February 26, 2021

Unlocking Insolvency – Creditors’ Meetings 101 (Corporate)

Welcome to article one in our new series, Unlocking Insolvency. Through this new series, we’ll shed light on the unknowns of the insolvency process, answering questions you’ve  always wanted to ask and sharing insight  from behind the scenes. You have received a circular or report from an Insolvency Practitioner (IP) regarding a company that owes you money and it refers to an upcoming meeting. You would like to participate in the meeting, but you have no idea what any of it means or where to start.

Lodging Your Claim

A threshold step if you want to participate in the meeting is to provide sufficient evidence of your claim to the IP.

The more information that you provide, the easier it is going to be for the IP to accept your claim. The kind of information you might provide with your completed claim form includes:

    • Copies of outstanding invoices
    • Letters of demand
    • Copies of Court judgments, if you have obtained one
    • Correspondence evidencing the lack of payment; and
    • Calculations supporting any claim for interest on your debt

If you do not provide sufficient evidence of your claim, the IP may mark your claim as “objected to” (which may be important if you claim has a bearing on the result of any vote taken at the meeting), or may reject your claim entirely, meaning you can either not attend the meeting, or may only remain as an observer. An observer can only attend a meeting with the consent of the creditors in attendance.

It is worth noting that the threshold for establishing your claim for voting purposes is lower than the threshold for establishing your claim for dividend purposes, but there is no reason why you shouldn’t provide all of the information you have at this stage, if it is available.


How to Attend

There are three main ways in which you can attend/participate in a meeting. These are:

In-person. Due to the ongoing impact of COVID-19, there may presently be limited scope to attend meetings in-person.

Attending in-person often affords you the opportunity to discuss any matters you wish privately with the IP either before or after the meeting.

It is also worth noting that it is rarely a good idea to attend a meeting if you are unlikely to be able to control your emotions. If the matter is particularly personal for you, you may consider sending either your solicitor or another person you trust to ask questions and vote on your behalf.

By Electronic Means. Most IPs will provide either or both teleconference or video-conference facilities for meetings. You should note that, where you are attending a meeting in this way, you must confirm your attendance and provide the required information two business days prior to the meeting. This includes providing a proxy form, if you are attending on behalf of an entity that must attend by proxy (see below).

By Proxy. The simplest way to attend a meeting and have your voice heard is to attend by proxy. A proxy form allows you to appoint someone else to attend the meeting on your behalf and can also be used to specifically instruct that person as to your voting intentions. Some important things to note with proxies:

    • Do I need One? Only sole traders, individuals in a partnership or individuals acting as trustees of a trust can actually attend a meeting in-person or by electronic means. Entities that are not a natural person (such as a company) must always attend a meeting by proxy. Even if you are the sole director of the company, you will need to complete a proxy on the company’s behalf appointing you as its representative for the meeting, even if you are attending in person or by electronic means.
    • Special or General? In simple terms, the difference between a special proxy and a general proxy is whether or not your voting intentions are indicated on the form (i.e. whether or not you have “ticked the boxes”).

The holder of a special proxy does not have any discretion to change your vote – they simply turn up and cast your votes at the appropriate moment in accordance with your instruction. A general proxy, on the other hand, is able to vote however they wish on your behalf. This is also true of any resolution put to the meeting for which you have not ticked a box (including if it was not on the proxy form).

Appointing someone you trust as a general proxy (assuming they can attend the meeting) can provide greater flexibility in cases where you are still awaiting further information before deciding how to vote, or if unexpected resolutions are put to the meeting (although this is rare).

    • Who to appoint? If you know how you want to vote and have ticked the boxes (a special proxy), we generally encourage people to appoint the Chairperson as your proxy. The benefit of this course is that, at a meeting, there must always be a Chairperson. If you nominate your proxy by name, and that person does not actually attend the meeting (for whatever reason), you have not attended the meeting and your vote(s) will not count.

If you are concerned about putting your vote in the hands of the IP (who will likely be the Chairperson), remember that a special proxy holder has no discretion to change your vote and there are very strict rules around how an IP can use general proxies in their favour. Most IPs will always abstain from voting in respect of any general proxies they hold.


What to Expect at the Meeting

Most meetings will be fairly dry and formulaic, and there are a lot of formalities that need to be observed. The first step is for the Chairperson to establish that the meeting can actually take place. This is achieved by confirming the number and voting entitlement of attendees and ensuring that enough people are attending the meeting (at least two creditors must be in attendance by whatever means for the meeting to proceed – referred to as a quorum).

Other formalities include the tabling of documents, and various announcements as to the purpose of the meeting and the way the meeting is to progress.

After the formalities comes the “interesting” part of the meeting – the floor will be opened for questions, and then any resolutions will be put to the meeting.

How does Voting Happen?

Voting at the Meeting can occur by one of two methods:

    • On the Voices. A vote “on the voices” is basically a show of hands. A vote “on the voices” ignores the dollar value of claims and is decided by simple majority. It is also important to note that, if a vote is taken “on the voices”, each person physically in attendance only gets one vote, regardless of how many parties they might be representing. This can obviously create difficulties where someone is representing two parties that have expressed differing voting intentions by special proxy (refer above). The easiest way around this is to demand that the vote be determined by poll. Any attendee has the right to demand a poll.
    • By Poll. A poll considers both the number and dollar value of creditor claims. When a vote is taken by poll, each creditor submits their vote by the available means and the Chairperson (or more likely their staff) counts the results and announces them to the meeting. If you already know your voting intention prior to the meeting, it is preferable to provide this information to the IP early, as this will speed up the voting process significantly.

A resolution requires more than 50% in both number and dollar value to pass by poll. If only one of these is achieved, the Chairperson has the option of using a casting vote to break the deadlock. If the vote does not achieve both majorities, and the casting vote is not used, the resolution does not pass.

There are strict considerations around the use of the casting vote. If you are at a meeting and you have concerns about the way a casting vote was used or the reasons given, you should raise your concern with the IP directly.

NOTE: As a result of changes in the legislation caused by the COVID-19 pandemic, all voting at meetings must currently be undertaken by poll.

What are my options?

When a vote is taken, you can vote in favour of the proposed resolution, against it, or you can choose not to vote (you abstain from voting). If you choose not to vote, your decision is still reflected in the outcome of the vote and the minutes of the meeting.

You are not required to justify or give any explanation for the way you have voted if you do not wish.

How long will it take?

The length of the meeting will generally be dictated by the following factors:

    • The number of attendees. Obviously more attendees likely means more chances for questions, but it also means that the formalities that open the meeting will take much longer (as the Chairperson will need to announce every attendee and their voting entitlement).
    • The number and complexity of questions. It goes without saying that questions and responses take time. The more questions there are, the longer this phase of the meeting will take.
    • The number of the resolutions. Counting voting results can also take time. Even though most IPs will have a spreadsheet prepared ahead of the meeting to calculate results fairly quickly, each resolution still takes a number of minutes to decide and announce.

An average meeting of creditors will likely take 10-25 minutes. If you are attending the second meeting in a Voluntary Administration, however, you should expect that the meeting may go for an hour or more.

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