Over the last two months we have considered committees and how they are created in Voluntary Administrations and Deeds of Company Arrangement. These two types of administrations have very different processes for creating committees, though the committees end up with essentially the same powers. This month we consider committees of inspection in liquidations, both official and voluntary, and find that these two also have different procedures.
Creating a committee in a court appointed (official) liquidation is not as simple as calling a meeting of creditors and passing a resolution. The Act has a very specific procedure that needs to be followed, and this is set out in section 548.
The process involves convening two separate meetings (one of members and one of creditors) to determine whether a committee should be formed and who should be on it. Due to the need to call separate meetings, this resolution cannot be handled at a general meeting of creditors, even if notice is given to the members.
CORPORATIONS ACT 2001 – SECT 548
Convening of meetings by liquidator for appointment of committee of inspection–company not in pooled group
(1) The liquidator of a company must, if so requested by a creditor or contributory, convene separate meetings of the creditors and contributories 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 contributories, respectively; and
(ii) the persons who are to be members of the committee representing creditors and contributories, respectively.
An interesting point is that the court has the right to determine any difference of opinion between the two groups. We have not seen any authority on whether the chairperson at the meeting can influence the decision by using a casting vote, particularly in the meeting of members.
(2) If there is a difference between the determination of the meeting of creditors and the determination of the meeting of contributories, the Court may resolve the difference and make such order as it thinks proper.
Therefore the procedure in a court liquidation is for the liquidator to call two separate meetings and try to get both camps to agree to a committee and its makeup. We suspect that this will entail the nominated members to the proposed committee being named in the notices of meeting issued to each group, or the resolution may fail simply because the second group nominate different people than those nominated by the first. This is not an easy process to follow.
The process in a creditors’ voluntary winding up is easier. The provisions of section 548 still, in theory, apply. The meeting of creditors in the creditors’ voluntary winding up process is called under section 497 within the first few weeks of the appointment of the liquidator by the members. Section 497 provides a mechanism for complying with section 548 in that one creditor’s meeting. That is contained in sub-section 10.
CORPORATIONS ACT 2001 – SECT 497 Meeting of creditors
(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.
In a creditors’ voluntary winding up, after the members have voluntarily wound up the company, the creditors have the say on whether a committee should be formed and who should be on it. But this only applies if the meeting is called under section 497 as part of the creditors’ voluntary winding up process. It does not apply to other meetings called during the liquidation.
What if the voluntary liquidation commenced as a voluntary administration and the winding up occurred at the second meeting (called under section 439A), or at a meeting called to resolve the termination of a deed of company arrangement (called under section 445F)? The answer is that committees cannot be formed at these meetings. Neither section has comparable wording to sub-section 10 of section 497 and no direct provision to create a committee. The procedure under section 548 – calling the two separate meetings – must be followed. Any committee formed in the administration or under the deed is disbanded with the end of those administrations.
The role of the committee, however it is formed, will be the same. They, like their counterparts in Administrations and under Deeds of Company Arrangements, can approve certain things (compromises of debt etc.) but cannot direct the liquidator. They also have the right to approve remuneration.
CORPORATIONS ACT 2001 – SECT 473
General provisions about liquidators
(3) A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:
(a) if there is a committee of inspection–by agreement between the liquidator and the committee of inspection; or
(b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:
(i) by resolution of the creditors; or
(ii) if no such resolution is passed–by the Court.
Next month: Committees under the Bankruptcy Act