4.7 Creditors' committees

Question 1

What are the functions of a creditors’ committee?

Answer 1

Primary purpose:
 To assists the office holder in discharging their functions; and
 act in relation to the office holder in such manner as may from time to time be agreed

Committees also carry out the functions conferred on it by the Act:
 to fix the basis of the office holder’s remuneration (not admin receivership); and
 to inspect financial and other records relating to the administration of the case; and
 If the committee is not satisfied, it may inform the Secretary of State

Question 2

When can there be a creditors’ committee in relation to a bankruptcy or compulsory liquidation?

Answer 2

When the OR is not office holder.

Question 3

What SIP is Reporting and providing information on their functions to committees and commissioners?

Answer 3

SIP 15

Question 4

How many members must there be in a creditors committee?

Answer 4

At least 3, but not more than 5:

EXCEPT CVL where could be 5 creditors and 5 contributories.

Question 5

When is a creditor eligible to be a member of a committee?

Answer 5

if:
 the person has proved for a debt;

 the debt is not fully secured; and

 the proof has not been wholly disallowed for voting purposes, or wholly rejected for the purpose of distribution or dividend

A company can be a member through an appointed representative

Question 6

When must the office holder deliver to creditors a notice inviting them to decide whether a creditors’ committee should be established?

Answer 6

Where the OH seeks ANY decision from the creditors, the Office Holder must at the same time deliver to the creditors a notice inviting them to decide…

The notice must also invite nominations by a specified date.

AND state that nominations can only be accepted if the convenor is satisfied as to the creditors’ eligibility.

Note SIP 15:

 Provide access suitable information on the rights, duties and the functions of committees, prior to inviting nominations

Question 7

What qualifications are required to act?

Answer 7

Members or their representatives must be natural persons

A representative cannot act for more than one member

The representative of a company must hold a letter of authority

No committee member may be represented by:
 A company
 an undischarged bankrupt
 disqualified director
 A person subject to a bankruptcy restrictions order, bankruptcy restrictions undertaking or interim bankruptcy restrictions order

The acts of the committee are valid notwithstanding any defect in the appointment or qualification of any committee member’s representative

Question 8

How is a creditors committee established?

Answer 8

 Where the creditors decide that a creditors’ committee should be established the convener or chair of the decision procedure (if not the trustee) must as soon as reasonably practicable deliver a notice of the decision to the Office Holder

 Where a decision has been made as to the membership of the committee, the convenor or chair (if not the trustee) must inform the Office Holder of the names and addresses of the persons elected to be members

 Before a person may act as a member they must agree to do so.

Question 9

When is a creditors’ committee deemed to be established?

Answer 9

The committee is not established until the office holder has delivered a notice of its membership in accordance with the rules

 Office Holder must, AS SOON AS REASONABLY PRACTICAL:

 In corporate insolvency – file notice with the Registrar of Companies
 in bankruptcy proceedings based on a petition file the notice with the court; and
 in bankruptcy proceedings based on a bankruptcy application deliver the notice to the official receiver.

Question 10

What are the rules relating to the timing of creditors’ committees?

Answer 10

Committee meetings must be held at a time and place determined by the office holder

Meeting may be by remote means.

 The first meeting to take place WITHIN 6 WEEKS of the committee’s establishment

 Further meeting must be called by the office holder IF REQUESTED by a member of the committee or a member’s representative

 The meeting must be HELD WITHIN 21 DAYS of the office holder’s receipt of the request

 The office holder must give fIVE BUSINESS DAYS’ NOTICE of the venue to
 each member of the committee (or a member’s representative)
 except where a member has waived the requirement for notice

Question 11

Who is the chair of a creditors’ committee?

Answer 11

OH or a person appointed by the committee.

Question 12

What represents a quorum for a creditors’ committee?

Answer 12

At least two members must be present or represented by proxy

Question 13

How are the resolutions passed and recorded?

Answer 13

Resolutions are passed by a simple majority

Record must be in writing and authenticated by the chair

Question 14

When can matters be determined by written resolution?

Answer 14

 Office holder can deliver details of a proposed resolution in writing

 The details must be set out in such a way that the recipient may indicate agreement or dissent

 Must be able to vote on each resolution separately

 Committee members have FIVE BUSINESS DAYS from delivery to REQUIRE A MEETING

 In the absence of such a request, the committee will pass the resolution if the majority of members deliver notice to the office holder that they agree

Question 15

What must an OH’s report to the committee contain?

Answer 15

The office holder must deliver a report containing:
 Progress
 Matters arising

Question 16

How often must the OH deliver a report to the committee?

Answer 16

Delivery not less than once every six months

 unless the committee agrees otherwise; and

 when directed to do so by the committee

The office holder need not comply with a direction where:

 it is frivolous or unreasonable; or

 where the cost of complying with it would be excessive; or

 where there are insufficient assets to enable the office-holder to comply

Question 17

A What expenses may be paid to committee members?

B Where do they rank for payment

Answer 17

Reasonable travelling expenses

Ranking alongside office holder’s disbursements

Question 18

What restrictions are there on committee members?

Answer 18

No committee member can enter into a transaction in which he receives payment out of estate:

 for services in which he obtains any profit; or

 in which he acquires any assets forming part of the estate

Question 19

To what other parties do the restrictions on personal gain apply?

Answer 19

 any member’s representative;
 any associate of a member;
 any past member within the previous 12 months

Question 20

What are the exceptions to the restrictions on personal gain?

Answer 20

Transactions by Committee members can be entered into:

 with the prior permission of the court; or

 if urgent, on application to Court without undue delay; or

 with the prior sanction of the committee (with full disclosure and for full value)

No member’s representative may vote on a resolution to sanction a transaction if he will participate in it directly or indirectly

Question 21

How can a committee member resign or be removed?

Answer 21

1) A committee member can resign by giving written notice to the office holder

2) Automatic termination if:

 the member becomes bankrupt (replaced by office holder)

 the member neither attends nor is represented at three consecutive meetings (unless it is resolved at the third of those meetings that this rule does not apply in that person’s case)

 the member has ceased to be eligible

 the member ceases to be a creditor or is found never to have been a creditor

3) A creditor member of a committee may be removed by a decision of the creditors
through a decision procedure

Question 22

When does the OH not need to fill a vacancy in a creditors’ committee?

Answer 22

If:
 the office-holder and a majority of the remaining creditor members agree;
and
 the total number of creditor members does not fall below three

Question 23

How can a vacancy on a creditors’ committee be filled?

Answer 23

Office Holder may appoint a creditor (who is qualified) to fill a vacancy or as an additional member of the committee, if:
 a majority of the remaining creditor members of the committee (provided there are at least two) agree to the appointment; and
 the creditor agrees to act

Alternatively, the office holder may seek a decision from creditors

Question 24

Does an office holder have to comply with the views of the committee?

Answer 24

No - SIP 15:

Office holders should exercise professional judgement according to the circumstances of the case whilst having regard to the views of the committee. Office holders should ensure that such views do not fetter their decision making.

(Consider seeking views of creditors or directions of Court when overriding committee.)

Question 25

What must the committee consider when fixing the basis of remuneration?

Answer 25

 In arriving at a determination, the approving body must have regard to:

a) the complexity (or otherwise) of the case;

b) any respects in which, in connection with the company’s or bankrupt’s affairs, there falls on the office-holder, any responsibility of an exceptional kind or degree;

c) the effectiveness with which the office-holder appears to be carrying out, or to have carried out, the office-holder’s duties; and

d) the value and nature of the property with which the office-holder has to deal.

NB SIP 9 -Payments should not be approved by any party with whom the office holder has a professional or personal relationship which gives rise to a conflict of interest.

Question 26

In what types of proceedings are there no creditors’ committees?

Answer 26

Where OR is OH:
Bankruptcy
Compulsory winding up

Otherwise:
no committees where fixed charge or LPA receiver.

Question 27

What is the position re creditors’ committees where there is a voluntary arrangement?

Answer 27

 No provisions in the Act or Rules for the formation of a committee

 Would need to be contained in the proposal

IVA Protocol:
 No provision for a creditors’ committee
R3 Standard Conditions
 Provision made, but seldom utilised
 Applies the Part 17 Rules

Proposal must set out fees, therefore committee largely advisory

 SIP 9 and 15 apply