Creditor Rights in Liquidation & Administration

Supporting Creditors Rights in Liquidation

Site_Logo300pxWeb

Supporting Creditors Rights in Liquidation

Voting Rights

Find all the information you need about Creditor Voting Rights in Liquidations

Need information about Creditor Voting Rights in Voluntary Administrations?

Creditor Voting Rights in Liquidations

Right to Request Information

In voluntary administration, two meetings of creditors are automatically held. The first meeting is held within 8 days of the Voluntary Administrator’s appointment. Information and a notice of the meeting will be issued to all known creditors.

At the second meeting, the creditors will get to plan the company’s future. A voluntary administrator will provide creditors with a notice and a report to assist in making your decision. This meeting is usually held within 6 weeks of appointment.

A creditor is entitled to information from the Voluntary Administrator at any time provided their request is:

  • ‘reasonable’,
  • the information is relevant, and
  • the provision of the information would not cause the Voluntary Administrator to breach their duties.

The information must be provided within 5 business days of the request receipt (unless agreed otherwise). The voluntary administrator may notify the creditor to extend the period if the nature of the information requires extra time.

*Reasonable Requests

A request is not reasonable if:

  1. Complying with the request would prejudice the interests of one or more creditors, or a third party.
  2. The information requested would be privileged from production in legal proceedings
  3. Disclosure would find an action for the breach of confidence
  4. There is not sufficient available property to comply
  5. The information has already been provided
  6. The information is required to be provided under law within 20 business days of the request
  7. The request is vexatious.

*Note: If a request is not reasonable due to (2), (4), (6) or (7), the liquidator must comply with the request if the creditor meets the cost of complying with the request.

*Unreasonable Requests

A request is not reasonable if:

  • Complying with the request would prejudice the interests of one or more creditors, or a third party.
  • The information requested would be privileged from production in legal proceedings
  • Disclosure would find an action for the breach of confidence
  • There is not sufficient available property to comply
  • The information has already been provided
  • The information is required to be provided under law within 20 business days of the request
  • The request is vexatious.

*Note: If a request is not reasonable due to (b), (d), (g) or (h), the liquidator must comply with the request if the creditor meets the cost of complying with the request.

Right to Give Directions to Voluntary Administrator

  • A creditor may give a voluntary administrator directions in relation to a voluntary administration. Although a voluntary administrator must have regard for these directions but is not required to follow them.
  • If they do not comply with the direction, the voluntary administrator must document their reasons.
  • An individual creditor cannot provide a direction to a voluntary administrator.

Right to Appoint a Reviewing Liquidator

Creditors may appoint a reviewing liquidator to review the following:

  • Remuneration approved within the six months prior to the appointment of the reviewing liquidator, and
  • Expenses incurred in the 12 months prior to the appointment of the reviewing liquidator.

The cost of the reviewing liquidator is paid from the assets of the liquidation, in priority to creditor claims. However, if an individual creditor decides to appoint a reviewing liquidator with the voluntary administrator’s consent, the cost must be met personally by the creditor making the appointment.

Right to Replace Voluntary Administrator

The First Meeting:

  • Creditors have the right to remove a voluntary administrator and appoint another registered voluntary administrator in the first meeting.
  • To seek removal and replacement, a creditor must ensure that they have consent from another registered liquidator prior to the first meeting.

The Second Meeting:

  • A creditor can replace the voluntary administrator at the second meeting if:
  • Creditors vote to accept a proposed deed of company arrangement.
  • If creditors vote to place the company into liquidation

It is usual or the voluntary administrator to act as a deed administrator or liquidator. It would be expected that additional costs would be incurred by an alternate deed administrator or liquidator to gain the level of knowledge of the voluntary administrator.

To seek removal and replacement, a creditor must ensure that they have consent from another registered liquidator prior to the second meeting.

Creditor Voting Rights in Liquidation

Right to Request a Meeting

No meetings of creditors are held automatically. Creditors with claims of a certain dollar value have right to make a written request for the trustee to hold a meeting of creditors.

A meeting can be requested anytime by:

  • >10% but < 25% of the known value of creditors on the condition that those creditors provide security for the cost of holding the meeting
  • ≥ 25% of the known value of creditors
  • creditors by resolution, or
  • a Committee of Inspection (a smaller group of creditors elected by, and to represent, all the creditors).

If a request complies with these requirements and is ‘reasonable*’, the liquidator must hold a meeting of creditors as soon as reasonably practicable.

Right to Request Information

A trustee will communicate important information with creditors as required. At minimum you should receive:

  • An initial notice.
  • A report within the first here months on the likelihood of a dividend being paid.

A creditor may also have the right to request information at any time. For a request to be valid the following must be fulfilled:

  • The request must be ‘reasonable*’; and
  • The information is relevant to the administration of the estate; and
  • The provision of the information would not cause the trustee to breach their duties.

Unless a longer period is agreed, a trustee must provide the information within 5 days of the receipt of the request. If needed the trustee may notify the creditor in writing to extend this period.

*Reasonable Requests

A request is not reasonable if (note (d) is only applicable to meeting requests, and (e)-(h) are only applicable to information requests):

  •   Complying with the request would prejudice the interests of one or more creditors, or a third party.
  •   There is not enough available property to comply with the request
  •   The request is vexatious
  •   A meeting of creditors dealing with the same matters has been held, or will be held within 15 business days.
  •   The information requested would be privileged from the production in legal proceedings
  •   Disclosure would found an action for the breach of confidence
  •   The information has already been provided
  •   The information is required to be provided under law within 20 business days of the request

*Note: If a request is not reasonable due to (b), (d), (g) or (h), the trustee must comply with the request if the creditor meets the cost of complying with the request.

*Unreasonable Requests

A request is not reasonable if (note (d) is only applicable to meeting requests, and (e)-(h) are only applicable to information requests):

  • Complying with the request would prejudice the interests of one or more creditors, or a third party.
  • There is not enough available property to comply with the request
  • The request is vexatious
  • A meeting of creditors dealing with the same matters has been held, or will be held within 15 business days.
  • The information requested would be privileged from the production in legal proceedings
  • Disclosure would found an action for the breach of confidence
  • The information has already been provided
  • The information is required to be provided under law within 20 business days of the request

*Note: If a request is not reasonable due to (b), (d), (g) or (h), the trustee must comply with the request if the creditor meets the cost of complying with the request.

Right to Give Directions to Trustee

  • A creditor may give a trustee directions in relation to administration of estate. A trustee must have regard for these directions but is not required to follow them.
  • If they do not comply with the direction, the trustee must document their reasons.
  • An individual creditor cannot provide a direction to a trustee.

Right to Apply to Inspector-general for a Review of Remuneration

Creditors may apply to the Inspector-General to conduct a review of a trustee’s remuneration. The Inspector-General may refuse to conduct a review on various grounds.

Right to Replace Trustee

Creditors have the right to remove a liquidator and appoint another registered liquidator. To do so the following must be complied with:

Meeting Request

  • A meeting must be reasonably requested by the required number of creditors
  • Creditors must inform the trustee of the purpose of the meeting request.

Meeting Request

  • A meeting must be reasonably requested by the required number of creditors
  • Creditors must inform the trustee of the purpose of the meeting request.

Notice and Consent

  • Creditors must determine whom the new registered trustee is and obtain:
  • Consent to act (can be obtained by different creditors from different trustees. The Government Trustee can also act as a trustee), and
  • Declaration of Independence, relevant relationships and Indemnities (DIRRI).
  • The existing liquidator will send a notice of the meeting.

Resolution at Meeting

  • If a resolution is passed to remove a trustee, they will cease to be the trustee.
  • If creditors do not appoint another registered trustee that person will become the trustee of the estate
  • If another trustee is not appointed, the Government trustee will be appointed.

 

SOURCE: 200801 Creditor Rights Information (Voluntary Administration & Regulated Debtor Estate)