Related topics


01 Feb 2010

The Majority Rules - Sometimes


4 min

As insolvency practitioners, we regularly convene and hold meetings of creditors. Thanks to the provisions of the Bankruptcy Act, some of these may be held by virtual meetings as opposed to physical meetings. But in nearly all cases the purpose of the meeting is for creditors to consider whether or not to pass one or more resolutions.

As the chairman or president of these meetings, we regularly have to adjudicate on a creditor’s right to vote, the amount that they can vote for and, lastly, determine whether a resolution has been passed or not based on the votes cast.

Some of these resolutions will not have great significance on the conduct of the estate, but many will. Whether it is the approval of remuneration that may result in a majority of the available funds leaving the estate or whether a simple repayment agreement should be entered into, the result of a resolution may be the difference between whether an estate continues or not, or indeed whether one ever begins.

Because of the significance of some of these decisions the Corporations Act and the Bankruptcy Act set out how different resolutions are passed or not. Both Acts allow some resolutions to be passed by a vote 'on the voices' being a simple majority in number. The Corporations Act is a little more liberal with the types of resolutions able to be passed that way. The Bankruptcy Act limits these votes to matters that do not require "the passing of a resolution or special resolution".

Voting on resolutions
(1) A resolution put to the vote of a meeting must be decided on the voices unless, ..

In some cases the Corporations Act requires a 'poll' to be taken. Where a normal vote is taken as a simple majority in number, a poll is decided on a majority in number and more than half of the value of the debts of these creditors. Looking at my dictionary, majority means 'more than half' so I am not sure why the different words are necessary. Essentially you need more than half of number and value for a resolution to pass (disregarding casting votes).

Carrying of resolutions after a poll has been demanded at a meeting of creditors
(2) A resolution is carried if:
(a) a majority of the creditors voting (whether in person, by attorney or by proxy) vote in favour of the resolution; and
(b) the value of the debts owed by the corporation to those voting in favour of the resolution is more than half the total debts owed to all the creditors voting (whether in person, by proxy or by attorney).

The Bankruptcy Act goes a little further and handles the voting procedure slightly differently. It defines a resolution (as opposed to a vote 'on the voices') as a majority in dollar value of debts represented at the meeting as voting, not number:

a resolution passed by a majority in value of the creditors present personally, by telephone, by attorney or by proxy at a meeting of creditors and voting on the resolution.

A special resolution, used in certain cases is defined as:

a resolution passed by a majority in number and at least three-fourths in value of the creditors present personally, by telephone, by attorney or by proxy at a meeting of creditors and voting on the resolution.

What is a majority? The dictionary says 'more than half', so is 50.1% a majority? The answer appears to be yes. What about 50.0001%? Again technically yes. So where a majority or more than half is required, you only need the slightest excess over half to comply, but you do need an excess - 50% is not a majority. This lead to a situation we had last year where a Part X meeting had almost all of the dollar value of creditors voting to accept the proposal, but only 5 out of the 10 creditors present and voting at the meeting. 5 out of 10 is 50%, and not a majority in number. The resolution failed.

Interestingly, the definition says that "at least three-fourths in value of the creditors present" is required for a special resolution. That means that three-fourths (75.0%) of the dollar value is sufficient. You do not need 75.1%, you just cannot have any less than 75%.

Situations where votes are passed or lost by a few decimal points are rare, but when they do occur they might affect an estate quite significantly - as in the case of the Part X meeting.

Business can be tough

Our team is focused and ready to help

Get in touch

Subscribe for all the latest help and news