In many cases the first indication that a supplier gets of a customer being in financial difficulty is the Notice of a Creditors Meeting.
Section 266 of the 1963 Companies Act states that notices of the meeting of creditors must be sent by post to the creditors at least 10 days before the date of the meeting with proxy forms. Notice of the creditors meeting must also be advertised in two daily newspapers circulating in the vicinity of the registered office or principal place of business of the company.
The notice sent to the creditors convening the meeting must attach a general and special form of proxy.
Generally speaking, if a creditor wishes to ensure that its choice of liquidator is appointed, then it needs to seek the support of as many creditors as possible and encourage them to return proxies that are validly completed and are in favour of the creditor’s representative.
The creditors of the company will either be limited companies or creditors who are owed monies personally. The rules governing the conduct of creditors meetings state that a proxy representing a limited company must be appointed:
In practice, to avoid any dispute over the admissibility of a proxy submitted by a limited company, it is advisable that the person duly authorised who signs the proxy on behalf of the creditor writes in beneath his name the following term: "Duly authorised officer of the company".
Statement of Affairs
The directors are obliged to present a full statement of the position of the company's affairs, together with a list of creditors of the company and the estimated amount of their claims to the meeting of creditors. The statement should show the book values of the company's assets with the directors estimated realisable values in a winding up.
At the creditors meeting the nominated director, who acts as chairman of the meeting, will give a brief outline of the history of the company and details of the causes of failure.
Voting on the Nomination of the Liquidator
The nominated liquidator should not have previously acted for the company or its directors in a professional capacity. In order for the creditors to over turn the company's nomination of liquidator, Section 267 of the 1963 Companies Act states that they must have sufficient votes in value of the creditors represented to carry the resolution.
Format of the Creditors Meeting
Generally speaking, the creditors meeting will take the following format:
The creditors will be handed a copy of the directors estimated statement of affairs.
The nominated director will read out his statement outlining the company's history and causes of failure.
Any creditors present may then ask questions.
Creditors are provided with an opportunity to appoint their choice of liquidator. A formal vote may be taken on the appointment of a liquidator.
Creditors are provided with an opportunity to appoint a Committee of Inspection. The creditors are entitled to nominate up to five people onto this committee, and the shareholders are entitled to appoint three people. The purpose of the committee is to assist the liquidator in carrying out his duties. The committee can also approve the liquidator’s fees.
Questions asked at the Creditors Meeting
The creditors are entitled to ask questions that relate to the company's affairs. Some creditors will send along, or attend the meeting with, professional representatives who are very knowledgeable about insolvency matters. A flavour of some types of questions that may be asked are set out below:
1. When did the company cease trading? (A creditor may wish to know if the company continued to order goods after it had ceased trading.)
2. When did the directors first realise the company was insolvent? (This is probably the most important question to ask. If a director openly admits that his company was hopelessly insolvent, say 6 months ago, and continued to purchase supplies from creditors, then he may be sued personally for Reckless Trading)
3. Provide details of all major payments made in the past three months? (A creditor may wish to determine if other creditors received “preferential” payments”.)
4. When was the last set of audited accounts prepared? ( A creditor may wish to assess if the directors acted “responsibly” by maintaining regular accounts.)
5. Did the bank have personal guarantees as security for the company's lending?
6. Who owns the building that the company operated from?
7. Will the directors continue the business through another company? (A creditor may wish to “black list” any new company that the directors become associated with!)
Specific questions may also be asked on the statement of affairs presented to the meeting. Creditors attending the meeting may have copies of the last set of accounts filed at the Companies Registration Office, and they may ask questions based on these accounts.