Over the last few months we have looked at the procedures necessary to create Committees of Inspection or Committees of Creditors under the various types of external administrations under the Corporations Act. This last article in the series looks at committees of inspection under the Bankruptcy Act.
There are four main type of administration under the Bankruptcy Act –
(b) Section 73 Agreements
(c) Part IX Debt Agreements
(d) Part X Personal Insolvency Agreements (PIAs)
Committees are only formed in bankruptcies, section 73 agreements and PIAs. They are not formed under Part IX of the Act.
Committees in bankruptcy estates, like their Corporations Act counterparts, are formed by a resolution of creditors. But the system for forming committees under the Bankruptcy Act is more straightforward than forming committees under the Corporations Act, particularly the process for liquidations.
All meetings called in a bankruptcy estate are called using an agenda set out in section 64G of the Act. One of the agenda items listed in that section relates to the appointment of a committee. This option must be in the agenda issued to all creditors for all bankruptcy meetings and provides the opportunity for creditors to form committees at any meeting. Any general meeting of creditors may form a Committee of Inspection.
BANKRUPTCY ACT 1966 – SECT 64G
Agenda to be set out in notice of meeting
(m) appointment of committee of inspection (if required);
The ability of the creditors to form a committee at a meeting must be raised by the president of the meeting. The president will usually explain how committees are formed, who can be on it and what its role will be in the conduct of the estate. Creditors will then decide whether they wish a committee or not and, if so, who will be on it.
BANKRUPTCY ACT 1966 – SECT 64V
Appointment of committee of inspection
The President must then tell the creditors and their representatives that, if they wish to appoint a committee of inspection, a motion for the appointment of such a committee may be proposed and must explain to them the effect of section 70.
Section 70 sets out the mechanics for forming committees. They are formed by a normal resolution of creditors – not a special resolution – of creditors attending at the meeting. Creditors will nominate between 3 and 5 people to form a committee and move a resolution to appoint that committee.
Exactly how the nomination process is conducted will depend on whether there is any dispute on the make up of the committee. It is possible that some creditors will not want certain parties on the committee and the question of who is to be nominated may itself be subject to a vote. Even with this factor, this system is considerably easier than the two separate meetings required to form a committee in a liquidation.
BANKRUPTCY ACT 1966 – SECT 70
Committee of inspection
(1) The creditors who are entitled to vote may, at a meeting of the creditors, by resolution appoint a committee of inspection for the purpose of advising and superintending the trustee.
(2) The committee of inspection shall consist of not more than 5 and not less than 3 persons.
(3) A person is not eligible for appointment as a member of a committee of inspection unless:
(a) he or she is a creditor or a person authorized by a creditor to act for the creditor in relation to the bankruptcy; or
(b) he or she is a person whom a creditor intends to authorize to act for him or her in relation to the bankruptcy.
One interesting word in this section is ‘superintending’. It does not appear in the Corporations Act which only says that the committee can consult with and receive reports from the practitioner, but cannot direct. This suggests that committees under the Bankruptcy Act have some slightly increased powers over the Corporations Act counterparts. Some evidence for this is set out in section 177, but having regard to directions is short of having to follow directions. This means that trustees cannot simply disregard the committee’s views.
BANKRUPTCY ACT 1966 – SECT 177
Control of creditors over trustees
(1) Subject to this Act, in the administration of the estate of a bankrupt, the trustee shall have regard to any lawful directions given by resolution of the creditors at a meeting of the creditors or by the committee of inspection.
An explanation of the formation of committees under Section 73 Agreements and Part X PIAs is relatively simple. Meetings in both of these types of administrations use the same meetings provisions and procedures as bankruptcy meetings, including section 64V. Therefore committees may be formed in the same way and will be subject to all of the same provisions.
BANKRUPTCY ACT 1966 – SECT 76A
Meetings of creditors
Division 5 of Part IV applies, so far as it is capable of applying and with such modifications (if any) as are prescribed by the regulations, to meetings of creditors under this Division.
BANKRUPTCY ACT 1966 – SECT 196
Procedure for calling and holding meeting
Division 5 of Part IV applies, with any modifications prescribed by the regulations, in relation to a meeting called under an authority under section 188 as if:
(a) the debtor who signed the authority were bankrupt; and
(b) the controlling trustee were the trustee in the bankruptcy.
Committees formed under the provisions of the Corporations Act have authority to approve the remuneration of the practitioner. Committees formed under the Bankruptcy Act have the same authority. This is granted under section 162. The Bankruptcy Act remuneration process is currently under review, but it appears that this authority will remain intact.
BANKRUPTCY ACT 1966 – SECT 162
(1) Subject to section 161B, the remuneration of the trustee of the estate of a bankrupt may be fixed, from time to time, by resolution of the creditors or, if the creditors so resolve, by the committee of inspection.
We hope that this series of articles shows that there is a easy avenue for creditors – as a larger or smaller group – to have some input into the insolvency process. Even a few creditors interested in the conduct of an estate may have a more active role in its progress. Creditors need not only take a passive role.