Last month we looked at committees of creditors formed at the first meeting in a voluntary administration. These committees are automatically disbanded with the end of the administration. They do not continue under any deed of company arrangement or liquidation of the company.

A new procedure has to be followed to form a committee under a deed of company arrangement. The most important conditions are that (i) a deed of company arrangement is accepted by creditors at the second meeting, and (ii) the deed is executed and formally comes into existence. Otherwise the committee itself will never come into existence.

There is also a change of name. Committees under deeds of company arrangements are called ‘Committees of Inspection’.

Schedule 8A of the Corporations Regulations states:

Schedule 8A(11) Committee of inspection
For the purpose of advising and assisting the administrator of this deed, there may be a committee of inspection (the committee ) to which the following rules apply:
(a) the committee must consist of at least 3 and not more than 5 members;
(b) the creditors must appoint the members in a general meeting;

These provisions are not mandatory and the deed itself can provide for the election of a committee and give it its powers. The terms of the deed will override any schedule 8A provisions.

The deed may allow for a meeting to be called to nominate members and elect a committee. But this means a general meeting of creditors has to be called after the deed is executed, as the provisions of the deed are not active until the deed is signed, and that will be after the second voluntary administration meeting.

In our experience it is more common for the members of the committee to be nominated or selected at the second meeting in the voluntary administration. These names will then be added to the proposed deed as the committee of inspection. The proposed deed is then voted upon by the general body of creditors with the formation of the committee with their nominated members being part of the deed. The committee will then come into existence when the deed is executed.

Of course, this requires the people that make the proposal for the deed to include provisions to form a committee and to pass the power to nominate its members to creditors. If the people proposing the deed do not include this into their proposal, a committee can still be formed under the schedule 8A provisions or relevant provisions in the deed – but only after the deed has been signed.

The powers, rights and any obligations of the committee should be included in the deed itself, but the committee is also governed by the same provisions and regulations that apply to deeds in liquidations (with the appropriate changes) with regard to calling meetings, the resignation of members etc.

Generally the committee will have the same role as a committee in an administration or liquidation. But the Act also provides that a committee of inspection is able to approve deed administrator’s remuneration.

449E(1A) The administrator of a company under a deed of company arrangement is entitled to receive such remuneration as is determined:
(a) by agreement between the administrator and the committee of inspection (if any); or
(b) by resolution of the company’s creditors; or
(c) if there is no such agreement or resolution – by the Court.

As with voluntary administrations, if the order of the paragraphs is taken literally, the preferred manner of obtaining fee approval under a deed is through the committee, though we suspect that many deeds do not have committees. Part of the reason, we suspect, if that most deeds only require the collection and distribution of money, and that few decisions need to be made, and that information on compliance with the deed can be easily issues to creditors as a whole.

Next Month – Committees in Liquidations