Meetings of Creditors

Why are meetings called?

Meetings are held so that creditors can find out what is happening in an estate, ask questions about these matters and give suggestion about how the file is handled. Both the Corporations Act and the Bankruptcy Act have strict rules about how meetings are to be run and how issues are to be decided.

What are the basic steps?

The meeting process is similar to most other organized meetings of clubs, associations or corporations. There is a logical order to the events surrounding the meeting and certain things must be done both before, during and after the meeting.

1. Adequate notice of the time and place of the meetingmust be given to people who have a reason to attend. They should be given a report that contains all of the information needed for them to make informed decisions at that meeting.

2. The meeting should be run according to a formal agenda set out in the notice of meeting.

3. The meeting will be chaired either by a person nominated by those attending (in the case of meetings under the Bankruptcy Act), or, subject to limited exceptions, the person required by the provisions of the Corporations Act.

4. Resolutions will be decided by a vote of those creditors attending the meeting and who are entitled to vote. Resolutions are determined in favour of the prescribed majority. What constitutes a majority may differ according to the type of meeting or the type of resolution sought, and whether the meeting is held under the Bankruptcy Act or the Corporations Act.

5. The participants may adjourn the meeting by putting forward a motion to that effect and having the resolution passed by the meeting.

6. All matters during a meeting will be recorded as minutes of the meeting. Lodgement of the minutes (in Corporations Act matters) and recording of the resolutions passed (in Bankruptcy Act matters) will be done with the relevant bodies within the prescribed time after the meeting.

Who may call a meeting?

External administrators may, or sometimes must, call a meeting of creditors. Creditors cannot organize meetings that have legal effect on the estate, but nothing stops creditors and other interested parties having informal meetings themselves.

External administrators may call meetings at any time, but must call meetings when either:

(a) the Act dictates they do so; or
(b) when sufficient creditors as prescribed by the Act request that the external administrator do so.

Section 64 of the Bankruptcy Act provides that a meeting must be called when requested by at least 25% of the creditors in value, or when creditors have lodged sufficient security for the costs of the meeting.

What notice must be given?

The period of notice is prescribed by the Acts and varies dependent upon the type of meeting being called. It is usually about 14 days, but some meetings, particularly during voluntary administrations, have shorter notice periods.

What should be sent to creditors?

The following documents should be sent to creditors:

(i) a notice calling the meeting and setting out the agenda;
(ii) a report to creditors;
(iii) particulars of any resolutions that are to be dealt with at that meeting and sufficient information in order to make an informed decision on the resolution;
(iv) a proof of debt form; and
(v) a proxy form and possibly a voting slip.

Creditors can obtain any missing documents from the external administrator who is calling the meeting.

Will a report to creditors be issued?

A report from the external administrator will generally accompany the notice of meeting. The report should outline the current position of the estate and the investigations that have been undertaken, contain details about further examinations and the potential actions to be taken by the external administrator, and information and recommendations on any decisions that are to be made at the meeting.

Where and when are meetings held?

The meeting should be held at a time and place convenient to the majority of the creditors. A convenient time is generally during business hours on a normal business day. A convenient place is generally in the town or city where a majority of the creditors reside.

Who runs the meeting?

A chairperson or a president runs the meeting. The chairperson for most meetings under the Corporations Act is the convener of the meeting or someone delegated to that role by the convener.

A president must be chosen by those attending to control meetings called under the Bankruptcy Act. The president can be anyone at that meeting, but is usually the trustee or some person associated with the trustee and having some experience in conducting meetings. Some of the actions taken and decisions made may not be enforceable if they are not handled in the technically correct manner, so it is beneficial to have an experienced person control the meeting.

Is there an agenda?

Yes. All meetings must have an agenda and, with limited exceptions, only the matters on the agenda can be decided upon at the meeting. The agenda is generally set by the relevant Act but may be amended slightly. The agenda should be detailed in the notice of meeting issued to creditors.

When should creditors lodge proofs of debt?

Creditors should lodge a proof of debt as soon as possible after the commencement of the estate and definitely before the meeting. Otherwise creditors will not be able to vote at the meeting. Once a Proof off Debt is lodged, another one usually does not need to be lodged for any other purpose. Creditors should follow these rules:

(i) attach a copy of invoices or other documentation detailing the amount owed and how it arose.
(ii) submit a proof of debt before or at the commencement of a meeting and have it noted on the register of attendance.
(iii) if the claim is not admitted for any reason, make sure an objection is noted in the minutes.

How is a proof of debt admitted?

The external administrator or their deputy will adjudicate on whether or not to admit the proofs of debt for voting at the meeting. The decision is final at the meeting, but can be challenged in the Court after the meeting has been held. If such a challenge is successful, the outcome of the meeting itself may then be challenged, if the use or otherwise of that proof of debt would have definitely changed the outcome of the meeting.

If a proof of debt is rejected, the creditor should have a statement read into the Minutes disagreeing with the decision and reserving the right to challenge the decision in an appropriate forum. At this point however, there is nothing more that the creditor can do to influence the meeting, but they may remain in attendance until the meeting is closed.

Do creditors have to lodge a proof of debt to be able to vote?

For meetings under the Bankruptcy Act: No. Section 64D provides that a written statement setting out the claim, but it is not necessary for a proof of debt to be lodged.
For meetings under the Corporations Act: Not necessarily. Unless required, a statement of claim appears to be sufficient.

To eliminate all doubt, it is recommended that creditors lodge proofs of debt.

Can creditors ask questions?

Yes. A meeting of creditors is a forum for creditors to ask questions. Questions should always be addressed to the chairperson or president, who in turn will put the question directly to the relevant person. Alternatively, creditors may ask questions of the chairperson, trustee or liquidator directly.

How can creditors attend the meeting?

If creditors want to attend a meeting, they will have to decide how to do so. They may attend in person, by proxy or attorney, or by participating over the phone if those facilities are available. The distinction between a proxy and an attorney is that a proxy will usually only vote in accordance with instructions and directions (if any) given to him. An attorney can decide how to vote, and in this way can respond favorably to changing circumstances during a meeting.

Who can be a proxy?

Almost anyone over the age of 18 can act as a proxy.

How are resolutions decided?

A vote of creditors is called a resolution. Most resolutions are ordinary resolutions, resolved or defeated by a simple majority of the people voting at the meeting.

The Corporations Act provides for a resolution to be passed by, firstly, a majority of creditors "on the voices", which is effectively a majority in number. If that resolution cannot be decided or a creditor so requests, the resolution will be taken by a poll. Similar voting provisions occur in the Bankruptcy Act, but the Bankruptcy Act requires a majority in value - not number.

The required majority for an ordinary resolution by a poll is more than 50% in number and 50% in value both voting for the resolution. There are also provisions for some proposals at meetings to require a "special resolution", being more than 50% in number and 75% in value. These resolutions are usually done in writing on voting slips.

Resolutions without a physical meeting?

Bankruptcy Act allows single resolutions to be passed by creditors without a meeting being called, by what is known as a Virtual Meeting. Voting is done through the mail with creditors indicating their acceptance or rejection of the motion, or they can object to the vote being taken in that format and require a meeting to be called to decide the matter. There is no corresponding provision in the Corporations Act.

Can a meeting be adjourned?

Yes. Anyone may propose a resolution for an adjournment of the meeting, and at times the chairperson or president may adjourn the meeting to better consider proofs of debt. The type of meeting will determine the maximum time period allowed for any adjournment.

Who will keep the minutes?

Minutes are kept by a minutes secretary. The Corporations Regulations provide that the chairperson must cause minutes to be filed and they will determine who will be the minutes secretary. The Bankruptcy Act requires creditors to appoint the minutes secretary. It will usually be a staff member of the convener of the meeting.

Minutes of the meeting called under the Corporations Act will be lodged with the ASIC within the appropriate time period. Worrells will also lodge the minutes on the estate's File Information page on this website. Meetings under the Bankruptcy Act will also be lodged on the estate's File Information page, but only a Certificate of Resolutions Past is lodged with ITSA.

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.

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Last Updated 21.2.2008