Introduction
In many cases the first indication that a creditor / supplier gets of a customer being in financial difficulty is receipt of a “notice of creditors meeting”. If a creditor receives such a notice in the post or otherwise becomes aware of a scheduled creditors’ meeting (in a newspaper advertisement, by word of mouth etc.) this effectively means that the company in question is being placed into creditors’ voluntary liquidation and any money owing from the company to the creditor is now in jeopardy.
Very often creditors who become aware that a company is being placed into liquidation simply ‘chalk it down’ as bad luck and take the view that there is nothing they can do. Most creditors do not attend the meeting and in many instances, those creditors who do actually attend are completely unaware of the format and do not ask the sort of questions they should be asking in order to safeguard their interests. Many creditors’ meetings occur without any of the creditors saying a word.
The attitude of many creditors that “matters are out of my hands and there is nothing I can do about it” is wrong. If you are a creditor who becomes aware of a forthcoming creditors’ meeting it is important that you either attend in person or that you have a representative attend on your behalf by proxy.
Why Should a Creditor Attend at a Creditors’ Meeting?
There are a number of reasons for attending the meeting namely:
- You will receive an estimated statement of affairs prepared by the directors of the company setting out all of the assets and liabilities of the company. This will allow you to assess whether there is a likelihood of being paid the company;
- You will be able to ascertain if the company is in possession of any stock which you may have supplied under “retention of title”;
- You will be able to assess whether the directors of the company may have engaged in reckless or fraudulent trading. For example, if the company transacted business with you at a stage when the directors already knew that the company had no chance of recovery and was unable to pay its debts as they fell due, you may be able to sue the directors of the company personally;
- You will be able to nominate your own choice of liquidator. At the meeting, the shareholders of the company will already have nominated their own choice of liquidator. It is in your interests as a creditor to ensure that a competent, independent liquidator is appointed so that the prospects of recovering your losses are improved and the pot of available assets (which is used to repay creditors) is maximised;
- You will be able to nominate yourself to be appointed to a “committee of inspection” being a representative body of members and creditors of the company which liaises closely with the liquidator in winding up the company. This allows you to be an active presence in the liquidation and will ensure that you are aware of any proposed actions which might limit your ability to recover your losses; and
- Finally and perhaps most importantly, by attending the creditors’ meeting and reviewing the directors’ estimated statement of affairs you will become aware of other creditors of the company who may be particularly affected by the fact that the company in question is now insolvent. Very often, the liquidation of one company has a domino effect with a number of creditors of the insolvent company (who were particularly reliant on that company) being forced out of business. The director’s statement of estimated affairs will identify any such creditors who may also be some of your own customers or suppliers.
The Format of a Creditors’ Meeting
Creditors’ meetings typically take the following format: First, the creditors sign in and are provided with a copy of the directors’ estimated statement of affairs which will give details of the assets of the company as well as details of all preferential and unsecured creditors (it can be helpful to have an advisor present to help you review the statement of affairs if you are not familiar with reading company accounts). The quorum for a valid meeting is three creditors. If there are less than three creditors in attendance, the meeting is invalid and no action may be taken unless those creditors present represent all of the company’s creditors.
A director of the company reads out a statement to the creditors outlining the various reasons for the company’s failure and the creditors and any representatives attending on behalf of creditors are then given an opportunity to ask questions. As mentioned above, in the majority of cases no questions are asked and this part of the meeting lasts only a few moments. However, in the context of maximising your chances of recovering any monies owed to you it is essential that you ask the right questions at the meeting. A careful review of the statement of affairs will invariably give rise to a number of issues which you should seek to have clarified at the meeting.
The creditors are then given an opportunity to propose an alternative liquidator to the one proposed by the shareholders. Finally, the creditors are invited to nominate themselves to be appointed to a “committee of inspection” to liaise with the liquidator during the course of the liquidation. (The nomination of an alternative liquidator by the creditors and the committee of inspection are dealt with in more detail in sections 5 and 6 below).
Steps Which Should be Taken Prior to the Creditors Meeting
Upon receipt of the “notice of creditors’ meeting” it is important to ensure that the notice is in fact a valid notice in compliance with the Companies Acts. In particular, Section 587 of the 2014 Companies Act states that notices of the meeting of creditors must be sent by post to the creditors at least 10 days before the meeting together with a general proxy and a special proxy in the prescribed forms. In addition, the Companies Acts also provide that the meeting in question must be advertised at least 10 days before the meeting in at least two daily newspapers circulating in the district where the registered office or principal place of business of the company is situated.
If a creditor cannot attend the meeting personally, they have the opportunity to nominate a proxy (this can be a solicitor or other representative of the business) to attend the meeting in their place, ask questions and vote for or against the appointment of a nominated liquidator etc. If you wish to attend the meeting or have a representative attend in your place it is important that you properly complete and file the general proxy enclosed with the notice.
If you are a creditor who becomes aware of a forthcoming meeting and you have not received a notice you should notify the company in writing immediately. You should also attend the meeting and highlight the fact that all the creditors of the company were not properly notified of the meeting (you are probably not alone in this regard).
The Creditors’ Right to Nominate Their Own Liquidator
As outlined above, at the creditors’ meeting, the creditors are given an opportunity to nominate their own liquidator. The company will already have nominated its choice of liquidator and if the creditors do not propose an alternative, the company’s liquidator will be automatically appointed.
If the creditors do nominate an alternative liquidator a vote of all creditors present personally or by proxy is conducted by the chairperson. The nominee liquidator with the majority vote of creditors in terms of value (the number of creditors is irrelevant) is then held to have been appointed.
In some cases a particular creditor will be owed a significant sum of money by the company and will be able to outvote all of the other creditors of the company put together. In this situation the largest creditor will be able nominate and appoint its choice of liquidator without obtaining the support of other creditors. Frequently, the directors of the company may claim to be the largest creditors in view of having provided significant loans to the company. The nature of any such directors’ loans should of course be queried at the meeting. In addition, the Revenue can sometimes be the single largest creditor in cases where the company has a large outstanding tax liability. If you are a relatively small creditor but you are unsatisfied with the company’s choice of liquidator and suspect that he or she may not be 100% independent, it may be necessary for you to obtain the support of other creditors in advance of the meeting to ensure that enough creditors show up at the meeting to outvote the company’s nominee.
The Committee of Inspection
The Committee of Inspection (usually consisting of between 3 and 5 members) is set-up to liaise with the liquidator in winding up the company. At the meeting, the chairperson will ask the attending creditors if any of them would like to be appointed to the committee of inspection. As outlined above, if you are owed significant monies by the company it may be beneficial to nominate yourself to be appointed to the committee of inspection as this will ensure that you are aware of any proposed actions which might limit your ability to recover your losses. The role of the committee is as follows:
- liaise with the company’s creditors on behalf of the liquidator;
- provide the liquidator with information on the company’s activities;
- aid the liquidator in the investigation of the company’s affairs;
- approve fees;
- approve legal actions; and
- attend meetings to review the course of the liquidation.
Adrian Burke & Associates’ team of corporate recovery and insolvency lawyers are experienced in acting for creditors and companies in the context of company liquidations. In particular, we advise creditors in relation to their rights and entitlements under company law in connection with creditors voluntary liquidations and represent creditors at creditors’ meetings where required. If you are a creditor who has recently received a notice of creditors’ or otherwise becomes aware of an impending meeting please contact Adrian Burke & Associates at info@adrianburke.ie.