Recession
Creditors meetings – Avoiding the Pitfalls
By Ken Fennell, Kavanagh Fennell
Oct 13, 2009 - 11:01:20 AM

  The rapid decline in our economy has seen a dramatic increase in the number of insolvent companies. During 2008, the total amount of Creditors Voluntary Liquidations was 773, by the end of August of this year, a total of 983 companies have already gone into Liquidation via this method.

An increasing number of clients are seeking advice from their Auditors and/or Financial Advisors to consider their options when they realise the company is insolvent, i.e. unable to pay its debts as they fall due.

Unfortunately, in many cases the advice proffered to the client can only be to wind up the business and to call a Creditors meeting. The procedures to be followed by the Directors in the calling of a Creditor’s meeting are set out in Section 266 of the companies Act 1963.

The Institute of Certified Public Accountants In Ireland have prepared a Statement of Insolvency Practice S8B which sets out the basic principles with which insolvency practitioners are required to comply and these principals are an excellent guide to the preparation for convening and holding a Creditors meeting.

Creditors Meeting:

The first step in this process is to identify and obtain the agreement amongst the Directors on the appointment of a Liquidator.

Secondly, there must be a meeting of the company’s Directors at which a decision is taken to wind up the company and the Company Secretary is directed to convene the general meeting of the company to pass an ordinary resolution (S251 (1)(c) CA 1963) and to call a meeting of its Creditors.

This resolution should also identify the date and the location of the Creditors meeting. At this point the Directors should ensure that the Creditors listing should as far as possible be brought up to date.

Section 266 (1) of the CA 1963 outlines that:

• Notice of the meeting must be given by post to all Creditors not less than 10 days before the date of the meeting

• That a proxy form must accompany each notice giving the Creditors the right to appoint either (note):

  • The Chairman of the meeting as his proxy or

  • Some other person to vote in their place including the Creditor him/her self.

• Notice of the meeting must be placed once in at least two daily newspapers, usually National papers at least 10 days in advance of the Creditors meeting.

• The Creditors meeting must be held on the day of or the day after the general meeting of the members, which is called to pass the resolution to wind up.

Note: The Rules of the Superior Court Ord 74 r 77 provides that a general and special proxy must be sent with the notice of the Creditors meeting.

Section 266 (3)CA 1963 directs that the Directors must prepare `a full statement of the position of the company’s affairs, together with a list of the creditors of the company and the estimated amount of their claims` and this should be presented to the Creditors meeting.

As Section 267(3) of CA 1963 provides that the resolution of the majority in value of the Creditors personally present or represented by Proxy, there have been many occasions where the values of proxies have been challenged and there is a significant amount of case law surrounding this area.

Therefore the statement of affairs should contain the most up to date creditors’ figures available as even though the Statement of Affairs is a Directors’ estimate of the amounts due, there is an onus upon Directors to ensure that the figures included are as accurate as possible.

It is important that anyone advising their clients in organising a Creditors meeting takes time to ensure that the correct procedures are followed and avoid unnecessary pitfalls. Common examples of issues that can arise are

• Failure to place notices of the meeting in the newspapers allowing at least a 10-day period prior to the meeting.

• Failure to notify and include all members and Directors in the process of calling the Creditors meeting.

• Failure to book an adequate room in which the meeting is to be held having given due consideration to the number of Creditors likely to attend.

• The Directors should ensure that they control the Registered office of the Company. Where the registered office of the company may be in jeopardy of being repossessed by a landlord or where proxies cannot be personally delivered, the Registered office should be changed to an address the Directors control. (And such change recorded in the Companies Registration Office).

• Failure to obtain a letter of consent from the proposed liquidator – prior written consent in required otherwise the appointment is void – S 133 of Companies Act 1990.

On the day of the Creditors meeting, it is usual though not compulsory for the Directors to be aided in the procedural aspects of the meeting by a Solicitor. The purpose of the Creditors meeting is:

• To consider the Statement of Affairs

• To confirm the company’s liquidator appointed at the general meeting of members or to seek the nomination of an alternative liquidator and

• To nominate members to the committee of inspection if so desired.
  

Common pitfalls that may arise on the day of the meeting include:

• Failure of the Liquidator to attend or to have provided a letter of consent.

• Failure to have a quorum present at the members meeting

• Failure to bring to the meeting:

  • Copies of the Newspapers Adverts to show that the meeting had been properly advertised.

  • Copies of the Statement of Affairs to pass to Creditors.

  • Failure to bring all of the proxies lodged in the company’s registered office.
    

The Director appointed to act as Chairman of the meeting should be in a position to answer the questions raised by the Creditors on the Statement of Affairs, the company’s trading history and the reason for the company to decide to enter into liquidation.

The Director shall be normally expected to be familiar with the workings of the company and to have had some day-to-day involvement as the Directors have a duty to present a full statement before the meeting.

In summary, there are many pitfalls that can befall Directors and their advisors when preparing for the day of a Creditors meeting. With careful preparation these pitfalls can be avoided. We recommend that the Directors should seek the advice of the nominated liquidator in the preparation of the pre-liquidation paperwork to ensure that the relevant legislation is complied with and thereby avoiding the potential pitfalls.

For further advice on this topic we would recommend you refer to a newly published book entitled “A Practical Guide To Insolvency” written by Kavanagh Fennell and published by Gill and McMillan.

For further information on this or any related insolvency topics please contact David Van Dessel or Ken Fennell of Kavanagh Fennell on 01 2060800.

Ken Fennell and his team will present a Mock Creditors’ Meeting at the OmniPro Three-Day CPD Event, December 10^th, 11^th, 12^th in Dublin. Click here to view details.

For full details of all OmniPro CPD Courses please visit www.omnipro.ie or OmniPro Education & Training