+ Voting at Creditors Meetings - Some recent developments

Voting at Creditors Meetings - Some recent developments

 

 

 

31 March 2006

             

Leigh Adams

Principal

 

 

Level 9

83 Mount Street

NORTH SYDNEY NSW 2060

www.lalawyers.com.au

 

 

 

 

 

Introduction

 

Insolvency law necessarily cover various types of creditors meetings - creditors meetings with respect to a bankrupt estate and the various categories of meetings in company liquidations.

 

The Corporate Regulations have standardised many requirements in relations to meetings held under the wind up and Part 5.3A provisions of the Corporations Act.

 

Entitlement to Vote, and value of creditor’s debt

 

To be entitled to vote, a creditor must give to the trustee in bankruptcy,   a statement in accordance with Section 64D.

 

This section was considered in Bechrose Pty Ltd –v- Jefferson [1999] FCA 1153. In that case Mr Dunwoody sold a cane farm to Chelmscliff Pty Ltd and he was shortly thereafter made bankrupt.

 

Chelmscliff raised most of the purchase money from Westpac which took real estate security, and a guarantee given by the vendor personally. The vendor later became bankrupt.

 

The trustee commenced action against Chelmscliff under Section 120 alleging that the transfer was void as an undervalue .

 

Chelmscliff defaulted and Westpac wanted repayment. The applicant Bechrose Pty Ltd, then purchased by way of assignment from Westpac, all of Westpac’s securities - 2 mortgages and the guarantee.

 

Section 64ZB (8) says “for the purpose of determining whether a motion proposed at a meeting of creditors is resolved, the value of a creditor who has been assigned a debt is to be worked out by taking the value of the assigned debt equal to the value of the consideration the creditor gave for the assignment of the debt. “

 

The evidence showed that the monetary consideration paid by the applicant to Westpac for the assignments was in fact paid solely as consideration for the transfer of the two mortgages. Nothing was paid for the guarantee.

 

But section 64ZB(8) obliges the trustee to value the applicant’s vote by reference to the consideration that it gave for the assignment to it of the debt on the guarantee and that alone.

 

Moreover, the applicant was required under section 64D(aa) to provide that information in writing to the trustee at or prior to the creditor’s meeting. It failed to do that. Section 64ZA(6) accordingly disentitled the applicant (though undoubtedly a creditor of the bankrupt) to vote at the meeting of creditor’s in question.

 

The explanatory   memorandum explains the mischief that section 64D(aa) and section 64ZB(8) were designed to deal with. Namely, the activities of persons favourably disposed towards the bankrupt in procuring for a fraction of their value, the assignment to them of debts due by the bankrupt to the creditor and thereby obtaining control over voting at meetings of creditors including those called by the bankrupt under section 73.

 

Can a corporation “attend” a meeting?

 

How does a corporation attend a meeting “personally”, a corporation being an impersonal entity?

 

The point was addressed in Pascoe –v- Prentice [2003] FMCA 198. Section 250D of Corporations Act 2001 (Cth) makes it clear that a corporation may appoint an individual to act as its representative, and to exercise all or any of its powers. That section was held to apply to attending creditors’ meetings.             

 

Note also s308(a) which enables for the purposes of the Act, a corporation to act by any person duly authorised in that behalf by the corporation.

 

Liquidator’s casting vote

 

In Hawkwood Holdings Pty Ltd & Anor –v- Williamson (liquidator of Merlina Construction Services Pty Ltd) [2000] WASC 73 (28/03/00) Master Bredmeyer (WA Supreme Court) considered an application under sec 600B to set aside a resolution, passed by virtue of a liquidator’s casting vote, to enter into a funding agreement to pursue an unfair preference claim of $620,000.

 

Master Bredmeyer said (at para 12):

 

“The liquidator is going to charge fees, and is entitled to charge fees, for every act he does in the course of the liquidation. So, if he is gathering assets, selling a property or pursuing an action, he is going to charge fees and is entitled to be paid with priority over other creditors. I consider that that fact should not preclude him from exercising his judgment in all kinds of matters, including the casting vote in issue here. In the absence of any authority at all, I am not willing to make a new law and say that the liquidator, as in this case, who is owed fees for past work, and hoping to get paid for future work, is thereby debarred from making a casting vote on a matter which has divided the creditors. I consider the liquidator has not been guilty of fraud; that has not been alleged. It cannot be demonstrated that his discretion was exercised mala fide and it cannot be said that he has acted in a way in which no responsible liquidator would have acted. In the absence of any of these things, I am willing to assume that he acted properly as an officer of the court in casting a vote for a resolution which offered reasonable prospects of recovering money for the benefit of all creditors, even though it incidentally offered the prospect of recovering money to pay his fees.”

 

Committees of Inspection

 

In Re Genoa Resources and Investments Ltd (in liq) [2005] NSWSC 1145, the Court gave permission to the liquidator to make a payment of $18, 000 to each of two creditors who had attended a total of 31 meetings of the committee in what was a long and complex administration. The Court accepted the principles stated in Re Security Directors Pty Limited (1997) 15 ACLC 1083, that the work of members of the Committee of Inspection is generally accepted to be done on an honorary basis, and it is only in exceptional circumstances that leave ought to be granted for committee members to receive remuneration. If a gift is approved, the amount approved must be one which is fair to the general body of creditors, and no more than reasonable remuneration for the services provided. Also the nature of the services provided should be considered, and whether they are the type of services that one would ordinarily expect to pay for.