As I am owed money I have been invited to a creditors meeting - What happens?If a company is insolvent and is proposing to go into liquidation, or a rescue procedure like administration or company voluntary arrangement (CVA), there is a legal requirement to hold a creditors meeting. This is known as a section 98 meeting as per the Insolvency Act 1986. This has to be held no later than 14 days after any shareholders meeting. The purpose of these meetings is to explain to the creditors what has happened, why the business has failed and seek their support for the next steps.
What happens at meetings of creditors?In the case of a CVA, creditors will ask the directors and insolvency practitioner about the company’s position and the CVA proposal. If they have submitted a claim, they are entitled to vote. They can do this in person or by sending in a proxy. If 75% (by value) agree to the proposal, it is accepted. A second vote excludes any connected parties, and if less than half of these creditors vote against it, the proposal is passed. It is very rare that a proposal is not passed after the second vote.
In the case of a liquidation, it is termed a creditors voluntary liquidation (CVL) because it is the creditors that vote for a liquidator to look after their interests. The appointment of the liquidator can be approved by a simple majority of creditors. If a creditor is in the majority, they can appoint their own liquidator to look at the business. This is sometimes done by larger firms that have a policy of appointing liquidators from their "panel". In larger cases, a creditors committee can be formed to assist the liquidator with the aim of keeping costs down and maximising returns.
How much can I influence the outcome?Its all depends on whether you have security over the company.
If you have a debenture or charge over a company's assets, you have the power to appoint an administrator to ensure the best possible recovery of your debt. If you are a secured creditor (and depending on priority) you are first in line and take priority over unsecured creditors such as trade creditors, suppliers and HMRC.
You will normally have security if you have lent money to a business. Banks and asset based lenders will have a charge over the assets, as long as they have been registered. Plant and machinery leasing may also have security if they have control over the asset in the event of non payment.
So if you have a form of security, then talk to us. As licensed insolvency practitioners, we can act as administrators and ensure maximum recovery. We can also create viability studies on companies to assess their suitability for new lends or further advances. See details of our lender services here.
From reading our site (clue is in the name!) you will have noticed we are more rescue led than burial, however we always do what is best for creditors. If you're unsure whether you have a fixed or floating charge over the company's assets then see this page for details.
If you do not have security in the form of a charge
Creditors have various remedies in law such as statutory demands and winding up petitions. Landlords have the right to forfeit the lease. We always advocate jaw-jaw over war-war and we can help with negotiations, however if this is not an option we are good at collecting money for creditors and can recommend debt recovery companies as well.
We can represent creditors at meetings if requested and if the majority of creditors are unhappy with the insolvency practitioner chosen by the directors then they can appoint their own. Of course all insolvency practitioners are duty bound to act on behalf of the creditors and not the director but you may choose to go down this route.
You can call our insolvency practitioners Wayne Harrison or Eric Walls on 020 7887 2667 to discuss any of the above.