A liquidation committee is a small representative group of company creditors whose task it is to assist the insolvency practitioner.
Consisting of at least three and no more than five creditors of a limited company, and very occasionally shareholders if the situation warrants, a liquidation committee is necessary both in a creditors voluntary liquidation and in a compulsory liquidation.
Key Roles of the Liquidation Committee
One of the key roles liquidation committees is to establish how much the insolvency practitioner is going to be paid. One of the early discussions will involve whether the liquidator is going to be paid a fixed fee or an hourly rate. It is within an insolvency practitioner’s rights to request an increase of fees from the creditors’ committee should he deem the set fees to low. On occasion, he may even appeal to the court for a decision on this matter.
A Sounding Board for the Insolvency Practitioner
Another key function of the liquidation committee is to act as a general sounding board for the liquidator, in both understandings what has befallen the company, and weighing up the views of those concerned. The relationship between the liquidation committee and the liquidator is a close one, in that the liquidator has a legal duty to report the committee all such matters as appear to him important, with respect to the liquidation.
Establishment of the Liquidation Committee
A liquidation committee is entitled to act only if the liquidator has issued a certificate of constitution, and only if a minimum of three creditors has agreed to act. The committee is established at the first general creditors meeting unless the creditors’ voluntary liquidation is following an administration, in which case the existing committee will suffice.
The Liquidation Committee in a CVL
No more than five creditors are permitted on the liquidation committee of the CVL, but in this situation, shareholders are entitled to a further five members if they wish. Creditors, however, have the right to exclude any of the shareholder’s nominees, unless specifically directed by a court.
What are the Requirements for Membership of a Liquidation Committee?
Creditors who wish to be a part of the liquidation committee must
(a) have an unsecured debt (those whose debt is fully secured are precluded)
(b) have officially lodged a proof of debt
(c) the creditors proof must not have been disavowed for voting purposes nor rejected for the purposes of distribution of dividend
(d) be willing to act as a member of the committee
In addition, no member of the creditors committee may be:
(a) an undischarged bankrupt, not subject to bankruptcy restrictions
(b) a body corporate
(c) a disqualified director
Existing Members will be Discharged Automatically if:
(a) they become bankrupt
(b) they failed to turn up for three consecutive meetings
In this scenario, assuming the overall level of membership does not fall below three persons, the position need not be filled if the other members of the liquidation committee agree.
How Does the Liquidation Committee Vote?
Each member of the committee as a single vote and the resolution is passed when the overall votes which majority.
Careful minutes should be taken of all liquidation committee meetings and signed by the chairman.
Do Members Receive Remuneration?
No payment is given to creditors who form part of a liquidation committee, since the presence on the committee is to facilitate their payment of what is due them. Any reasonable travel expenses, however, incurred by committee members are paid from the insolvent estate.