What Happens at a Creditors’ Meeting?
Creditors’ meetings are a vital aspect of the insolvency process, providing a platform for creditors to participate in key decisions about a company’s future.
Learn more about these below and what to expect.
What is a creditors’ meeting?
A creditors’ meeting is a meeting of a company’s creditors where they can discuss the company’s financial situation and vote on a proposal for how the company’s debts will be repaid.
What Happens at a Creditors’ Meeting?
Here’s what happens at a creditors’ meeting:
- Presentation of a Statement of Affairs: The insolvency practitioner, an independent financial expert appointed to oversee the company’s financial affairs, presents a detailed statement of affairs. This report outlines the company’s financial status, including assets, liabilities, and the reasons leading to its insolvency.
- Discussion and Voting on Recovery or Liquidation: Creditors discuss and vote on a proposed recovery plan or liquidation process. The insolvency practitioner facilitates the discussion and ensures a fair and orderly voting process.
- Questioning of Directors: Creditors have an opportunity to question the company’s directors about the causes of the company’s failure, seeking clarification and explanations. The insolvency practitioner maintains a professional and impartial atmosphere throughout the questioning.
- Outline of Subsequent Steps: The insolvency practitioner outlines the next steps in the insolvency process, which may include further meetings, asset realization, and distribution of funds to creditors.
Creditors’ meetings are typically brief, lasting around 45 minutes to an hour. Attendance is not mandatory for creditors, but only a nominated director and the insolvency practitioner are compulsory attendees.
Can Creditors Request a Face to Face Meeting?
Yes, creditors can request a face-to-face meeting if they meet certain criteria. In both creditors’ voluntary liquidation (CVL) and company voluntary arrangements (CVAs), a face-to-face meeting can be convened if at least 10% of creditors, either by number or value, or at least 10 individual creditors make a formal request for the meeting. This means that a significant number of creditors must agree to the meeting for it to be held in person.
If the required number of creditors request a face-to-face meeting, the insolvency practitioner will arrange for a suitable venue and time. Creditors will be notified of the meeting in advance and will be given the opportunity to attend.
It is important to note that face-to-face creditors’ meetings are relatively rare. As technology has advanced, virtual meetings have become more common and convenient. Virtual meetings allow creditors to attend from anywhere in the world, which can save time and money. However, if creditors believe that a face-to-face meeting is necessary, they have the right to request one.
Creditor Meetings in Creditors’ Voluntary Liquidation
A CVL necessitates a meeting of creditors, also known as a Section 98 meeting, named after the relevant section of the Insolvency Act 1986.
Once the decision to enter liquidation is reached, a creditors’ meeting is scheduled within 9 to 21 days. This meeting typically follows the shareholders’ meeting and must occur within 14 days if not held immediately after. It’s important to note that shareholders, not creditors, initiate the liquidation process and appoint the liquidator.
During the meeting, creditors have the right to vote on whether to retain the already appointed insolvency practitioner or choose an alternative.
Additionally, creditors can establish a liquidation committee, similar to that formed in a compulsory liquidation, to facilitate communication between the insolvency practitioner and all creditors.
Creditors are eligible to vote only after submitting proof of debt and, if necessary, lodging a proxy form. A resolution can be passed if a majority in value of those present and voting, either in person or by proxy, approves it.
Value refers to the amount of money owed to each creditor. The chair calculates this figure after reviewing the submitted proofs of debt and proxy forms.
In the event that the liquidator later determines that the company is insolvent and unable to pay its debts in full during a members’ voluntary liquidation (MVL), they must convene a creditors’ meeting to convert the MVL into a CVL. This meeting, held under sections 95 and 96 of the Act, has the same effect as a section 98 meeting.
Creditor Meetings in Company Voluntary Arrangement
A company voluntary arrangement (CVA) is a legally binding agreement between a financially struggling company and its creditors to restructure the company’s debts and allow it to continue trading. The approval of creditors is crucial for the CVA to proceed.
Prior to the official creditors’ meeting, a detailed CVA proposal is circulated to all creditors, providing them with ample time, typically at least three weeks, to carefully evaluate the proposal. This ensures that creditors have sufficient time to make informed decisions. The meeting, typically conducted via video conferencing, is presided over by the insolvency practitioner, who will thoroughly explain the CVA proposal and answer any questions from creditors.
To ensure the CVA’s viability, a two-pronged voting process is employed. First, at least 75% of creditors, by value of their debts, must vote in favor of the CVA. This initial vote ensures that the majority of creditors support the proposed restructuring plan.
Subsequently, a second vote is conducted without the participation of ‘connected’ creditors, individuals or entities with close ties to the company. This second vote requires a simple majority approval, with 50% or more of the remaining creditors voting in favor of the CVA.
Accepting the CVA implies that creditors relinquish their right to take legal action against the company to recover their debts. They must carefully consider whether accepting the proposed reduced payments under the CVA is preferable to the possibility of compulsory winding up, where they may receive minimal or no return on their investments.
If creditors propose modifications to the CVA plan, these modifications must be put to a vote, requiring a 75% majority approval. HMRC, the UK’s tax authority, often proposes modifications to ensure it maximizes its return on the company’s debts.
In addition to the creditors’ meeting, a shareholders’ meeting is also convened by the insolvency practitioner. In this meeting, at least 50% of shareholders must approve the CVA, demonstrating the company’s ownership’s support for the restructuring plan.
Once the CVA proposal has gained the necessary approvals, the insolvency practitioner is obligated to produce a comprehensive report within four days. This report outlines the proceedings of the meetings and the voting outcomes. The report is distributed to all unsecured creditors and the court, making the CVA legally binding on all parties involved.
Creditor Meetings in Administration
A creditors’ meeting is a crucial gathering of a company’s creditors held within 10 weeks of entering administration to discuss the company’s financial situation and vote on proposals for its rescue.
Key Points:
- Creditors can approve, reject, or modify proposals.
- A simple majority by value is required for approval.
- A creditors’ committee may be formed to assist the administrator.
- Progress reports are sent to creditors and the court every six months.
- Creditors have the right to request a meeting if 10% of them agree.
Creditor Meetings in Compulsory Winding Up
In a compulsory winding up, creditors can vote on the appointment of a liquidator and the formation of a liquidation committee. Only creditors who have submitted proof of debt can vote.
Key Points:
- Creditors can choose to replace the Official Receiver as a liquidator.
- A simple majority vote is required to pass a resolution.
- Creditors can request further meetings if 25% of them agree.
- The liquidator may also call meetings as needed.
- A final meeting is held to consider the liquidator’s report and approve their release.
All Company Debt insolvency content is written by our licensed insolvency practitioners.
The primary sources for this article are listed below, including the relevant laws, and acts which provide their legal basis.
