Are you a creditor of a company?
Are you concerned that a company owing you money is not doing so well?
Sarah owns a roller door company specialising in factory and shopping centre fit outs. Six months ago, her company fitted out a factory, with roller doors to the sum of $25,000. Sarah’s company has not received payment for that work and Sarah has recently heard that the factory is not doing very well financially and has entered into Creditors Voluntary Liquidation (CVL).
Sarah came to us seeking advice about her options, particularly with the recent changes brought about from the Insolvency Law Reform Act 2016 (the ILRA).
New ILRA reforms to CVL were introduced on 1 September 2017. The effect of the changes is such that where directors refuse to pass a solvency declaration in respect of the company, a liquidator must be appointed by its members (s499(1)). Creditors can subsequently and at any time seek a replacement of that liquidator appointed by members if deemed appropriate, and there is no need to convene a creditors meeting after the members’ meeting.
Appointing a Committee of Inspection (COI)
The creditors, by resolution, can appoint a Committee of Inspection. The ILRA includes the power for a ‘large creditor’ and employees to appoint a specific representative to the COI. A large creditor is one that is owed at least 10% of the value of the creditors’ overall debt, or a group of creditors representing at least 10% of that value.
Employees owed at least 50% in the value of entitlements owed to or in respect of employees are also given a right to be represented on the committee, pursuant to ss80-25 of the ILRA.
In Sarah’s case, the total value of the creditors’ debts was $250,000.00. This meant that Sarah’s company was classified as a large creditor due to her company’s debt being 10% of the value of the creditors’ debts which meant she was entitled to appoint a particular representative to the COI.
Report as to affairs (RATA)
Directors must submit a RATA to the liquidator within five business days of the members’ meeting which resulted in the appointment of that liquidator. The liquidator then has 10 business days after receiving the RATA to lodge a copy of it with ASIC.
It should be noted that the ILRA distinguishes between a Members Voluntary Liquidation (MVL) and a CVL, discussed above. This is because s9 defines a CVL as a voluntary liquidation ‘other than a members’ voluntary liquidation, and the definition of a MVL requires that a declaration of solvency be passed by the directors.
Under the new provisions, the power to fill a vacancy created by the resignation of a liquidator (other than for a court appointed liquidation) is given to the court, the creditors or ASIC. Where a liquidator’s registration is suspended or cancelled, only ASIC can then fill that vacancy.
Creditors should obtain appropriate advice and engage with the debtor company and any administrator or liquidator appointed to it to maximise any return to them in the event of that company’s liquidation.
To find out more on your options with respect to company debts or corporate insolvency generally, please contact Angela Catanzariti or Lynda Lim, Senior Litigation Lawyers, for a full and frank discussion.
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