Quite often we are asked to advise upon issues that arise in the context of creditor’s meetings. The following is a summary of commonly asked questions and commentary on the legal position, including a discussion of recent cases that have looked at each issue.

1. Can a 2nd creditor’s meeting be extended beyond the 45 day statutory period?

Ordinarily, Courts are willing to grant an extension of the 45 day statutory period in circumstances where the delay is by no fault of the administrator.1 The Court granted an extension of 3 months in the case of Duncan. Further investigations were required into the affairs of the company and there was a possibility that a Deed of Company Arrangement would be proposed.

The Court held that administrators play an important role in providing information to creditors to allow them to make informed decisions as to the future of the company. The Court decided in these circumstances that the extension should be granted, as the delay was not the fault of the administrator.

2. Can a chairperson deny a creditor the right to vote because of ‘inadequate’ particulars on a proof of debt?

The chairperson has the power to deny a creditor the right to vote in situations where the creditor fails to show that their claim is more than a mere assertion. Under regulation 5.6.26(1) of the Corporations Regulations 2001 (Regulations), the chairperson has the power to admit or reject a proof of debt for the purposes of voting.

In Selim v McGrath [2003] NSWSC 937, the Court held that to merely assert a claim is insufficient to secure the right to vote. The person asserting creditor status must at least set out the facts upon which they rely and which would assist the chairperson in deciding whether the claim has substance.

3. Can refusal to admit a proof of debt and consequently a right to vote be challenged?

A person aggrieved by any act, omission or decision of an administrator, liquidator or receiver regarding the admission of a proof of debt may appeal to the Court.2 The Court may then confirm, reverse or modify the decision.3

In Westpac Banking Corporation v Totterdell the Court held that the aggrieved person must establish that there is merit in the appeal and the decision was made in error.

4. Can a proxy form other than the form distributed with the initial notice of meeting be used by creditors in voting?

So long as a proxy form complies with Form 532 (see regulation 5.6.29 of the Regulations), that proxy form cannot be rejected on the grounds that it differs in style from the original form sent out.

In Shivani v Australian Goods Co Pty Ltd (receivers and manager appointed)(in liquidation) [2006] WASC 85 , the administrator of the company attempted to reject a number of proxy firms on the basis that they were not in the same form that the administrator had initially sent out.

The Court held that the Regulations do not provide that the proxy form used must be the same as that which is sent out. Further, the Court found that liquidators or administrators may not impose any greater requirement for the appointment of a proxy than which is imposed by the Corporations Act 2001 (Cth).

5. In an ‘on the voices’ vote, can a holder of multiple proxies vote in accordance with the number of proxies they hold or are they only attributed one vote?

Whether an individual creditor holding multiple proxies is attributed only one vote or one vote per proxy depends on the form of the vote. The Court in Le Meilleur Pty Ltd v Jim Heung Neutral Savings Bank Co Limited [2011] NSWSC 115 held that in the event of an ‘on the voices’ vote, each individual entitled to vote will be counted as a single vote only. The rationale for this rule is to ensure the efficiency of creditors meetings. In contrast, where a vote is taken by poll, one vote is counted per proxy held.

6. Should a chairman always exercise a casting vote?

In the event of a deadlock, once votes are cast, an administrator or liquidator may, at their discretion, exercise a casting vote.4 This discretion should be exercised in the absence of a good reason not to and a failure to do so for an irrational or irrelevant reason is inconsistent with the administrator’s or liquidator’s duty to act for a proper purpose.5 The discretion is most appropriate in circumstances where creditors with a majority in value have such an overwhelming interest that it would be inappropriate to allow a majority in numbers to win the vote.6

7. Is there a risk of personal liability for persons acting unreasonably in a creditors meeting?

An administrator, liquidator or receiver who acts unreasonably in the conduct pf a creditors meeting may be personally liable for those actions, as such conduct amounts to breach of their duty to treat all creditors fairly.

In National Australia Bank v Cranny, due to an oversight, the National Australia Bank (NAB) did not submit the required proxy form and was therefore excluded from voting by the Bankruptcy Trustee. The Court held that the Trustee had acted unreasonably in not alerting NAB of this oversight as the failure to do so was motivated by the desire to take advantage of NAB’s error. The Court stated that it would have been clear to the Trustee before the creditors meeting that NAB was crucial to the outcome of the meeting. The Court did not award costs in this instance but left it open as a possibility for future cases.

8. Is the submission of a proof of debt for the full amount of indebtedness combined with voting ‘on the voices’ evidence of an election to surrender security?

Although the filing of a proof of debt for the full value of any amount owing will be considered as evidence of the creditor surrendering their security, this factor alone is not determinative.7

In Provident Capital Ltd, the creditor Provident Capital Ltd (Provident) filed a proof of debt for the full amount owing to them without estimating their security, being a charge and a mortgage. The solicitor for Provident subsequently voted on an ‘on the voices’ vote pursuant to a proxy.

The Court held that although this conduct amounted to evidence of a surrender of the security, it was not determinative in an ‘on the voices’ vote. The court stated that in order to amount to a surrender, the words or conduct must be unequivocal. The Court however acknowledged that security would be surrendered if the vote was taken by poll.

9. Can a chairperson at a meeting exercise their casting vote to defeat a resolution for their removal?

An administrator has a duty to act in the interests of not only major but also minor creditors.8 This duty to all creditors enables an administrator to oppose a resolution for their removal by a major creditor in circumstances where they are honestly acting in the best interests of the creditors as a whole.9

The Court in Kirwan held that an administrator was not act independently. permitted to exercise their casting vote to avoid being removed as it was evident that the use of their casting vote was to protect the minority creditors. The basis of the Court’s finding was that the administrator had been critical about the conduct of their proposed replacement and the minority creditors wished to avoid incurring costs of a major firm of administrators.

10. Can a chairperson at a meeting exercise their casting vote to approve their own remuneration?

A chairperson may only exercise their casting vote for a resolution determining or fixing their remuneration in very limited circumstances.10 An example of a circumstance permitting the exercise of a casting vote in such a way arose in Williams (as liquidator of C & D Global Protection Pty Ltd (in liq)) v CD Protective Services Pty Ltd (No 3) [2010] QSC 224. In this case, the Court approved the exercise of the casting vote in respect of the liquidator’s own remuneration as it was evident that the liquidator was not preferring their own personal interests.

Among the factors considered were: only 0.01% of voting creditors opposed the resolution; exercising the casting vote would save the creditors incurring costs of an application by the liquidator to have the court determine appropriate remuneration; and it would save creditors time.

11. Can a creditor or liquidator apply to have an administrator removed?

A creditor, liquidator or ASIC may apply to the Court to have an administrator removed and another appointed.11 This was discussed in IMO Central Spring Works Australia Pty Ltd (No. 2) [2000] VSC 145. This case concerned an application by a creditor to remove the administrators for lack of ability to act independently in conducting meetings of creditors. The Court held that sufficient grounds for removal will be made out where the applicant can establish that removal of the administrator is conducive to better conduct of the administration. It was stated in this case that a lack, or perceived lack, of independence will satisfy this requirement. It was explained that the test is not a question of the administrator’s independence. It is instead a reasonable apprehension that they willnot act independently.

12. Can a creditor apply to have a liquidator removed?

The Court may, on application by a creditor, remove a liquidator and appoint another in their place,12 if the creditor can show sufficient cause for the removal. Sufficient cause will be established where the creditor can show that the removal would be in the interests of the liquidation and the better conduct of the winding up to the general benefit of the creditors.13

For example, the Queensland Supreme Court in Northbuild ordered the removal of the liquidator solely on geographical considerations. The liquidators were situated in Canberra and the assets and creditors in Queensland. No evidence of misconduct, impropriety, incompetence or lack of impartiality of the liquidators was presented. The Court’s decision rested solely on the fact that the liquidators were located a significant distance away.