Quorums and Quorums
There are a number of differences between the Corporations Act (in its dealings with corporate insolvencies) and the Bankruptcy Act (in its dealings with personal insolvencies). Some of these, particularly in relation to voting at meetings of creditors, has been raised in past articles.
The passing of resolutions is usually a necessary part of any insolvency estate, corporate or personal. To be able to pass a resolution, proper notice of the ‘meeting’ – and I have highlighted that word for a reason – must be given and the proper quorum must be present to pass or reject that resolution. There must be the required quorum to hold the ‘meeting’.
As you may have guessed, the two Acts define quorums differently.
The Corporations Act emphasizes creditor participation. It requires at least two creditors to participate in the meeting, if there are two or more creditors to participate. These creditors may participate by appointing proxies, and the chairman may be the holder of all of the proxies.
Therefore a meeting of creditors may be validly held – and often is – with a single person in the room attending the meeting holding a number of proxies. The relevant regulation says:
CORPORATIONS REGULATIONS 2001 – REG 5.6.16
(2) A quorum consists of:
(a) if the number of persons entitled to vote exceeds 2 — at least 2 of those persons; or
(b) if only one person is, or 2 persons are, entitled to vote — that person or those persons;
present in person or by proxy or attorney.
(3) A meeting is sufficiently constituted if only one person is present in person at the meeting if the person represents personally or by proxy or otherwise a number of persons sufficient to constitute a quorum.
The Bankruptcy Act treats quorums slightly differently. That Act emphasizes a person’s attendance at the meeting. Two people must be in the room during the meeting (in the room by telephone is acceptable) to have a quorum, but only one needs to be a creditor. This is commonly referred to as having ‘two beating hearts’ at the meeting. Whereas two creditors must participate in a corporate insolvency, only one creditor need participate in a personal insolvency.
In reality, no creditor need attend the meeting, as long as the creditor has given a proxy to someone (even the trustee or their appointed representatives), as the trustee or the trustee’s representative can make up the second person for the meeting.
The Act says:
BANKRUPTCY ACT 1966 – SECT 64N
(2) A quorum is constituted by:
(a) the presence in person of the trustee (or the trustee’s representative); and
(b) a creditor, or a proxy or attorney of a creditor, participating in person or by telephone.
Note: A meeting requires at least 2 persons. Therefore the person covered by paragraph (2)(a) cannot also be the proxy or attorney of the creditor covered by paragraph (2)(b).
Physical meetings of creditors are not that common any more. They started to decline after the introduction of the ‘Creditors’ resolution without meeting’ or virtual meeting provisions. We have previously dealt with how a virtual meeting is called and what business it can attend to, but the interesting part for today’s discussion is that resolutions can now be passed with no physical quorum at all.
Well that is not strictly correct in this instance, as at least one creditor must vote (participate), but does not need to attend. These are more in line with the Corporations Act emphasis of meetings, and the effect of having the trustee or liquidator in a room by themselves passing a resolution is essentially the same in both Acts – except the Bankruptcy Act does not even require the room. Resolutions can be passed if:
BANKRUPTCY ACT 1966 – SECT 64ZBA
Creditors’ resolution without meeting
(3) If, within the time specified in the notice:
(a) at least 1 creditor votes in writing; and
(b) no other creditor objects in writing to the proposal being resolved without a meeting of creditors;
The no quorum comment, while not being strictly correct for virtual meetings, does apply to another way of having certain resolutions passed. The note here is that this option is only available for certain types of resolutions, but they are resolutions none-the-less.
The Bankruptcy Act allows resolutions to be passed with no one participating or attending at all. In fact non-participation is required. Certain resolutions may be passed with the notice of the resolution being sent to creditors and no creditor objecting, regardless of whether anyone votes ‘for’ the resolution. This is truly a case of ‘no quorum required’.
I have reproduced one of the sections that allow resolutions (not actually termed as a resolution as no one actually resolves anything) to be passed without participation or attendance. The other applicable sections have very similar wording.
BANKRUPTCY ACT 1966 – SECT 221A
Variation of personal insolvency agreement
(3) The trustee must give notice of the proposed variation to all the creditors who would be entitled under section 64A (as that section applies in accordance with section 223A) to receive notice of a meeting of creditors.
(4) The notice must:
(a) include a statement of the reasons for the variation and the likely impact it will have on creditors (if it takes effect); and
(b) specify a date (at least 14 days after the notice is given) from which it is proposed that the variation will take effect; and
(c) state that any creditor may, by written notice to the trustee at least 2 days before the specified date, object to the variation taking effect without there being a meeting of creditors.
(5) If no creditor lodges a written notice of objection with the trustee at least 2 days before the specified date, then the proposed variation takes effect on the date specified in the notice.
The advertisement for Worrells is that we have spent a lot of time and effort trying to make creditor participation in meetings easier by providing functions on our website that allow for online lodgment of proofs of debt, voting slips for virtual meeting, and appointment of proxies for corporate insolvencies. Even so, the need for a quorum sometimes means that we have to chase creditors in order to encourage them to participate so that the required quorum is available at a particular meeting.