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Our Services for the External Stakeholder
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Administration Creditors' MeetingsCommon Questions and Answers (References to "Sections" and "Rules" are to the Insolvency Act 1986 and Insolvency Rules 1986 respectively. "Para" refers to Schedule B of the Insolvency Act which was introduced by the Enterprise Act 2002)Unlike other procedures, there is not a specific Statement of Insolvency Practice covering the obligations on the insolvency practitioner convening a creditors' meeting for an administration. However, SIP8 that deals with CVLs contains some general points that also applies to administrations and provides some guidance that readers might find helpful. Please follow this link.
(Use the free Adobe Reader to view PDF files) Where and when should the meeting be held?The meeting should be called at a venue for the convenience of creditors at a time between 10.00am and 4.00pm (Rule 2.35(3)). The creditors' meeting should be held as soon as practical and in any case within ten weeks of the appointment, unless creditors or the court consents to an extension (Para 51). Fourteen clear days notice should be given to creditors (Rule 2.35(4)). Who will be at the meeting?One of the joint administrators will chair the meeting and answer creditors' questions (Rule 2.36). There is no requirement for the directors of the company to attend unless the administrator requires attendance. What will happen at the meeting?It will be assumed that creditors will already have received and read the administrators' proposals and statement enclosed with the notice. The meeting will give creditors an opportunity to put questions to the administrator. The meeting will then consider and vote upon any modifications that individual creditors might put forward, following which a vote will be taken upon the whole proposals as modified. Various other resolutions might be considered, in particular those dealing with the basis of the administrators' remuneration, the composition of any creditors' committee and the choice of a subsequent liquidator. The notice should normally make it clear which resolutions will be tabled if this is known in advance. Are you obliged to attend the creditors' meeting?You are not obliged to attend the creditors' meeting. It is your opportunity to ask questions before deciding whether to suggest any modifications and how to vote on the administrators' proposals. You will not compromise your claim and entitlement to dividend if you do not attend. The law recognises that creditors are not always able to attend in person and allows you to ask a representative to attend as proxy and vote on your behalf. How do you ensure that your vote counts at the meeting?In order to vote, you must have submitted a written notice of your claim and the chairman must have admitted that claim following the guidelines below. This notice needs to be submitted to the administrators before 12.00 on the business day before the meeting (Rule 2.38(1)). You might also need to lodge a proxy form (see later). The chairman can admit a claim for voting purposes even though it was submitted late if he is satisfied this was due to reasons beyond the creditor's control (Rule 2.38(2)). Who decides whether your claim ranks for voting purposes?The chairman has the power to accept or reject any part of your claim if he believes it to be appropriate (Rule 2.39(1)). If he is in doubt whether your claim should be admitted, he should mark it as objected to and allow you to vote. If however the objection is sustained, then your vote will be declared invalid (Rule 2.39(3)). If your vote was critical to the outcome of the meeting, this could change the resolutions that were passed and/or result in a further meeting (Rule 2.39(4)) What happens if you disagree with the chairman's decision?You are entitled to appeal to the court, within 14 days of the administrator reporting the result of the meeting to the court, for an order reversing the chairman's decision on your claim (Rule 2.39(2, 5)). If the court does reverse the chairman's decision it can order another meeting or make such other order as it thinks just (Rule 2.39(4)). A creditor also has the right to appeal to the court if he believes that the administration unfairly prejudices his interests or that there was a material irregularity at the meeting (Para 74, sch B, Insolvency Act 1986). We recommend that you seek legal advice about the merits of taking these steps in any particular circumstances. How do you calculate your claim for voting purposes?Your vote is based on the value of your debt at the date of the administration order less any amounts paid subsequently (Rule 2.384)). Votes rank in proportion to the claim. What majorities are needed to approve resolutions?A resolution to approve the proposals, or any modification to them, is passed at the creditors' meeting if supported by a simple 50% majority by value of the creditors present in person or by proxy and voting on the resolution (Rule 2.43(1)). In addition, any resolution is invalid if those voting against it include more than half in value of the creditors to whom notice of the meeting was sent and who are not, to the best of the chairman's belief, persons connected with the company (Rule 2.43(2)). What happens if you cannot yet quantify your claim with certainty?You cannot vote in respect of a debt for an unliquidated amount or any debt whose value is not ascertained, unless the chairman agrees to put on the debt an estimated minimum value for voting purposes (Rule 2.38(5)) What happens if your debt is partly secured?You are entitled only to vote in respect of the balance of your claim (if any) after deducting the value of your security as estimated by you (Rule 2.40(1)). If the administrator has decided that there will not be a dividend to unsecured creditors, then secured creditors are entitled to vote in respect of all of their debts, whether or not they are secured (Rule 2.40 (2)) Your claim should be stated after deducting the value of any goods supplied to the company to which you still claim title under the terms of your sale contract. The position with hire purchase agreements is complex and separate advice should be sought from your own advisors. Do you need to lodge a proxy form?If you are the creditor personally (as opposed to the creditor being a corporate body such as a limited company), you may vote by simply attending the meeting, provided you have lodged a claim as explained above. If you do not want to attend the meeting, you may nominate someone else, or the chairman of the meeting, to vote for you. They can vote either on your instructions or at their discretion. Do, however, remember that the chairman will be one of the administrators and you might wish to consider specifying clearly how he should vote. (Rule 8.1). You must give your instructions by completing the proxy form that is sent to you or a substantially similar form. The form needs to be signed by you as the creditor or by someone authorised by you, either generally or with reference to a particular meeting, and the nature of the person's authority to sign should be stated. If a company is the creditor, a director should normally sign (Rule 8.2). The proxy form must then be submitted at or before the meeting; it is usually submitted in advance with the claim to allow time to resolve any defect in completion. Please remember that if the debt is owed to a limited company or other corporation and you wish to attend and vote at the meeting, you should complete and return the proxy form even if you are a director of the company. (Alternatively you can produce at the meeting a resolution of the directors authorising you to represent that company.) (Rule 8.7) How do you complete a proxy form - some worked examples?
Are you bound by the administrators' proposals if they are approved at the meeting?The administrators' proposals, when approved by the creditors' meeting, will dictate how the company's affairs will be conducted in future and how creditors' claims will be addressed. Once approved the proposals are binding on all creditors, including those not present or represented at the meeting. For this reason, it is important that creditors properly consider the proposals and decide whether and how they wish to vote. What are the functions of the creditors' committee?The creditors' committee shall assist the administrator in discharging his functions, and act in relation to him in such manner as may be agreed from time to time (Rule 2.52). In particular, it has the duty to agree the basis of the administrators' remuneration (Rule 2.106(3)). How is the creditors' committee formed?The creditors' committee is established at the creditors' meeting. It is not obligatory but the creditors decide whether it is necessary (Para 57 Sch B Insolvency Act 1986). The committee must consist of at least three and not more than five creditors of the company elected at the meeting (Rule 2.50(1)). Any creditor of the company is eligible to be a member of the committee, so long as his claim has not been rejected for the purpose of his entitlement to vote (Rule 2.50(2). A body corporate may be a member of the committee, but it can only act as such through a properly appointed representative (Rule 2.50(3)). No person may act as a member of the committee unless and until he has agreed to do so (Rule 2.51(2)). Unless the relevant proxy or authorisation contains a statement to the contrary, such agreement may be given by the creditors' proxy-holder or representative under section 375 of the Companies Act 1985 present at the meeting establishing the committee (Rule 2.51(2)) A person acting as a committee-member's representative must hold a letter of authority entitling him so to act (either generally or specially) and signed by or on behalf of the committee-member (Rule 2.55(2)). No member may be represented by a body corporate, or by a person who is an undischarged bankrupt, or is subject to a composition or arrangement with his creditors (Rule 2.55(4)). No person shall act at one and the same time as representative of more than one committee-member, or act both as a member of the committee and as representative of another member (Rule 2.55(5)) The creditors' committee does not come into being, and accordingly cannot act, until the administrator has issued a certificate of its due constitution (Rule 2.51(1)). How are the administrators fees approved?Please follow this link to a copy of the Statement of Insolvency Practice no 9 (revised December 2002) for a clear explanation of this question. (Use the free Adobe Reader to view PDF files) |
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This document explains the relevant position only in general terms. We do not intend it to be used as formal advice about a specific situation, for which you should consult with a qualified insolvency practitioner and not rely upon this document. Portland would be pleased to advise you formally and you should contact one of the directors listed to arrange this. Portland regrets it is unable to accept any responsibility to anybody who seeks to rely on this document. |
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