One creditor’s whim vs. the collective creditors’ benefit
Liquidators and administrators are frequently involved in resolving disputes over a wide range of issues, many of which end in litigation. Most of the issues are of a commercial nature, however every now and then the dispute is over a technical legal issue.
One such technical dispute involved the meaning of the word “convene” in the context of Regulation 5.6.15(1)(b) of the Corporations Regulations.
Broadly, the Corporations Act provides that a liquidator must convene a meeting of creditors at the request of a high-value creditor. It also provides that any creditor that requests a meeting to be called can in turn be asked to pay the costs of convening that meeting.
In most instances the costs of a creditor’s meeting are negligible. But in the matter at hand, the resolutions being put to creditors were complex and involved mountains of correspondence between our office and the creditor over many months. We were also required to obtain legal advice, and to prepare an extensive report. And significantly we had to book and attend a meeting interstate—where the majority of creditors were based.
Post meeting, we sent a request to the creditor to pay all costs related to the meeting. In response, the creditor argued that their obligation was limited only to paying the costs of convening the meeting—which they construed (very narrowly) as meaning the costs of “calling” the meeting only. Under the creditor’s interpretation, the costs were effectively limited to issuing a one page notice prescribed by the Corporations Act to call a meeting, which was a very minor cost.
We were unable to resolve the dispute and the matter proceeded to the Magistrates’ Court of Victoria where the magistrate upheld, in our favour, a broader interpretation of the word convene. This decision was appealed to the Supreme Court of Victoria where Justice Bell similarly found that “convening” meant both “calling and holding” a meeting.
In our opinion the decision is both sensible and just. It would be peculiar if the costs of a meeting, demanded on the whim of a single creditor, were required to be borne from the pool of funds held—at the detriment to other creditors.
While the decision made some very useful case law for the insolvency world, as is often the case in such technical disputes, the cost to obtain a decision on a single word well outweighed the actual costs of both calling and holding the meeting. We conservatively estimate the legal costs of both parties would be some five times the actual amount claimed.
For the full extract of the judgment: click here.