What rights do I have as a creditor during a creditors meeting in a Voluntary Administration?

The insolvency landscape has gone through major reforms in recent years, particularly with the introduction of the Insolvency Law Reform Act 2016 (Cth) (“ILRA”).

The insolvency landscape has gone through major reforms in recent years, particularly with the introduction of the Insolvency Law Reform Act 2016 (Cth) (“ILRA”). The ILRA was introduced to provide new regulatory powers to the Australian Securities and Investments Commission (“ASIC”) and, among other things, improve the standing and powers of creditors in the external administration process. In this article, I will explore some of these updates, particularly in regard to the powers of creditors during creditors meetings in a Voluntary Administration scenario.

Statutory Requirements for an Administrator during a Voluntary Administration

Once an Administrator is appointed to a Company, there are statutory requirements that must be completed. Among these statutory requirements, an Administrator must:

  • Complete and lodge a declaration of relevant relationships and indemnities with ASIC as soon as practicable.

This is to assist creditors to further understand any relationships that the Administrator may have with parties closely connected to the Company and any indemnities or upfront payments that have been provided. The purpose of providing this information is so creditors can have trust and confidence in the Administrator’s independence, and if not, creditors have the power to obtain further information, and they may act to remove the Administrator from office at the first meeting of creditors.

  • Notify creditors of the appointment and convene a first meeting of creditors.

At the first meeting of creditors, creditors are given powers to determine:

  • Whether to appoint a committee of inspection; and
  • If so, who are to be the committee members;
  • Whether to remove the Administrator from office; and
  • Appoint someone else as administrator of the Company.

The first meeting of creditors must be held within 8 business days after the administration begins.

How can I vote at a Creditors Meeting?

Once a Company has been placed into Voluntary Administration, and you are a creditor of the Company as at the date of appointment, you are able to contact the Administrator and request they provide you with a Proof of Debt Claim Form. Once the creditor has provided details of their outstanding amount owed with supporting documentation, the Administrator must review the proof of debt and supporting documentation received.

Pursuant to the Insolvency Practice Rules (Corporations) 2016 (Cth) s 75-85, a person is not entitled to vote as a creditor at a meeting of creditors unless:

  1. His or her debt or claim has been admitted wholly or in part by the external administrator; or
  2. He or she has lodged, with the person presiding at the meeting, or with the person named in the notice convening the meeting as the person who may receive particulars of the debt or claim;
    1. Those particulars; or
    2. If required – a formal proof of the debt or claim.

A creditor must not vote in respect of an unliquidated debt, or a contingent debt, or a debt the value of which is not established, unless a just estimate of its value has been made.

The person presiding at a meeting has the power to admit or reject a proof of debt or claim for the purposes of voting.

When is the Second Meeting of Creditors?

Once the first meeting has been conducted and creditors have voiced any concerns they may have regarding the appointment, the next step for the Administrator is to conduct their investigations into the Company. The Administrator must also convene a second meeting of creditors to be held within 5 business days before, or within 5 business days after, the end of the convening period.

Furthermore, the convening period is the period of 20 business days beginning on:

  1. The day after the administration begins; or
  2. if that day is not a business day – the next business day.

Furthermore, creditors should also note that if the administration begins in December, or is less than 25 days before Good Friday, the period of 25 days begins on:

  1. that day; or
  2. if that day is not a business day – the next business day.

To account for the public holidays.

What happens at the Second Meeting of Creditors?

The formal notice of the second meeting of creditors must be accompanied by an Administrator’s report which provides creditors with further details regarding the company’s business, property, affairs and financial circumstances. The Administrator must also provide their opinion on the following matters:

  1. whether it would be in the creditors’ interest for the company to execute a deed of company arrangement;
  2. whether it would be in the creditors interest for the administration to end;
  3. whether it would be in the creditors’ interest for the company to be wound up; and also setting out:
  4. his or her reasons for those opinions;
  5. such other information known to the administrator as will enable to creditors to make an informed decision about each matter covered by subparagraph (i), (ii) or (ii) above;
  6. whether there are any transactions that appear to the administrator to be voidable transactions in respect of which may be recoverable by a liquidator; and
  7. if a deed of company arrangement is proposed, details of the proposed deed.

The second meeting provides creditors with an opportunity to voice their queries regarding the status of the administration. For example, this may include queries regarding details of a potential Deed of Company Arrangement (“DOCA”), the administrator’s plans for potentially trading on the business, if the business can be sold, what the reasons were for the failure of the business, and if there are any potential recovery actions against the director. The voluntary administrator is also responsible for reporting to ASIC possible offences by people involved with the company.

Furthermore, creditors have the power to make an informed decision on what should happen to the Company moving forward. This may be based on numerous issues, including what outcome will provide the greatest return to creditors.

In this article, I have provided some details of the rights and powers available to creditors during meetings in a Voluntary Administration scenario. We encourage creditors to seek advice from our qualified team of insolvency experts to provide further guidance on these issues.

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