Creditors’ Meeting is a meeting of the people or companies that are owed money by a bankrupt company,especially a meeting at which they vote on whether to accept the plan for dividing the assets . The meetings of creditors are called when the company purposes to make a scheme for arrangement with its creditors. Section 391 to 393 of the companies Act not only give powers to the company to compromise with the creditors but also lay down the procedure of doing so. Creditors meeting are also convened in the case of creditor’s voluntary winding up (B.A Blum 2011).
Why Should a Creditor Attend at a Creditors’ Meeting?
There are a lot of reasons for attending the meeting (H. Zhangi inni, 2009):
- You will get an estimated statement of affairs prepared by the directors of the company setting out all of the assets and liabilities of the company. This will permit you to assess whether there is a probability of being paid the company;
- You can determine if the company is in possession of any stock which you may have supplied under “retention of title”;
- You will be able to assess whether the directors of the company may have engaged in reckless or false trading. For example, if the company transacted business with you at a stage when the directors already knew that the company had no chance of recovery and was unable to pay its debts as they fell due, you may be able to sue the directors of the company personally;
- You will be able to nominate your own choice of liquidator. At the meeting, the shareholders of the company will already have nominated their own choice of liquidator. It is in your interests as a creditor to to assert that a competent, independent liquidator is appointed so that the prospects of recovering your losses are improved and the pot of available assets (which is used to repay creditors) is maximised;
- You will be able to nominate yourself to be appointed to a “committee of inspection” being a representative body of members and creditors of the company who liaises closely with the liquidator in winding up the company. This permits you to be an active presence in the liquidation and will assertthat you are aware of any proposed actions which might limit your ability to recover your losses;
- At leas and perhaps most importantly, by attending the creditors’ appointment and overviewing the directors’ estimated statement of affairs you will become aware of other creditors of the company who may be especially affected by the fact that the company in question is now insolvent. Very often, the liquidation of one company has a domino effect with a number of creditors of the insolvent company (who were on that company) being forced out of business. The director’s statement of estimated affairs will identify any such creditors who may also be some of your own customers or suppliers.
The Format of a Creditors’ Meeting
Creditors’ meetings typically take the following format (Frieze S. 2004):
- First, the creditors sign in and are provided with a copy of the directors’ estimated declaration of affairs which will deal details of the assets of the company as well as details of all preferential and unsecured creditors (it can be helpful to have an advisor present to help you overview the statement of affairs if you are not familiar with reading company accounts).
- The quorum for a valid appointment is three obligees. If there are less than three creditors in attendance, the appointment is unimportant and no action may be taken unless those creditors present represent all of the company’s creditors.
- A director of the company reads out a declaration to the creditors outlining the various reasons for the company’s failure and the obligees and any representatives attending on behalf of creditors are then given an opportunity to ask questions. As mentioned above, in the majority of cases no questions are asked and this part of the appointment lasts only a few moments. However, in the context of maximising your chances of recovering any monies owed to you it is essential that you ask the right questions at the appointment .
- A careful overview of the statement of affairs will invariably deal rise to a number of issues which you should seek to have clarified at the appointment.The obligees are then given an opportunity to propose an alternative liquidator to the one proposed by the shareholders.
- At least, the creditors are invited to nominate themselves to be appointed to a “committee of inspection” to liaise with the liquidator during the course of the liquidation.
- Blum, B.A. (2011). Bankruptcy and Debtor/creditor: Examples and Explanations, Bankruptcy and Debtor/creditor: Examples and Explanations
- Frieze S.A. (2004) 'Personal Insolvency Law in Practice, Personal Insolvency Law in Practice,
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- Mejorada N.D, (2000), Advanced accounting, Advanced accounting,
- Shumway T., (2001). Forecasting bankruptcy more accurately: A simple hazard model. The journal of business, 74(1),
- Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0). Prentice Hall.
- Zhang H. (2009). China's New Enterprise Bankruptcy Law: Context, Interpretation and Application China's New Enterprise Bankruptcy Law: Context, Interpretation and Application.
Author: Beata Furmanek