When a company becomes insolvent, a meeting of creditors is often called to explain why the business has failed and/or to vote on the next proposed step. Here we look at several routes into insolvency, and see how the meeting of creditors is handled during each process.
Creditors’ Voluntary Liquidation (CVL)
When a company is being pursued by creditors intent on winding it up, a Creditors’ Voluntary Liquidation can be the best solution for a seemingly untenable situation.
- The creditors’ meeting is called after a meeting of shareholders – often directly following it, or within a maximum of 14 days.
- The insolvency practitioner presents a statement of affairs which details the company’s financial position. Creditors can vote on whether to retain the IP appointed by the company, or to choose their own.
- Directors face questions from creditors as to why the company has declined into insolvency, and what the outcome might be regarding their debt.
- Voting takes place on whether to accept the proposals, with a majority (by value of debt) being required to pass the resolution.
- A liquidation committee can also be formed at the creditors’ meeting, to assist the liquidator and monitor proceedings.
Company Voluntary Arrangement (CVA)
Creditors are given time to consider the CVA proposal prior to their meeting, which usually takes place at the same time as a meeting of members.
- Creditors can question 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.
- Voting takes place, with a majority of 75% (by value of debt) needed to pass the proposal.
- A second vote excludes any connected parties, and if no more than half of these creditors vote against it, the proposal is passed.
The initial meeting of creditors must be called within 10 weeks of an administration order, with a minimum of 14 days’ notice being required.
- The proposal will be passed if a majority of creditors vote in favour. Should proposals be rejected, a decision is made by the courts on how to proceed.
- If the proposals are voted in, a creditors’ committee may be established to help the administrator.
- The administrator can call further meetings of creditors as and when necessary, and are obliged to do so if creditors with 10% or more (by value of debt) request it.
The initial meeting of creditors during a compulsory winding-up procedure involves voting on whether to appoint a liquidator of their choice, and also voting in a liquidation committee. A simple majority vote is all that is required in these cases.
A final meeting of the company and its creditors is called at the end of proceedings, to present the final accounts in liquidation and in the case of compulsory winding-up, to allow voting on whether to release the liquidator from office.
Begbies Traynor offers professional guidance on all of the above insolvency proceedings, and is available for appointment in insolvency.