioned in paragraph (a), the copy made in a way that allows it to be given by electronic means (such as by email); or
(c) if the person convening the meeting offers other electronic means under paragraph 5.6.31 (2) (b) by which a person may give the proxy appointment - an electronic representation equivalent to Form 532 (such as an online form) that may be completed and authenticated in compliance with subregulation (3).
(2) If Form 532 is to be completed in hard copy:
(a) the person appointing the proxy must sign the instrument of proxy, or, if incapable of writing, attach his or her mark to it; and
(b) the proxy of a person who is blind or incapable of writing must not be accepted unless:
(i) the person attaches his or her signature or mark to the instrument appointing the proxy after it has been completed; and
(ii) the instrument is read to him or her by a witness to his or her signature or mark (not being the person nominated as proxy) who completes the certificate of witness set out in Form 532.
Voting by proxy is possible in two ways:
(a) a general proxy; or
(b) a specific proxy.
A creditor may give their proxy a general instruction to represent them at a meeting of creditors and to vote in any manner and on any resolution that the holder of the proxy thinks fit. Alternately, the creditor may give the proxy special instructions on the manner to vote on specific resolutions. These will be general or special proxies respectively. A proxy that is not a special proxy is a general proxy.
Instruments of Proxy Regulation 5.6.30
An instrument appointing a proxy may specify the manner in which the proxy is to vote on a particular resolution, and the proxy is not entitled to vote on the resolution except as specified in the instrument.
6. Minutes of Meetings
Minutes are the official recording of the meeting and its resolutions. The Act requires that minutes of all meeting of creditors be lodged with ASIC within 1 month after a meeting in a liquidation and 14 days after a meeting in a voluntary administration.
These minutes will be available from ASIC for inspection, but the liquidator or administrator must also make the minutes available for inspection by creditors or contributors upon request. (Worrells usually posts minutes of meetings to its web page shortly after the meeting).
Minutes of Meeting Regulation 5.6.27
(1) The chairperson must, within the period specified in subregulation (7):
(a) cause minutes of the proceedings to be drawn up and entered in a record kept for the purpose; and
(b) sign the minutes after they have been entered in the record.
(7) For subregulations (1) and (3), the specified period is:
(a) for a meeting other than a meeting convened under section 436E or 439A of the Act — 1 month after the end of the meeting; or
(b) for a meeting convened under section 436E or 439A of the Act — 10 business days after the end of the meeting.
7. Voting at Meetings
There are two ways that a vote may be taken at a meeting.
Initially voting on resolutions is usually conducted 'on the voices', which is decided upon a simple majority in number of those creditors present and voting. A resolution will be decided on the voices unless someone (the Chairperson, two or more creditors, or a creditor holding at least 10% of the value) demands a poll to be taken.
On the voices literally means creditors stating 'Yes' or 'No' to a resolution. It is common for chairpersons to also require the creditor to raise a hand whilst voting, as it is easier to determine the vote. In this case, the simple majority in number wins the vote.
Voting on Resolutions Regulation 5.6.19
(2) Unless a poll is demanded, the chairperson must declare that a resolution has been:
(a) carried; or
(b) carried unanimously; or
(c) carried by a particular majority; or
(d) lost;
on the voices.
A poll is a written vote decided upon a double majority. For a resolution to be carried in a poll, a majority in number of the creditors present and voting must vote for the resolution, and they must hold more than one half of the value of the debt represented and voting at the meeting.
Voting on Resolutions Regulation 5.6.19
(1) A resolution put to the vote of a meeting must be decided on the voices unless, subject to subregulation (5), a poll is demanded, before or on the declaration of the result of the voices:
(a) by the chairperson; or
(b) by at least 2 persons present in person, by proxy or by attorney and entitled to vote at the meeting; or
(c) by a person present in person, by proxy or by attorney and representing not less than 10% of the total voting rights of all the persons entitled to vote at the meeting; or
(d) in the case of a meeting of members - by a member or members holding shares in the company conferring a right to vote at a meeting, being shares on which the total sum paid up is not less than 10% of the total sum paid up on all the shares conferring that right.
If there is a stalemate (one majority voting 'for' the resolution and the other majority voting 'against' the resolution) the liquidator or administrator will use a casting vote to decide the vote. The courts have determined that liquidators' or administrators' have a duty to try to resolve resolutions at meetings and, unless there is a good reason not to do so, use their casting vote for that purpose. They must also include their reasons for using their casting vote in that manner in the minutes of meeting.
CORPORATIONS REGULATIONS 2001 - REG 5.6.21
Carrying of resolutions after a poll has been demanded at a meeting of creditors
(4) Subject to subregulation (4B), if no result is reached under subregulation (2) or (3), then:
(a) the person presiding at the meeting may exercise a casting vote in favour of the resolution, in which case the resolution is carried; or
(b) the person presiding at the meeting may exercise a casting vote against the resolution, in which case the resolution is not carried; or
(c) if the person presiding at the meeting does not exercise a casting vote, the resolution is not carried.
Usually the chairperson will call for someone to move a resolution before a vote takes place. Sometimes these formalities are shortened by the chairman, using a proxy in their name, moving the resolution. This is acceptable if the rights of the creditors are not constrained.
After the vote the chairperson will make a declaration of whether the motion is carried or not and record that declaration in the minutes.
Voting on Resolutions Regulation 5.6.19
(3) A declaration is conclusive evidence of the result to which it refers, without proof of the number or proportion of the votes recorded in favor of or against the resolution, unless a poll is demanded.
8. Adjournment of Meetings
Meetings can be adjourned in certain circumstances. The first is when there is no quorum within 30 minutes after the time set for the meeting. In this case, the meeting is automatically adjourned by process of law for between 7 and 21 days. This is discussed above.
Regulation 5.6.18 allows the chairperson to adjourn a meeting if they are directed to do so by the creditors (sometimes after a vote on the matter) or where the chairperson gets the consent of the meeting to adjourn the meeting. The liquidator has no absolute power to adjourn meetings. They must at least have creditor approval.
The adjourned meeting usually must be held at the same place of the original meeting, but if that is inconvenient, the meeting may be held at another location.
Adjournment of meeting Regulation 5.6.18
(1) The chairperson of a meeting:
(a) if so directed by the meeting — must; or
(b) with the consent of the meeting — may;
adjourn the meeting from time to time and from place to place.
(2) A meeting convened under section 439A of the Act must not be adjourned to a day that is more than 45 business days after the first day on which the meeting was held.
(3) An adjourned meeting must be held at the place of the original meeting unless:
(a) the resolution for adjournment specifies another place; or
(b) the Court otherwise orders; or
(c) the liquidator or provisional liquidator, or the administrator of a company under administration or of a deed of company arrangement, otherwise orders; or
(d) the place of the original meeting is unavailable, in which case the chairperson may appoint another place.
The liquidator or administrator will issue a new notice of meeting for the adjourned meeting. That notice will be issued to all creditors, not just the creditors that attended the first part of the meeting. Any creditor that did not attend the first meeting may attend and vote at the adjourned part of the meeting, but only on resolutions that have not been moved before the end of the first part of the meeting.
Committee of Creditors/Inspection
A committee is a smaller group of creditors that can act on behalf of the general body of creditors. The advantage is that the practitioner can meet with the smaller group more regularly and cost effectively than continually calling large meetings of creditors. The group may also contain members that may have some technical expertise that the practitioner may find useful in conducting the estate.
Committees are appointed by resolution at a meeting. They are not appointed by the practitioner. Whilst the committee may offer suggestions and advice to the practitioner, they cannot direct then to do, or not do, certain tasks.
Liquidations
Committees of inspection in a liquidation are formed under Section 548 by a system of two meetings - a meeting of creditors and a meeting of contributories - each specifically called to consider the appointment of a committee. They cannot be formed at a general meeting of creditors.
CORPORATIONS ACT 2001 - SECT 548
Convening of meetings by liquidator for appointment of committee of inspection
(1) The liquidator of a company must, if so requested by a creditor or contributory, convene separate meetings of the creditors and contributors for the purpose of determining:
(a) whether a committee of inspection should be appointed; and
(b) where a committee of inspection is to be appointed:
(i) the numbers of members to represent the creditors and the contributors, respectively; and
(ii) the persons who are to be members of the committee representing creditors and contributors, respectively.
To be a member of a committee in a liquidation the person must:
CORPORATIONS ACT 2001 - SECT 548
Convening of meetings by liquidator for appointment of committee of inspection
(3) A person is not eligible to be appointed a member of a committee of inspection unless the person is:
(a) in the case of an appointment by creditors of the company:
(i) a creditor of the company; or
(ii) the attorney of a creditor of the company by virtue of a general power of attorney given by the creditor; or
(iii) a person authorized in writing by a creditor of the company to be a member of the committee of inspection;
(b) in the case of an appointment by the contributories of the company:
(i) a contributory of the company; or
(ii) the attorney of a contributory of the company by virtue of a general power of attorney given by the contributory; or
(iii) a person authorised in writing by a contributory of the company to be a member of the committee of inspection.
Meeting of committees of inspection are called pursuant to section 549.
CORPORATIONS ACT 2001 - SECT 549
Proceedings of committee of inspection
(1) A committee of inspection must meet at such times and places as its members from time to time appoint.
(2) In the case of a committee of inspection appointed as a result of a determination under subsection 548(1), the liquidator or a member of the committee may convene a meeting of the committee.
(3) A committee may act by a majority of its members present at a meeting, but must not act unless a majority of its members are present.
The one exception to the strict rules in appointing committees is the initial meeting of creditors in a Creditors' Voluntary Winding Up called under section 497. That section waives the need for calling two meetings of creditors and allows the creditors at that meeting to form a committee and chose its members.
Section 497(10)- At a meeting of creditors held under this section the creditors may determine the matters referred to in paragraphs 548(1)(a) and (b) and, where the creditors so determine those matters, a meeting of the creditors for the purposes of section 548 is taken to have been held and the determinations are taken to have been made under that section.
There are no similar provisions that deal with second meetings of creditors in a voluntary administration or at meetings called to terminate deeds of company arrangement.
Voluntary Administrations
Committees of creditors can be formed at a first meeting of creditors under section 436E and governed by sections 436F and 436G, but the committee only last for the duration of the administration.
CORPORATIONS ACT 2001 - SECT 436E
Purpose and timing of first meeting of creditors
(1) The administrator of a company under administration must convene a meeting of the company's creditors in order to determine
(a) whether to appoint a committee of creditors; and
(b) if so, who are to be the committee's members.
CORPORATIONS ACT 2001 - SECT 436F
Functions of committee of creditors
(1) The functions of a committee of creditors of a company under administration are:
(a) to consult with the administrator about matters relating to the administration; and
(b) to receive and consider reports by the administrator.
(2) A committee cannot give directions to the administrator, except as provided in subsection (3).
(3) As and when a committee reasonably requires, the administrator must report to the committee about matters relating to the administration.
To be a member of a committee in a voluntary administration, the person must be:
CORPORATIONS ACT 2001 - SECT 436G
Membership of committee
A person can be a member of a committee of creditors of a company under administration if, and only if, he or she is:
(a) a creditor of the company; or
(b) the attorney of such a creditor because of a general power of attorney; or
(c) authorized in writing by such a creditor to be such a member.
If the company is wound up at the second meeting, the procedures for forming committees in a liquidation will have to be followed.
If the company goes under a deed of company arrangement, that deed may allow for the formation of a committee, but the committee will not be able to be formed until the deed is executed by all parties and this will be after the second meeting. The only way of having a committee proposed and voted upon at the second meeting of creditors is to have its formation and members nominated and included as part of the proposed deed. In that case the committee will be formed when the deed is fully executed.
Generally on Committees
Meetings of committees can be held as frequently as required, due to the smaller number of people involved. The process of calling, conducting and preparing minutes of a meeting is almost identical as the process for a general body of creditors. It is also common for committees to meet informally to discuss certain issues that do not require a formal resolution. Sometimes some items may have to be kept confidential while certain tasks are completed.
The committee may include a member representing the employees of the company, the management of the company, any bankers and a few representing the general trade creditors. Committees usually number 3 to 7 creditors or their representatives, with more than 7 becoming too large for convenience.
Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information
provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.
Last Updated: 16.05.2011
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