As more and more companies succumb to insolvency, many business suppliers are receiving invitations to creditors’ meetings. When an insolvent company decides to wind up voluntarily, a notice will be sent to all creditors together with a general/special proxy form to commence the liquidation process. The notice will also be advertised in local newspapers. The proxy form allows you to appoint somebody to attend and vote at the creditors’ meeting (including the Chairman) so you do not have to attend personally to vote. The notice and forms are formal documents and can be daunting to a person unfamiliar with liquidations.
There are strict requirements regarding the proxy forms. The form must be completed correctly and returned to the registered office of the company by the time stated on the notice. An invalid form could deprive you of a vote at the creditors’ meeting. If you are unsure about completing the proxy form, you should seek advice.
On a basic level, attendance at the creditors’ meeting is an important information gathering exercise. You will obtain details about the company which might not otherwise be available to you. The purpose of the creditors’ meeting is to enable all creditors to meet at one place where they will be given a full statement of the company’s affairs together with a list of creditors and the estimated amount of creditors’ claims. The creditors will also be given an opportunity to quiz the Directors as to the figures in the Statement of Affairs and the circumstances surrounding the demise of the company. If you are owed a significant amount of money, it is crucial that you attend the creditors’ meeting so you can get an idea as to whether there is a possibility of recovering monies through the liquidation. Also, if the creditors are not satisfied with the Liquidator to be appointed by the company, the creditors can appoint their own Liquidator provided there is a resolution of the majority in value of the creditors at the meeting. Your vote is crucial in this respect.
As a creditor, you should know exactly how much is owing to you and be in a position to prove the debt with the relevant invoices, statements and other documents. If there is a retention of title clause in your contract, you will need to identify your goods and ensure that they are stored and not sold pending the appointment of the Liquidator. You should contact the company immediately in relation to goods subject to retention of title clauses.
All unsecured (as opposed to preferential/secured) creditors of an insolvent company are treated equally in the liquidation. If the assets of the company are insufficient to meet all the debts, then the debts will be reduced proportionately. If you do not lodge your claim at the creditors’ meeting, you could deprive yourself of recovering a dividend from the liquidation, no matter how small the dividend might be.
Creditors can also be appointed to the Committee of Inspection, if formed. The Committee of Inspection is comprised of creditors and members of the company who can assist the Liquidator in conducting the liquidation. Creditors can appoint 5 people to the Committee and the company will appoint 3. Being on the Committee of Inspection would ensure that you are closely involved with the liquidation but if there are no nominations from creditors, there will be no Committee.
The creditors’ meeting is also a forum where you can enquire about the behaviour of the Directors. You might establish if the Directors behaved recklessly or fraudulently in the running of the company which could ultimately lead to actions for personal liability against the Directors. However, while questions are permitted, there is no obligation on a Director to answer.
Essentially, the creditors’ meeting is where you lodge your claim in the liquidation and obtain as much information as possible to ascertain if you will recover your debt and/or if there are any other avenues open to you in terms of pursuing the debt. The importance of attending should not be underestimated.