Both the Corporations Act and the Bankruptcy Act have provisions to create and control committees made up of creditors and their representatives. A committee is a smaller more manageable group of creditors that can meet with the practitioner. The role of a committee is to advise the practitioner – not to instruct – but the power most appreciated by the practitioner is their ability to approve remuneration.
This is the first of four articles dealing with committees, this one dealing with committees in Voluntary Administrations – in this case called Committees of Creditors. The Voluntary Administration process involves a first meeting of creditors. This meeting must now be called within 8 business days of the appointment (until recently it was to be held within 5 business days) and only has two agenda items:
- to replace the administrators with new administrators; and
- to consider the appointment of a committee of creditors.
436E(1) The administrator of a company under administration must convene a meeting of the company’s creditors in order to determine:
(a) whether to appoint a committee of creditors; and
(b) if so, who are to be the committee’s members.
Committees are formed simply by a resolution of creditors at the first meeting. Their function in a voluntary administration is to consult with and advise the administrator, and the powers are limited to requiring a report from the administrator and approving remuneration. This can be of great assistance to administrators when trading is continuing, a deed of company arrangement is proposed, or technical advice is needed.
436F(1) The functions of a committee of creditors of a company under administration are:
(a) to consult with the administrator about matters relating to the administration; and
(b) to receive and consider reports by the administrator.
(2)A committee cannot give directions to the administrator, except as provided in subsection (3).
(3) As and when a committee reasonably requires, the administrator must report to the committee about matters relating to the administration.
If the order of the paragraphs in section 449E(1) is taken literally, the preferred method for administrators to get fee approval is through agreement with a committee. But there are no committees in most administrations, so the administrator’s remuneration is usually approved by resolution at the second meeting of creditors.
449E(1) The administrator of a company under administration is entitled to receive such remuneration as is determined:
(a) by agreement between the administrator and the committee of creditors (if any); or
(b) by resolution of the company’s creditors; or
(c) if there is no such agreement or resolution–by the Court.
Interestingly the committee will have to approve the remuneration before the second meeting, as the administration may end – along with the existence of the committee – at the end of second meeting. This also raised the prospect that remuneration is approved before the second meeting and that meeting is adjourned for some reason with further remuneration being approved at a later date. The Act does not seem to prohibit the committee approving remuneration a number of times during the administration period.
Next month – Committees in Deeds of Company Arrangement